Does Budget use currency exchange contracts as derivative instruments?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
ded status of the plan; and (iv) we have no involvement in the management of the multiemployer plans' investments. For the years ended December 31, 2024, 2023, and 2022, we contributed $10 million, $10 million and $8 million, respectively, to multiemployer plans.
20. Financial Instruments
Risk Management
Currency Risk. We use currency exchange contracts to manage our exposure to changes in currency exchange rates associated with certain of our non-U.S.-dollar denominated receivables and forecasted royalties, forecasted earnings of non-U.S. subsidiaries and forecasted non-U.S. dollar denominated acquisitions. We primarily hedge a portion of our current-year currency exposure to the Australian, Canadian and New Zealand dollars, the euro and the British pound sterling. The majority of forward contracts do not qualify for hedge accounting treatment. The fluctuations in the value of these forward contracts do, however, largely offset the impact of changes in the value of the underlying risk they economically hedge. We have designated our euro-denominated notes as a hedge of our investment in euro-denominated foreign operations.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, Budget uses currency exchange contracts as derivative instruments to manage exposure to changes in currency exchange rates. These contracts are related to non-U.S. dollar denominated receivables, forecasted royalties, forecasted earnings of non-U.S. subsidiaries, and forecasted non-U.S. dollar denominated acquisitions. Budget primarily hedges a portion of its current-year currency exposure to the Australian, Canadian, and New Zealand dollars, the euro, and the British pound sterling.
Most of these forward contracts do not qualify for hedge accounting treatment; however, fluctuations in their value largely offset the impact of changes in the value of the underlying risk they economically hedge. Budget has designated its euro-denominated notes as a hedge of its investment in euro-denominated foreign operations. Derivative instruments are part of Budget's 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.
For a prospective franchisee, this indicates that Budget actively manages its financial risks associated with international operations through these instruments. While the franchisee may not directly engage in these transactions, the financial stability and risk management practices of the franchisor can impact the overall health and sustainability of the franchise system. Understanding these practices can provide insight into how Budget protects itself from currency fluctuations and other market risks, which can indirectly affect franchisees.