How were vehicles aggregated for the recoverability test at Budget?
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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, when performing a recoverability test on its United States and Canadian rental car vehicles, the company aggregated the vehicles into asset groups based on their make, model, and year. This recoverability test was conducted as of November 30, 2024, and it involved comparing the sum of undiscounted cash flows expected from the use and eventual disposition of the vehicles to their carrying value.
This aggregation method is important because it affects how Budget assesses potential impairments to its assets. By grouping vehicles with similar characteristics, Budget can more accurately determine if the carrying value of a group of vehicles exceeds the expected cash flows they will generate. If the carrying value is higher, Budget records an impairment charge, as it did during the year ended December 31, 2024, when it recorded a $2.3 billion non-cash impairment.
For a prospective franchisee, understanding Budget's fleet management and asset valuation practices is crucial. The recoverability test and the aggregation of vehicles into specific groups directly impact Budget's financial statements, which franchisees should review carefully. Franchisees should also inquire about Budget's fleet rotation strategies and how these strategies might affect the availability and types of vehicles in their specific market. This information can help franchisees better anticipate potential changes in fleet composition and their impact on revenue and profitability.