Annual report pursuant to Section 13 and 15(d)

Intangible Assets

v3.22.0.1
Intangible Assets
 12 Months Ended
Dec. 31, 2021
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets
8. INTANGIBLE ASSETS
Goodwill
The Company evaluates the carrying value of its goodwill in each of its reporting units (i) hotel franchising, (ii) hotel management and (iii) owned hotels, compared to their respective estimated fair values on an annual basis during the fourth quarter of every year, or more frequently if circumstances indicate that the fair value of goodwill may be impaired, to the reporting units’ carrying values as required by guidance. As a result of the impact COVID-19 had on the Company’s results during 2020, the Company performed multiple qualitative assessments on its goodwill throughout 2020, a quantitative assessment in the second quarter of 2020 and its annual quantitative assessment as of October 1, 2020. With the exception of the assessment performed in the second quarter of 2020, the Company determined that it was more likely than not that the fair value of its reporting units continued to substantially exceed their carrying values. In connection with the Company’s assessment in the second quarter of 2020, the Company incurred a $14 million charge in the second quarter of 2020 to fully write-down the goodwill balance for its owned hotel reporting unit. Such charge was reported within impairments, net on the Consolidated Statement of Income/(Loss) and was charged to the hotel management segment.
The Company believes there were no events that would indicate that an impairment may have occurred to its goodwill for its hotel franchising or hotel management reporting units during 2021. In addition the Company performed its annual quantitative assessment for impairment on each reporting unit’s remaining goodwill as of October 1, 2021 and determined that no impairments existed and that it was more likely than not that the fair value of its reporting units continued to substantially exceed their carrying values.

Other Intangibles
As a result of the impact COVID-19 had on the Company’s results, during 2020 the Company performed multiple assessments on the carrying value of each of its other indefinite-lived intangible assets compared to their respective estimated
fair values in addition to its annual assessment as of October 1, 2020. With the exception of the assessment performed in the second quarter of 2020, the Company determined that it was more likely than not that the fair value of its other indefinite-lived intangible assets continued to substantially exceed their carrying values. During the second quarter of 2020, the Company determined through such assessment that certain of its trademarks were impaired. Accordingly, the Company recorded impairment charges of $191 million to reduce the carrying value of those trademarks to their estimated fair values. Such charges were reported within impairments, net on the Consolidated Statement of Income/(Loss) and were charged to the hotel franchising segment. The Company performed its annual impairment assessment of its other indefinite-lived intangible assets as of October 1, 2021 and determined that no impairments exist. In addition, the Company believes there were no events that would indicate an impairment may have occurred to its indefinite-lived intangible assets during 2021.
The Company also evaluates the recoverability of each of its definite-lived intangible assets by performing a qualitative assessment to determine if circumstances indicate that impairment may have occurred. If such circumstances exist, the Company performs a quantitative assessment by comparing the respective carrying value of the assets to the expected future cash flows, on an undiscounted basis, to be generated from such assets. During 2020, the Company performed multiple assessments on the recoverability of each of its definite-lived intangible assets to determine if circumstances indicated that impairment may have occurred and determined through such assessments, that it was more likely than not that the future expected cash flows on an undiscounted basis were in excess of the carrying value of such assets. In addition, the Company performed a quantitative impairment assessment for a management contract and certain franchise agreements during the fourth quarter of 2021 and 2020. As a result of these assessments, the Company determined these assets were not impaired. The Company believes there were no other events that would indicate that an impairment may have occurred to its definite-lived intangible assets during 2021.
The Company does not anticipate the pandemic to further materially impact the results from operations, however should there be a resurgence of the virus which results in new government restrictions and slows the ongoing recovery from the effects of the pandemic, the Company’s results of operations may be negatively impacted and its intangible assets within its hotel franchising and hotel management reporting units may be exposed to future impairments. To the extent estimated market-based valuation multiples and/or discounted cash flows are revised downward, the Company may be required to write-down all or a portion of its remaining goodwill, trademarks, franchise agreements and management contracts, which would adversely impact earnings.
The following is the breakout of the intangible impairment charges recorded in the second quarter of 2020:
Intangible Asset Book Value Impairment Charges Adjusted Fair Value
Owned hotel reporting unit goodwill $ 14  $ (14) $ — 
La Quinta trademark 710  (155) 555 
Other trademarks (a)
103  (36) 67 
Total $ 827  $ (205) $ 622 
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(a)    Represents the impairments of three of the Company’s trademarks.
Intangible assets as of December 31, 2021 and December 31, 2020 consisted of the following:
December 31, 2021 December 31, 2020
Gross
Carrying
Amount
Accumulated
Impairment
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Impairment
Net
Carrying
Amount
Goodwill $ 1,539  $ 14  $ 1,525  $ 1,539  $ 14  $ 1,525 
December 31, 2021 December 31, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Unamortized intangible assets:
Trademarks
 $ 1,201  $ 1,202 
Amortized intangible assets:
Franchise agreements $ 895  $ 513  $ 382  $ 895  $ 487  $ 408 
Management agreements 135  44  91  136  33  103 
Trademarks 2  1  1  2  1  1 
Other
 1  1  —  1  —  1 
$ 1,033  $ 559  $ 474  $ 1,034  $ 521  $ 513 
The changes in the carrying amount of goodwill are as follows:
Balance as of January 1, 2020
2020 Adjustments to Goodwill (a)
Balance as of December 31, 2021
Hotel Franchising $ 1,441  $ —  $ 1,441 
Hotel Management 98  (14) 84 
Total $ 1,539  $ (14) $ 1,525 
______________________
(a)    Includes $14 million related to an impairment charge associated with the Company’s owned hotel reporting unit.
Amortization expense relating to amortizable intangible assets was as follows for the years ended December 31:
2021 2020 2019
Franchise agreements
 $ 27  $ 27  $ 27 
Management agreements
 11  10  10 
Other
 —  —  1 
Total (a)
$ 38  $ 37  $ 38 
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(a)    Included as a component of depreciation and amortization on the Consolidated Statements of Income/(Loss).
Based on the Company’s amortizable intangible assets as of December 31, 2021, the Company expects related amortization expense as follows:
Amount
2022 $ 32 
2023 27 
2024 26 
2025 26 
2026 25