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(redeemed) using same methodology in #1 above.
Illustrative Example #2 – Marriott Rewards (per 1Q2018 Form 10Q)
Marriott similarly adopted the deferred revenue approach in 1Q18. Marriott also has a substantial co-brand credit card component, but operates its Marriott Rewards program as a cross-brand marketing program to participating properties due to its significant franchisee ownership structure. Under this structure, properties (whether owned, franchised, managed, or leased) reimburse Marriott for a portion of the program’s cost every month. Revenue is recognized as rewards are redeemed and/or points expire. Revenue (and liability) is based on multiple estimates:
Spoilage: “The Company utilizes historical behavioral data to develop a predictive statistical model to
analyze the amount of spoilage expected for points earned through flight and sold to business partners.”
Southwest evaluates spoilage “at least annually” and adjusts in the 4th quarter.
Southwest acknowledges that in most historical periods, the impact of changes in
spoilage rate is immaterial;
HOWEVER: “… due to the size of the Company’s liability for frequent flyer benefits as a result of the elimination of the incremental cost method of accounting for flight points, changes in Customer behavior and/or expected future redemption patterns could result in more significant variations in Passenger revenue under the New Revenue Standard”
Illustrative Example #4 – Ultamate Rewards/Ulta Beauty, Inc. (2Q2018 Form 10Q)
Ulta’s Ultamate Rewards is a highly regarded points-based retailer loyalty program. In February 2018,
Ulta changed its accounting for revenue recognition under its loyalty program, credit card programs,
gift cards, sales refunds and e-commerce.