How will Aunt Millies Bakeries carry the derivative in the consolidated financial statements after discontinuing hedge accounting?
Aunt_Millies_Bakeries Franchise · 2025 FDDAnswer from 2025 FDD Document
and $4,000,000 and all expired November 30, 2023. The agreements required the Company to pay a fixed rate of 2.11%, 2.11%, and 2.81%, respectively, and receive 30 day LIBOR.
In February 2023, the Company entered into four additional interest rate swap agreements that are also designated to hedge the Company's risk against rising interest rates related to its floating debt obligations (Note 5) with terms noted below. The agreements required the Company to pay a fixed rate and receive a one month SOFR term.
In February 2023, the Company discontinued hedge accounting as the previous interest rate swap agreements entered into in 2022 and 2021 were amended or terminated and the interest rates swaps entered into in 2023 were not effective in offsetting changes in cash flows of the floati
Source: Item 23 — RECEIPT (FDD pages 44–196)
What This Means (2025 FDD)
According to Aunt Millies Bakeries' 2025 Franchise Disclosure Document, after discontinuing hedge accounting in February 2023, the company carries the derivative at fair value in its consolidated financial statements. This means that the value of the derivative is adjusted to reflect its current market price.
The changes in the fair value of the derivative are recognized in the current period income within the consolidated statements of income. This implies that any gains or losses resulting from fluctuations in the derivative's value will directly impact the reported income for that period.
As of September 30, 2024, the fair value of derivatives designated as hedging instruments was a negative $(62,678), while it was $177,184 as of September 30, 2023. The derivative's fair value, whether a liability or an asset, is classified under current liabilities and current assets, respectively, on the balance sheet.