Trade Accounts Receivable Securitization And Sale Programs

3 Months Ended

Nov. 30, 2011

Trade Accounts Receivable Securitization And Sale Programs [Abstract]

Trade Accounts Receivable Securitization And Sale Programs

7. Trade Accounts Receivable Securitization and Sale Programs

The Company regularly sells designated pools of trade accounts receivable under two asset-backed securitization programs, a factoring program and three uncommitted trade accounts receivable sale programs (collectively referred to herein as the "programs"). The Company continues servicing the receivables sold and in exchange receives a servicing fee under each of the programs. Servicing fees related to each of the programs recognized during the three months ended November 30, 2011 and 2010, were not material. The Company does not record a servicing asset or liability as the Company estimates the fee it receives in return for its obligation to service these receivables is at fair value.

Transfers of the receivables under the programs are accounted for as sales and, accordingly, net receivables sold under the programs are excluded from accounts receivable on the Condensed Consolidated Balance Sheets and are reflected as cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows.

a. Asset-Backed Securitization Programs

The Company continuously sells designated pools of trade accounts receivable under its North American asset-backed securitization program and its foreign asset-backed securitization program (collectively referred to herein as the "asset-backed securitization programs") to special purpose entities, which in turn sell 100% of the receivables to conduits administered by unaffiliated financial institutions and an unaffiliated financial institution, respectively. The special purpose entity in the North American asset-backed securitization program is a wholly-owned subsidiary of the Company. The Company is deemed the primary beneficiary of the special purpose entity, which is a separate bankruptcy-remote entity whose assets would be first available to satisfy the creditor claims of the unaffiliated financial institution, in the foreign asset-backed securitization program as the Company has the power to direct the activities of the entity and has the obligation to absorb the majority of the expected losses or the right to receive the benefits from the transfer of the trade accounts receivable into the special purpose entity. Accordingly, the special purpose entities associated with these programs are included in the Company's Condensed Consolidated Financial Statements. Any portion of the purchase price for the receivables which is not paid in cash upon the sale taking place is recorded as a deferred purchase price receivable, which is paid as payments on the receivables are collected. Net cash proceeds of up to a maximum of $300.0 million for the North American asset-backed securitization program and $200.0 million for the foreign asset-backed securitization program are available at any one time.

In connection with the asset-backed securitization programs, the Company sold $2.1 billion of eligible trade accounts receivable during the three months ended November 30, 2011. In exchange, the Company received cash proceeds of $1.6 billion during the three months ended November 30, 2011, and a net deferred purchase price receivable. At November 30, 2011, the deferred purchase price receivable recorded in connection with the asset-backed securitization programs totaled approximately $497.9 million, which was recorded initially at fair value as prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets. The deferred purchase price receivable was valued using unobservable inputs (Level 3 inputs), primarily discounted cash flows, and due to its credit quality and short-term maturity, the fair value approximated book value.

The Company recognized pretax losses on the sales of receivables under the asset-backed securitization programs of approximately $1.8 million during the three months ended November 30, 2011, which are recorded to other expense within the Condensed Consolidated Statements of Operations.

In connection with the North American asset-backed securitization program, the Company sold $1.5 billion of eligible trade accounts receivable during the three months ended November 30, 2010. In exchange, the Company received cash proceeds of $1.3 billion during the three months ended November 30, 2010, and a net deferred purchase price receivable. At November 30, 2010, the deferred purchase price receivable recorded in connection with the North American asset-backed securitization program totaled approximately $218.8 million, which was recorded initially at fair value as prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets. The deferred purchase price receivable was valued using unobservable inputs (Level 3 inputs), primarily discounted cash flows, and due to its credit quality and short-term maturity, the fair value approximated book value.

The Company recognized pretax losses on the sales of receivables under the North American asset-backed securitization programs of approximately $0.5 million during the three months ended November 30, 2010, which are recorded to other expense within the Condensed Consolidated Statements of Operations.

Prior to amendments that were effective for the North American asset-backed securitization program during the first quarter of fiscal year 2011 and for the foreign asset-backed securitization program during the third quarter of fiscal year 2011, the asset-backed securitization programs were accounted for as secured borrowings. Accordingly, the Company incurred interest expense of $0.8 million in the Condensed Consolidated Statements of Operations during the three months ended November 30, 2010 in connection with the asset-backed securitization programs. In addition, at November 30, 2010, the Company had $82.8 million of secured borrowings outstanding under the foreign asset-backed securitization program.

b. Trade Accounts Receivable Factoring Agreement

In connection with a factoring agreement, the Company transfers ownership of eligible trade accounts receivable of a foreign subsidiary without recourse to a third party purchaser in exchange for cash. Proceeds from the transfer reflect the face value of the account less a discount. The discount is recorded as a loss to other expense within the Condensed Consolidated Statements of Operations in the period of the sale. In October 2011, the factoring agreement was extended through March 31, 2012, at which time it is expected to automatically renew for an additional six-month period.

The Company sold $21.4 million and $18.5 million of trade accounts receivable during the three months ended November 30, 2011 and 2010, respectively. In exchange, the Company received cash proceeds of $21.4 million and $18.5 million during the three months ended November 30, 2011 and 2010, respectively. The resulting losses on the sales of trade accounts receivables sold under this factoring agreement during the three months ended November 30, 2011 and 2010 were not material.

c. Trade Accounts Receivable Sale Programs

In connection with three separate uncommitted trade accounts receivable sale agreements with banks, the third of which was entered into during the first quarter of fiscal year 2012, the Company may elect to sell and the banks may elect to purchase at a discount, on an ongoing basis, up to a maximum of $200.0 million, $250.0 million and $50.0 million, respectively, of specific trade accounts receivable at any one time. The $200.0 million and $250.0 million uncommitted trade accounts receivable sale agreements have no defined termination dates and either party can elect to cancel the agreements by giving prior written notification to the other party of no less than 30 days. The $50.0 million uncommitted trade accounts receivable sale agreement will expire no later than June 1, 2015, though either party can elect to cancel the agreement by giving prior written notification to the other party of no less than 30 days.

During the three months ended November 30, 2011 and 2010, the Company sold $0.5 billion and $0.4 billion of trade accounts receivable under these programs, respectively. In exchange, the Company received cash proceeds of $0.5 billion and $0.4 billion during the three months ended November 30, 2011 and 2010, respectively. The resulting losses on the sales of trade accounts receivable during the three months ended November 30, 2011 and 2010 were not material.