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 Revenue Recognition
Vacation Ownership
The Company develops, markets and sells VOIs to individual consumers, provides consumer financing in connection with the sale of VOIs, and provides property management services at resorts. The Company’s sales of VOIs are either cash sales or developer-financed sales. Developer-financed sales are typically collateralized by the underlying VOI. Revenue is recognized on VOI sales upon transfer of control, which is defined as the point in time when a binding sales contract has been executed, the financing contract has been executed for the remaining transaction price, the statutory rescission period has expired, and the transaction price has been deemed to be collectible.
For developer-financed sales, the Company reduces the VOI sales transaction price by an estimate of uncollectible consideration at the time of the sale. The Company’s estimates of uncollectible amounts are based largely on the results of the Company’s static pool analysis which relies on historical payment data by customer class.

In connection with entering into a VOI sale, the Company may provide its customers with certain non-cash incentives, such as credits for future stays at its resorts. For those VOI sales, the Company bifurcates the sale and allocates the sales price between the VOI sale and the non-cash incentive. Non-cash incentives generally have expiration periods of 18 months or less and are recognized at a point in time upon transfer of control.

The Company provides day-to-day property management services including oversight of housekeeping services, maintenance, and certain accounting and administrative services for property owners’ associations and clubs. These services may also include reservation and resort renovation activities. Such agreements are generally for terms of one year or less, and are renewed automatically on an annual basis. The Company’s management agreements contain cancellation clauses, which allow for either party to cancel the agreement, by either a majority board vote or a majority vote of non-developer interests. The Company receives fees for such property management services which are collected monthly in advance and are based upon total costs to operate such resorts (or as services are provided in the case of resort renovation activities). Fees for property management services typically approximate 10% of budgeted operating expenses. The Company is entitled to consideration for reimbursement of costs incurred on behalf of the property owners’ association in providing management services (“reimbursable revenue”). These reimbursable costs principally relate to the payroll costs for management of the associations, club and resort properties where the Company is the employer and are reflected as a component of Operating expenses on the Condensed Consolidated Statements of Income/(Loss). The Company reduces its management fees for amounts it has paid to the property owners’ association that reflect maintenance fees for VOIs for which it retains ownership, as the Company has concluded that such payments are consideration payable to a customer.

Property management fee revenues are recognized when the services are performed and are recorded as a component of Service and membership fees on the Condensed Consolidated Statements of Income/(Loss). Property management revenues, which are comprised of management fee revenue and reimbursable revenue were (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
2021
2020 (a)
2021
2020 (a)
Management fee revenues $ 91  $ 73  $ 179  $ 166 
Reimbursable revenues 70  49  139  126 
Property management revenues $ 161  $ 122  $ 318  $ 292 
(a)Reflects the impact of reclassifying the Extra Holidays business line from the Vacation Ownership segment to Travel and Membership.

One of the associations that the Company manages paid its Travel and Membership segment $7 million and $6 million for exchange services during the three months ended June 30, 2021 and 2020, and $14 million and $13 million during six months ended June 30, 2021 and 2020.

Travel and Membership
As a provider of vacation exchange services, the Company enters into affiliation agreements with developers of vacation ownership properties to allow owners of VOIs to trade their intervals for intervals at other properties affiliated with the Company’s vacation exchange network and, for some members, for other leisure-related services and products.

Travel and Membership derives a majority of revenues from membership dues and fees for facilitating members’ trading of their intervals. Revenues from membership dues represent the fees paid by members or affiliated clubs on their behalf. The Company recognizes revenues from membership dues paid by the member on a straight-line basis over the membership period as the performance obligations are fulfilled through delivery of publications, if applicable, and by providing access to travel-related products and services. Estimated net contract consideration payable by affiliated clubs for memberships is recognized as revenue over the term of the contract with the affiliated club in proportion to the estimated average monthly member count. Such estimates are adjusted periodically for changes in the actual and forecasted member activity. For additional fees, members have the right to exchange their intervals for intervals at other properties affiliated with the Company’s vacation exchange networks and, for certain members, for other leisure-related services and products. The Company also derives revenue from facilitating bookings of travel accommodations for both members and non-members. Revenue is recognized when these transactions have been confirmed, net of expected cancellations.
The Company’s vacation exchange business also derives revenues from programs with affiliated resorts, club servicing, and loyalty programs; and additional exchange-related products that provide members with the ability to protect trading power or points, extend the life of deposits, and combine two or more deposits for the opportunity to exchange into intervals with higher trading power. Other vacation exchange related product fees are deferred and recognized as revenue upon the occurrence of a future exchange, event, or other related transaction.

The Company also derives revenue from other travel products and services, enabled as a result of the 2019 acquisition of ARN and via the Company’s resort services solution business, optimizing business to business (“B2B”) capabilities, and integration for consumer travel planning. The Company’s relationships and buying power with major travel suppliers provide its partners with access to exclusive travel inventory. The Company’s affiliates and members have access to inventory from accommodation wholesalers, airfare, and rental car providers.

The Company earns revenue from its RCI Elite Rewards co–branded credit card program, which is primarily generated by cardholder spending and the enrollment of new cardholders. The advance payments received under the program are recognized as a contract liability until the Company’s performance obligations have been satisfied. The primary performance obligation for the program relates to brand performance services. Total contract consideration is estimated and recognized on a straight-line basis over the contract term.

Other Items
The Company records property management services revenues and RCI Elite Rewards revenues for its Vacation Ownership and Travel and Membership segments gross as a principal.

Contract Liabilities
Contract liabilities generally represent payments or consideration received in advance for goods or services that the Company has not yet transferred to the customer. Contract liabilities as of June 30, 2021 and December 31, 2020, were as follows (in millions):
June 30,
2021
December 31, 2020
Deferred subscription revenue $ 178  $ 176 
Deferred VOI trial package revenue 101  115 
Deferred exchange-related revenue (a)
63  59 
Deferred VOI incentive revenue 61  74 
Deferred co-branded credit card programs revenue 13  16 
Deferred other revenue
Total $ 419  $ 448 
(a)Includes contractual liabilities to accommodate members for cancellations initiated by the Company due to unexpected events. These amounts are included within Accrued expenses and other liabilities on the Condensed Consolidated Balance Sheets.

In the Company’s Vacation Ownership business, deferred VOI trial package revenue represents consideration received in advance for a trial VOI, which allows customers to utilize a vacation package typically within one year of purchase. Deferred VOI incentive revenue represents payments received in advance for additional travel-related services and products at the time of a VOI sale. Revenue is recognized when a customer utilizes the additional services and products, which is typically within one year of the VOI sale.

Within the Company’s Travel and Membership business, deferred subscription revenue represents billings and payments received in advance from members and affiliated clubs for memberships in the Company’s travel programs which are recognized in future periods. Deferred revenue primarily represents payments received in advance from members for the right to access the Company’s vacation travel network to book vacation exchanges, rent travel accommodations, and for other leisure-related services and products which are generally recognized as revenue within one year.
Changes in contract liabilities for the six months ended June 30, 2021 and 2020, follow (in millions):
2021 2020
Beginning balance $ 448  $ 539 
Additions 145  145 
Revenue recognized (174) (149)
Ending balance $ 419  $ 535 

Capitalized Contract Costs
The Company’s Vacation Ownership segment incurs certain direct and incremental selling costs in connection with VOI trial package and incentive revenues. Such costs are capitalized and subsequently amortized over the utilization period, which is typically within one year of the sale. As of June 30, 2021 and December 31, 2020, these capitalized costs were $34 million and $41 million and are included within Other assets on the Condensed Consolidated Balance Sheets.

The Company’s Travel and Membership segment incurs certain direct and incremental selling costs to obtain contracts with customers in connection with subscription revenues and exchange–related revenues. Such costs, which are primarily comprised of commissions paid to internal and external parties and credit card processing fees, are deferred at the inception of the contract and recognized when the benefit is transferred to the customer. As of June 30, 2021 and December 31, 2020, these capitalized costs were $17 million and $16 million; and are included within Other assets on the Condensed Consolidated Balance Sheets.

Practical Expedients
The Company has not adjusted the consideration for the effects of a significant financing component if it expected, at contract inception, that the period between when the Company satisfied the performance obligation and when the customer paid for that good or service was one year or less.

Performance Obligations
A performance obligation is a promise in a contract with a customer to transfer a distinct good or service to the 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 12-month periods set forth below (in millions):
7/1/2021 - 6/30/2022 7/1/2022 - 6/30/2023 7/1/2023 - 6/30/2024 Thereafter Total
Subscription revenue $ 106  $ 37  $ 18  $ 17  $ 178 
VOI trial package revenue 101  —  —  —  101 
Exchange-related revenue 59  —  63 
VOI incentive revenue 61  —  —  —  61 
Co-branded credit card programs revenue 13 
Other revenue —  —  — 
Total $ 333  $ 43  $ 22  $ 21  $ 419 
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 (in millions)(a):
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Vacation Ownership
Vacation ownership interest sales (b)
$ 294  $ (13) $ 466  $ 77 
Property management fees and reimbursable revenues 161  122  318  292 
Consumer financing 102  119  201  246 
Fee-for-Service commissions 29  —  41 
Ancillary revenues 13  10  22  23 
Total Vacation Ownership 599  238  1,048  641 
Travel and Membership
Transaction revenues 153  44  285  140 
Subscription revenues 43  33  84  77 
Ancillary revenues 29  18  48 
Total Travel and Membership 204  106  387  265 
Corporate and other
Eliminations (6) (1) (10) (5)
Total Corporate and other (6) (1) (10) (5)
Net revenues $ 797  $ 343  $ 1,425  $ 901 
(a)This table reflects the reclassification of Extra Holidays from the Vacation Ownership segment into the Travel and Membership segment for all periods presented. Extra Holidays revenue is included within Transaction revenues.
(b)The Company recorded a COVID-19 related provision for loan losses of $225 million in the first quarter of 2020, due to an expected increase in defaults driven by higher unemployment associated with COVID-19, which is reflected as a reduction to Vacation ownership interest sales on the Condensed Consolidated Statements of Income/(Loss) during the six months ended June 30, 2020. During the second quarter of 2021, the Company analyzed the adequacy of this COVID-19 related provision consistent with past methodology, resulting in a $26 million reversal which is reflected as an increase in Vacation ownership interest sales on the Condensed Consolidated Statements of Income/(Loss) during the three and six months ended June 30, 2021.