What level of market data was utilized by Budget to determine fair value?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
income, tax planning strategies and recent results of operations. In the event we were to determine that we would be able to realize the deferred income tax assets in the future in excess of their net recorded amount, we would adjust the valuation allowance, which would reduce the provision for income taxes.
We measure the fair value of assets and liabilities and disclose the source for such fair value measurements. Financial assets and liabilities are classified as follows: Level 1, which refers to assets and ver measure the fair value of assets and habilities and discounter for such fair value measurements. Financial assets and habilities are classified as follows. Level 1, which refers to assets and habilities for which significant other observable markets for identical assets or liabilities; Level 2, which refers to assets and habilities for which significant other observable market inputs are readily available; and Level 3, which are valued based on significant unobservable inputs.
The fair value of our financial instruments is generally determined by reference to market values resulting from trading on a national securities exchange or in an over-the-counter market (Level 1 inputs). In some cases where quoted market prices are not available, prices are derived by considering the yield of the benchmark security that was issued to initially price the instruments and adjusting this rate by the credit spread that market participants would demand for the instruments as of the measurement date (Level 2 inputs). In situations where long-term borrowings are part of a conduit facility backed by shortterm floating rate debt, we have determined that its carrying value approximates the fair value of this debt (Level 2 inputs). The carrying amounts of cash and cash equivalents, available-for-sale securities, receivables, program cash, and accounts payable and other current liabilities approximate fair value due to the short-term maturities of these assets and liabilities.
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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, the company uses different levels of market data to determine the fair value of its assets and liabilities. These levels are categorized into three types. Level 1 refers to assets and liabilities with readily available prices in active markets for identical items. Level 2 includes assets and liabilities for which significant observable market inputs are readily available. Level 3 assets and liabilities are valued based on significant unobservable inputs.
Budget generally determines the fair value of its financial instruments by referencing market values from national securities exchanges or over-the-counter markets, which are classified as Level 1 inputs. When quoted market prices are unavailable, Budget derives prices by considering the yield of benchmark securities and adjusting for credit spreads, which are considered Level 2 inputs. For long-term borrowings within conduit facilities backed by short-term floating-rate debt, the company considers the carrying value to approximate fair value, also classified as Level 2 inputs.
For derivative assets and liabilities like currency exchange contracts, interest rate swaps, and commodity contracts, Budget uses significant observable inputs (Level 2 inputs) to determine fair value. These derivatives are typically executed over-the-counter and valued using internal valuation techniques, as quoted market prices are not available. The valuation considers factors such as maturity, currency exchange rates, interest rate yield curves, credit curves, counterparty creditworthiness, and commodity prices, applied consistently based on observable inputs where possible.
In business combinations, Budget records contingent consideration at fair value on the acquisition date, generally estimated using a Monte Carlo simulation technique based on possible future results (Level 3). This approach reflects the complexity and estimation involved in valuing contingent consideration, highlighting the importance of understanding the different levels of market data and valuation techniques used by Budget.