What was the effect of Budget's foreign exchange contracts, not designated as hedging instruments, on the financial statements for the year ended December 31, 2023?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
n other non-current abselts or other non-current liabilities.
Included in other current assets or other current liabilities.
Included in assets under vehicle programs or liabilities under vehicle programs or liabilities.
The effects of derivatives recognized in our Consolidated Financial Statements are as follows:
| The effects of derivatives recognized in our Consolidated Financial Statements are as follows: | Year Ended December 31, | ||||||
|---|---|---|---|---|---|---|---|
| 202 | 24 | 2023 | 2022 |
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, the financial instruments not designated as hedging instruments, specifically foreign exchange contracts, had an impact on the consolidated financial statements. For the year ended December 31, 2023, these instruments resulted in an expense of $1 million.
These foreign exchange contracts are used by Budget to manage exposure to fluctuations in currency exchange rates, particularly for non-U.S. dollar denominated receivables, forecasted royalties, earnings of non-U.S. subsidiaries, and acquisitions. Budget primarily hedges its exposure to currencies like the Australian, Canadian, and New Zealand dollars, the euro, and the British pound sterling. Although most of these forward contracts do not qualify for hedge accounting treatment, their fluctuations largely offset the impact of changes in the value of the underlying risk they economically hedge.
For a prospective franchisee, this indicates that Budget actively manages its currency risks, which can affect the overall financial performance of the company. While the specific impact for 2023 was an expense of $1 million, the use of these contracts aims to stabilize the financial results by mitigating potential losses from currency fluctuations. This could provide some level of financial security, as Budget takes measures to protect itself from currency risks inherent in international operations.