How does Budget measure the recoverability of assets to be held and used?
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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, the company reviews long-lived assets for impairment when events or changes in circumstances suggest that the carrying value of these assets might be higher than their current fair values. The recoverability of assets that Budget intends to hold and use is determined by comparing the carrying amount of an asset to the estimated undiscounted future cash flows that the asset is expected to generate.
For the recoverability test, Budget groups assets at the lowest level where identifiable cash flows can be determined. If the carrying amount of an asset exceeds the estimated future cash flows, Budget recognizes an impairment charge. This charge accounts for the difference between the asset's carrying amount and its fair value.
In 2024, Budget changed its fleet strategy for vehicles in the United States and Canada to accelerate fleet rotations and shorten the useful life of the vehicles. As a result, Budget performed a recoverability test by comparing the sum of undiscounted cash flows expected from the use and eventual disposition of the impacted vehicles to their carrying value. For 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. Budget used a market approach to determine the fair value of the impacted vehicles, utilizing prices for similar assets in active markets (Level 2). During the year ended December 31, 2024, Budget recorded a non-cash impairment charge.