What approach did Budget use to determine the fair value of the impacted vehicles?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
unted future cash flows expected to be generated by the asset. Assets are grouped at the lowest level of identifiable cash flows. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the
During the fourth quarter of 2024, we changed our fleet strategy, specific to United States and Canadian rental car vehicles, to accelerate certain fleet rotations in order to decrease the age of our fleet for competitive reasons, and accordingly, we shortened the useful life associated with such vehicles. We considered this change in strategy to be a triggering event that indicated the carrying amount of these assets may not be recoverable. As a result, we performed a recoverability test by comparing the sum of undiscounted cash flows expected to result from the use and eventual disposition of the impacted assets may not be recoverable. As a result, we performed a recoverability test by comparing the sum of undiscounted cash flows expected to result from the use and eventual disposition of the impacted assets. vehicles to their carrying value and concluded, that for certain vehicles, the carrying value exceeded the sum of undiscounted cash flows expected to result from the use and eventual disposition of those venicies to meir carrying value and concluded, that for certain venicies, the carrying value exceeded the sum of undiscounted cash flows expected to result from the use and eventual disposition of those vehicles. For purposes of the recoverability test, the vehicles were aggregated into asset groups based on make, model and year of the vehicles. The test was performed as of November 30, 2024, and used a market approach to determine the value of the impacted vehicles, utilizing prices for similar assets in active markets (Level 2). During the year ended December 31, 2024, we recorded a $2.3 billion non-cash impairment within long-lived asset impairment and other related charges in the Consolidated Statement of Operations within our Americas reportable segment. There were no impairments to longnon-cash impairment within long-lived asset impairment and other related charges in the Consolidated Statement of Operations within our Americas reportable segment. There were no impairment to long-lived assets a long-lived asset is impaired, we will
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, when determining the fair value of impacted vehicles for a recoverability test performed as of November 30, 2024, Budget used a market approach. This involved utilizing prices for similar assets in active markets, categorized as Level 2 inputs. This valuation was part of a broader assessment following a change in fleet strategy during the fourth quarter of 2024, which accelerated fleet rotations to decrease the age of vehicles in the United States and Canada.
This change in fleet strategy was considered a triggering event, prompting Budget to perform a recoverability test by comparing the sum of undiscounted cash flows expected from the use and eventual disposition of the vehicles to their carrying value. The vehicles were grouped into asset groups based on their make, model, and year for the purposes of this test. The result of this test led Budget to record a $2.3 billion non-cash impairment within long-lived asset impairment and other related charges in the Consolidated Statement of Operations within their Americas reportable segment for the year ended December 31, 2024.
For a prospective franchisee, this indicates that Budget actively manages its fleet and adjusts its financial reporting to reflect changes in market conditions and strategic decisions. The use of a market approach to determine fair value suggests a reliance on observable market data, which can provide a more objective valuation. However, the significant impairment charge also highlights the potential impact of strategic changes on asset values and the importance of understanding Budget's fleet management practices. Franchisees should inquire about the specifics of Budget's fleet management strategy, including the criteria for vehicle rotation and the methods used to estimate residual values, to better understand the potential financial implications for their own operations.