Annual report pursuant to Section 13 and 15(d)

Intangible Assets

v3.20.4
Intangible Assets
 12 Months Ended
Dec. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets
8. INTANGIBLE ASSETS
As a result of COVID-19 and the significant negative impact it has had on travel demand, the Company, with the assistance of a third-party valuation firm, performed a quantitative impairment analysis on all its indefinite-lived intangible assets in the second quarter of 2020. The Company evaluated the carrying value of each of its indefinite-lived intangible assets compared to their respective estimated fair values. The fair value of each of its indefinite-lived intangible assets is estimated using a discounted cash flow methodology. The Company determined through such analyses that certain of its trademarks, as well as, goodwill associated with its owned hotel reporting unit were impaired. Accordingly, the Company recorded impairment charges totaling $205 million in the second quarter of 2020 to reduce the carrying value of those assets to their estimated fair values. Such charges were reported within impairments, net on the Consolidated and Combined Statement of Income (Loss) and $191 million and $14 million were charged to the Hotel Franchising segment and the Hotel Management segment, respectively. The Company performed its annual impairment assessment of its indefinite-lived intangible assets as of October 1, 2020 and determined that no additional impairments exist. Additionally, the Company performed a qualitative assessment of its indefinite-lived intangible assets as of March 31, September 30, and December 31, 2020 and determined through such assessments, that it was more likely than not that the fair value of such indefinite-live intangible assets were in excess of their carrying values.
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. The Company performed a quantitative impairment assessment for a management contract and certain franchise agreements during the fourth quarter of 2020. As a result of these assessments, the Company determined these assets were not impaired. Additionally, the Company also performed a qualitative assessment of all its definite-lived intangible assets as of March 31, June 30, September 30, and December 31, 2020 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.
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.

Should the current effects of COVID-19 persist for a prolonged duration, the Company's results of operations may continue to 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.
Intangible assets as of December 31, 2020 and December 31, 2019 consisted of the following:
December 31, 2020 December 31, 2019
Gross
Carrying
Amount
Accumulated
Impairment
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Impairment
Net
Carrying
Amount
Goodwill $ 1,539  $ 14  $ 1,525  $ 1,539  $ —  $ 1,539 
December 31, 2020 December 31, 2019
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Unamortized intangible assets:
Trademarks (a)
$ 1,202  $ 1,393 
Amortized intangible assets:
Franchise agreements (b)
$ 895  $ 487  $ 408  $ 895  $ 460  $ 435 
Management agreements (c)
136  33  103  137  23  114 
Trademarks (d)
2  1  1  3  1  2 
Other (e)
1  —  1  3  1  2 
$ 1,034  $ 521  $ 513  $ 1,038  $ 485  $ 553 
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(a)Comprised of various trademarks that the Company has acquired. These trademarks are expected to generate future cash flows for an indefinite period of time.
(b)Amortized over a period ranging from 20 to 40 years with a weighted average life of 32 years.
(c)Amortized over a period ranging from 7 to 20 with a weighted average life of 14 years.
(d)Amortized over a period of 20 years.
(e)Amortized over a period ranging from 3 to 8 years with a weighted average life of 6 years.
The changes in the carrying amount of goodwill are as follows:
Balance as of January 1, 2019
2019 Adjustments to Goodwill (a)
Balance as of December 31, 2019
2020 Adjustments to Goodwill (b)
Balance as of December 31, 2020
Hotel Franchising $ 1,449  $ (8) $ 1,441  $ —  $ 1,441 
Hotel Management 98  —  98  (14) 84 
Total $ 1,547  $ (8) $ 1,539  $ (14) $ 1,525 
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(a)    Includes $8 million related to purchase price adjustments for the La Quinta acquisition in 2018.
(b)    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:
2020 2019 2018
Franchise agreements
 $ 27  $ 27  $ 22 
Management agreements
 10  10  7 
Trademarks
 —  —  1 
Other
 —  1  1 
Total (a)
$ 37  $ 38  $ 31 
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(a)    Included as a component of depreciation and amortization on the Consolidated and Combined Statements of Income (Loss).
Based on Wyndham Hotels’ amortizable intangible assets as of December 31, 2020, the Company expects related amortization expense as follows:
Amount
2021 $ 37 
2022 35 
2023 35 
2024 34 
2025 34