Trade Accounts Receivable Securitization and Sale Programs

6 Months Ended

Feb. 28, 2013

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, a committed trade accounts receivable sale program and two 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 and six months ended February 28, 2013 and February 29, 2012, were not material. The Company does not record a servicing asset or liability on the Condensed Consolidated Balance Sheets as the Company estimates that the fee it receives to service these receivables approximates the fair market compensation to provide the servicing activities.

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 (for the North American asset-backed securitization program) and an unaffiliated financial institution (for the foreign asset-backed securitization program). The special purpose entity in the North American asset-backed securitization program is a wholly-owned subsidiary of the Company. The special purpose entity in the foreign asset-backed securitization program is a separate bankruptcy-remote entity whose assets would be first available to satisfy the creditor claims of the unaffiliated financial institution. The Company is deemed the primary beneficiary of this special purpose entity as the Company has both the power to direct the activities of the entity that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive the benefits that could potentially be significant to the entity from the transfer of the trade accounts receivable into the special purpose entity. Accordingly, the special purpose entities associated with these asset-backed securitization 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 and $4.3 billion of eligible trade accounts receivable during the three months and six months ended February 28, 2013, respectively. In exchange, the Company received cash proceeds of $1.6 billion and $3.8 billion during the three months and six months ended February 28, 2013, respectively, and a deferred purchase price receivable. The Company sold $2.0 billion and $4.1 billion of eligible trade accounts receivable during the three months and six months ended February 29, 2012, respectively. In exchange, the Company received cash proceeds of $1.5 billion and $3.6 billion during the three months and six months ended February 29, 2012, respectively, and a deferred purchase price receivable. At February 28, 2013 and February 29, 2012, the net deferred purchase price receivables recorded in connection with the asset-backed securitization programs totaled approximately $492.7 million and $463.2 million, respectively.

The Company recognized pretax losses on the sales of receivables under the asset-backed securitization programs of approximately $1.0 million and $2.1 million during the three months and six months ended February 28, 2013, respectively, and approximately $1.2 million and $3.0 million during the three months and six months ended February 29, 2012, respectively, which are recorded to other expense within the Condensed Consolidated Statements of Operations.

The deferred purchase price receivables recorded under the asset-backed securitization programs are recorded initially at fair value as prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets and are valued using unobservable inputs (Level 3 inputs), primarily discounted cash flows, and due to their credit quality and short-term maturity the fair values approximated book values. The unobservable inputs consist of estimated credit losses and estimated discount rates, which both have an immaterial impact on the fair value calculations of the deferred purchase price receivables.

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 2012, the factoring agreement was extended through March 31, 2013, at which time it was automatically renewed for an additional six-month period.

The Company sold $8.5 million and $22.7 million of trade accounts receivable during the three months and six months ended February 28, 2013, respectively, compared to $22.0 million and $43.4 million during the three months and six months ended February 29, 2012, respectively. In exchange, the Company received cash proceeds of $8.5 million and $22.7 million during the three months and six months ended February 28, 2013, respectively, compared to $22.0 million and $43.4 million during the three months and six months ended February 29, 2012, respectively. The resulting losses on the sales of trade accounts receivables sold under this factoring agreement during the three months and six months ended February 28, 2013 and February 29, 2012 were not material.

c. Trade Accounts Receivable Sale Programs

In connection with three separate trade accounts receivable sale agreements with unaffiliated financial institutions, the Company may elect to sell, at a discount, on an ongoing basis, up to a maximum of $200.0 million, $150.0 million and $40.0 million, respectively, of specific trade accounts receivable at any one time. The $200.0 million trade accounts receivable sale agreement is a committed facility scheduled to expire on May 28, 2013 that amended and restated an existing uncommitted facility during the first quarter of fiscal year 2013 to change the facility to a committed facility and to reduce the capacity from $250.0 million to $200.0 million. The $150.0 million trade accounts receivable sale agreement is an uncommitted facility that was entered into during the first quarter of fiscal year 2013 and is scheduled to expire on November 28, 2013. The $40.0 million trade accounts receivable sale agreement is an uncommitted facility scheduled to expire no later than June 1, 2015, though either party may elect to cancel the agreement by giving prior written notification to the other party of no less than 30 days.

During the three months and six months ended February 28, 2013, the Company sold $0.7 billion and $1.3 billion of trade accounts receivable under these programs, respectively, compared to $0.6 billion and $1.1 billion during the three months and six months ended February 29, 2012, respectively. In exchange, the Company received cash proceeds of $0.7 billion and $1.3 billion during the three months and six months ended February 29, 2013, respectively, compared to $0.6 billion and $1.1 billion during the three months and six months ended February 29, 2012, respectively. The resulting losses on the sales of trade accounts receivable during the three months and six months ended February 28, 2013 and February 29, 2012 were not material.