Quarterly report pursuant to Section 13 or 15(d)

Revenue Recognition

v3.20.2
Revenue Recognition
 9 Months Ended
Sep. 30, 2020
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 September 30, 2020 and December 31, 2019 are as follows:
September 30, 2020 December 31, 2019
Deferred initial franchise fee revenues
 $ 137  $ 136 
Deferred loyalty program revenues
 75  86 
Deferred co-branded credit card program revenues
 6  34 
Deferred hotel management fee revenues
 1  — 
Deferred other revenues
 20  27 
Total
 $ 239  $ 283 

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 estimated redemption costs, that have been deferred and will be recognized over time based upon loyalty point redemption patterns. Deferred co-branded credit card program revenue represents payments received in advance from the Company’s co-branded credit card partners primarily for card member activity, which is typically recognized within one year.
As a result of the negative impact that the coronavirus pandemic (“COVID-19”) has had on travel demand, the Company’s assumptions related to redemptions, including estimated member redemption rate, member redemption pattern, and the estimated cost to satisfy such redemptions, have 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 for the nine months ended September 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:
10/1/2020 - 9/30/2021 10/1/2021 - 9/30/2022 10/1/2022 - 9/30/2023

Thereafter

Total
Initial franchise fee revenues
 $ 22  $ 9  $ 8  $ 98  $ 137 
Loyalty program revenues
 39  23  11  2  75 
Co-branded credit card program revenues
 6  —  —  —  6 
Hotel management fee revenues
 1  —  —  —  1 
Other revenues
 10  2  1  7  20 
Total
 $ 78  $ 34  $ 20  $ 107  $ 239 

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 September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Hotel Franchising
Royalties and franchise fees
 $ 91  $ 136  $ 234  $ 359 
Marketing, reservation and loyalty
 99  166  287  418 
License and other fees
 21  35  63  97 
Other
 25  42  77  105 
Total Hotel Franchising
 236  379  661  979 
Hotel Management
Royalties and franchise fees
 5  4  16  9 
Marketing, reservation and loyalty
 —  1  1  3 
Owned hotel revenues
 5  18  29  67 
Management fees (a)
7  (6) 21  21 
Cost reimbursements
 82  161  274  476 
Other
 2  2  2  2 
Total Hotel Management
 101  180  343  578 
Corporate and Other
 —  1  —  4 
Net revenues
 $ 337  $ 560  $ 1,004  $ 1,561 
_____________________
(a)    2019 periods include a $20 million fee credit for past services with a customer. See Note 14 - Other Expenses and Charges for more information.

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 September 30, 2020 and December 31, 2019, capitalized contract costs were $31 million and $33 million, respectively, of which $6 million and $8 million, respectively, were included in other current assets, and $25 million for both periods were included in other non-current assets on its Condensed Consolidated Balance Sheets.