What inputs does Dollar Rent A Car use to determine fair value?
Dollar_Rent_A_Car Franchise · 2025 FDDAnswer from 2025 FDD Document
sets by performing an impairment analysis. An impairment is deemed to exist if the carrying value of goodwill or indefinite-lived intangible assets exceed their fair value as determined using Level 3
(2) As of December 31, 2024, includes an impairment charge recognized against the Company's revenue earnings vehicles in the third quarter of 2024. See Note 3, "Long-Lived Assets Impairment," for further details.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
inputs under the U.S. GAAP fair value hierarchy. The reviews of fair value involve judgment and estimates, including projected revenues, long-term growth rates, royalty rates and discount rates.
The Company performed the goodwill impairment analyses using the income approach, a measurement using Level 3 inputs under the U.S. GAAP fair value hierarchy. In performing the impairment analyses, the weighted-average cost of capital used in the discounted cash flow model was calculated based upon the fair value of the Company's debt and share price with a debt-to-equity ratio comparable to the vehicle rental car industry. This present value model requires management to estimate future cash flows and forecasted EBITDA margins and capital investments of each reporting unit. The assumptions the Company used to estimate future cash flows and EBITDA margins are consistent with the assumptions that the reporting units use for internal planning purposes, which the Company believes would be generally consistent with that of a market participant. The discount rate used for each reporting unit ranged from 13.0% to 20.0%. Each of the Company's reporting units had a fair value that exceeded its respective carrying value, the lowest of which was greater than 25%.
The Company performed the intangible impairment analyses for indefinite-lived intangible assets using the relieffrom-royalty income approach, a measurement using Level 3 inputs under the U.S. GAAP fair value hierarchy. The Company considered consistent factors as described above related to goodwill in addition to royalty rates. The assumptions the Company uses to estimate royalty rates are consistent with the assumptions that the reporting units use for internal planning purposes, which the Company believes would be generally consistent with that of a market participant. The discount rate used for each indefinite-lived intangible ranged from 12.0% to 20.0%. Each of the Company's indefinite-lived intangible assets had fair values that exceeded their respective carrying values by more than 25%, except for the Dollar and Thrifty tradename in the Company's U.S. RAC segment which was in excess by 10% of the carrying value of $934 million.
Further deterioration in the Company's cash flows or the weighted average cost of capital assumptions may result in an impairment charge to earnings in future quarters. The Company will continue to closely monitor actual results versus its expectations and the resulting impact to its assumptions about future estimated cash flows and the weighted average cost of capital.
Source: Item 23 — RECEIPTS (FDD pages 102–301)
What This Means (2025 FDD)
According to Dollar Rent A Car's 2025 Franchise Disclosure Document, the company uses several inputs to determine fair value, depending on the asset being evaluated. These valuations involve judgment and estimates. For goodwill impairment analyses, Dollar Rent A Car uses the income approach, relying on Level 3 inputs within the U.S. GAAP fair value hierarchy. This approach uses a discounted cash flow model, which requires management to estimate future cash flows, forecasted EBITDA margins, and capital investments for each reporting unit. The assumptions are consistent with those used for internal planning purposes. The discount rate applied to each reporting unit ranged from 13.0% to 20.0%.
For cash equivalents and restricted cash equivalents, Dollar Rent A Car uses a market approach based on quoted prices in active markets, classified as Level 1 inputs. The fair value of Public Warrants is calculated based on the end-of-day quoted market price, also a Level 1 input. For the Exchange Feature, a lattice model and a "with-and-without" valuation methodology are employed. The inputs include the probability of potential settlement scenarios, the expected timing of such settlement, and an expected volatility determined by reference to historical stock volatilities. Because the expected volatility input is considered unobservable, the Exchange Feature is categorized as a Level 3 input.
When assessing long-lived assets for impairment, Dollar Rent A Car uses Level 2 inputs to determine their estimated fair values. The company's calculation of depreciation for non-program vehicles related to the Americas RAC segment involves significant estimation uncertainty and management's judgment to determine the estimated residual values at the expected time of disposal. This includes assumptions related to market conditions and their effect on estimated residual values, as well as historical sales data and estimated residual values from multiple sources, including third-party sources.
For indefinite-lived intangible assets, Dollar Rent A Car's impairment analysis compares the carrying value of the asset to its estimated fair value. The estimated fair value for a tradename utilizes a relief-from-royalty income approach, incorporating Dollar Rent A Car's revenue projections for each asset, along with assumptions for royalty rates, tax rates, and WACC (weighted average cost of capital).