At what level are assets grouped for impairment testing at Budget?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
n the Consolidated Statement of Operations for the year ended December 31, 2024. There was no impairment to goodwill for the year ended December 31, 2024 and there were no impairments to goodwill or other intangible assets during the years ended December 31, 2023 or 2022.
Impairment of Long-Lived Assets
We review long-lived assets for impairment when events or changes in circumstances indicate the carrying value of these assets may exceed their current fair values. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted 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).
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, when assessing long-lived assets for impairment, Budget groups these assets at the lowest level of identifiable cash flows. This means that Budget attempts to identify the smallest grouping of assets that generate independent cash inflows to determine if an impairment has occurred.
For Budget's United States vehicle fleet, the company changed its fleet strategy to accelerate certain fleet rotations and shorten the useful life of the associated vehicles. As a result, Budget performed a recoverability test as of November 30, 2024, by comparing the sum of undiscounted cash flows expected from the use and eventual disposition of the impacted vehicles to their carrying value. For this test, Budget aggregated vehicles into asset groups based on make, model, and year of the vehicles.
This approach is important for prospective franchisees to understand because it directly impacts how Budget assesses the value of its assets and reports its financial performance. If Budget determines that 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 fair value of the assets. This can affect Budget's profitability and overall financial health, which in turn could impact franchisees.