What do Budget's derivative assets and liabilities consist of?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
Our derivative assets and liabilities consist principally of currency exchange contracts, interest rate swaps, interest rate caps and commodity contracts, and are carried at fair value based on significant Our cervative assets and nabilities consist principally or currency excritange contracts, interest rate swaps, interest rate caps and commonly contracts, and are carried at rail valid based or significant observable inputs (Level 2 inputs). Derivatives entered into by us are typically executed over-the-counter and are valued using internal valuation techniques, as no quoted market prices exist for such observable inputs (Level 2 inputs). Derivatives entered into by us are typically executed over-the-counter and are valued using internal valuation techniques, as no quoted market prices exist for such observable inputs. The valuation technique and inputs depend on the type of derivative and the nature of the underlying exposure. We principally use discounted cash flows to value these instruments. These models take into account a variety of factors including, where applicable, maturity, currency exchange rates, our interest rate yield curves and counterparties, credit curves, counterparty creditworthiness and commodity prices. These factors are applied on a consistent basis and are based upon observable inputs where available.
Derivative Instruments
Derivative instruments are used as part of our overall strategy to manage exposure to market risks associated with fluctuations in currency exchange rates, interest rates and fuel costs. As a matter of policy, derivatives are not used for trading or speculative purposes.
All derivatives are recorded at fair value either as assets or liabilities. Changes in fair value of derivatives not designated as hedging instruments are recognized currently in earnings within the same line item as the hedged item. The changes in fair value of a derivative that is designated as either a cash flow or net investment hedge is recorded as a component of accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transcript affects earnings and is presented in the same income statement line item as the earnings effect of the hedged item. Amounts related to our derivative instruments are recognized in the Consolidated Statements of Cash Flows consistent with the nature of the hedged item (principally operating activities).
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, the company's derivative assets and liabilities primarily consist of currency exchange contracts, interest rate swaps, interest rate caps, and commodity contracts. These derivatives are valued at fair value, utilizing significant observable inputs, referred to as Level 2 inputs. Budget typically executes these derivatives over-the-counter and values them using internal valuation techniques due to the absence of quoted market prices for such inputs.
The valuation process depends on the specific type of derivative and the nature of the underlying exposure. Budget mainly uses discounted cash flows to value these instruments, considering factors such as maturity, currency exchange rates, interest rate yield curves, counterparty credit curves, counterparty creditworthiness, and commodity prices. These factors are consistently applied and are based on observable inputs where available.
Budget uses derivative instruments as part of its overall strategy to manage exposure to market risks associated with fluctuations in currency exchange rates, interest rates, and fuel costs. As a matter of policy, Budget does not use derivatives for trading or speculative purposes. All derivatives are recorded at fair value as either assets or liabilities. Changes in the fair value of derivatives not designated as hedging instruments are recognized in earnings within the same line item as the hedged item. The changes in fair value of a derivative designated as a cash flow or net investment hedge is recorded as a component of accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transcript affects earnings and is presented in the same income statement line item as the earnings effect of the hedged item. Amounts related to Budget's derivative instruments are recognized in the Consolidated Statements of Cash Flows consistent with the nature of the hedged item, principally operating activities.