Trade Accounts Receivable Securitization and Sale Programs

3 Months Ended

Nov. 30, 2019

Trade Accounts Receivable Securitization and Sale Programs

The Company regularly sells designated pools of trade accounts receivable under a foreign asset-backed securitization program, a North American asset-backed securitization program and 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, 2019 and 2018 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.

Asset-Backed Securitization Programs

The Company continuously sells designated pools of trade accounts receivable, at a discount, under its foreign asset-backed securitization program and its North American asset-backed securitization program to special purpose entities, which in turn sell certain of the foreign asset-backed receivables to an unaffiliated financial institution and a conduit administered by an unaffiliated financial institution and certain of the North American asset-backed receivables to conduits administered by an unaffiliated financial institution on a monthly basis.

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 entity associated with the foreign asset-backed securitization program is included in the Company’s Condensed Consolidated Financial Statements. As of November 30, 2019, the special purpose entity has liabilities for which creditors do not have recourse to the general credit of the Company (primary beneficiary). The liabilities cannot exceed the maximum amount of net cash proceeds under the foreign asset-backed securitization program.

The foreign asset-backed securitization program contains a guarantee of payment by the special purpose entity, in an amount approximately equal to the net cash proceeds under the program. No liability has been recorded for obligations under the guarantee as of November 30, 2019.

The special purpose entity in the North American asset-backed securitization program is a wholly-owned subsidiary of the Company and is included in the Company’s Condensed Consolidated Financial Statements. Certain unsold receivables covering the maximum amount of net cash proceeds available under the North American asset-backed securitization program are pledged as collateral to the unaffiliated financial institution as of November 30, 2019.

Following is a summary of the asset-backed securitization programs and key terms:



	Maximum Amount of Net Cash Proceeds (in millions)⁽¹⁾		Expiration Date
North American	$	390.0	November 22, 2021
Foreign	$	400.0	September 30, 2021


⁽¹⁾	Maximum amount available at any one time.

In connection with the asset-backed securitization programs, the Company recognized the following (in millions):



	Three months ended
	November 30, 2019		November 30, 2018⁽³⁾
Trade accounts receivable sold	$	1,162	$	750
Cash proceeds received⁽¹⁾	$	1,156	$	744
Pre-tax losses on sale of receivables⁽²⁾	$	6	$	6


⁽¹⁾	The amounts primarily represent proceeds from collections reinvested in revolving-period transfers.


⁽²⁾	Recorded to other expense within the Condensed Consolidated Statements of Operations.


⁽³⁾	Excludes $650.3 million of trade accounts receivable sold, $488.1 million of cash and $13.9 million of net cash received prior to the amendment of the foreign asset-backed securitization program and under the previous North American asset-backed securitization program which occurred during the first quarter of fiscal year 2019.

The asset-backed securitization programs require compliance with several covenants. The North American asset-backed securitization program covenants include compliance with the interest ratio and debt to EBITDA ratio of the five-year unsecured credit facility amended as of November 8, 2017 (the “2017 Credit Facility”). The foreign asset-backed securitization program covenants include limitations on certain corporate actions such as mergers and consolidations. As of November 30, 2019 and August 31, 2019, the Company was in compliance with all covenants under the asset-backed securitization programs.

Trade Accounts Receivable Sale Programs

The following is a summary of the trade accounts receivable sale programs with unaffiliated financial institutions where the Company may elect to sell receivables and the unaffiliated financial institution may elect to purchase, at a discount, on an ongoing basis:



Program⁽¹⁰⁾	Maximum Amount (in millions)⁽¹⁾			Type of Facility	Expiration Date
A	$	800.0		Uncommitted	August 31, 2022⁽²⁾
B	$	150.0		Uncommitted	November 30, 2020⁽³⁾
C	800.0		CNY	Uncommitted	June 30, 2020
D	$	150.0		Uncommitted	May 4, 2023⁽⁴⁾
E	$	50.0		Uncommitted	August 25, 2020
F	$	150.0		Uncommitted	January 25, 2020⁽⁵⁾
G	$	50.0		Uncommitted	February 23, 2023⁽²⁾
H	$	100.0		Uncommitted	August 10, 2020⁽⁶⁾
I	$	100.0		Uncommitted	July 21, 2020⁽⁷⁾
J	$	740.0		Uncommitted	February 28, 2020⁽⁸⁾
K	$	110.0		Uncommitted	April 11, 2020⁽⁹⁾


⁽¹⁾	Maximum amount available at any one time.


⁽²⁾	Any party may elect to terminate the agreement upon 15 days prior notice.


⁽³⁾	The program will automatically extend for one year at each expiration date unless either party provides 10 days notice of termination.


⁽⁴⁾	Any party may elect to terminate the agreement upon 30 days prior notice.


⁽⁵⁾	The program will be automatically extended through January 25, 2023 unless either party provides 30 days notice of termination.


⁽⁶⁾	The program will be automatically extended through August 10, 2023 unless either party provides 30 days notice of termination.


⁽⁷⁾	The program will be automatically extended through August 21, 2023 unless either party provides 30 days notice of termination.


⁽⁸⁾	As of the date of this filing, program J is no longer being utilized as it has been replaced with a new $500.0 million program (see footnote 10 below for details).


⁽⁹⁾	The program will be automatically extended each year through April 11, 2025 unless either party provides 30 days notice of termination.


⁽¹⁰⁾	The Company entered into two new trade accounts receivable sale programs on December 5, 2019 with maximum amounts of $500.0 million and CHF 100.0 million, respectively.

In connection with the trade accounts receivable sale programs, the Company recognized the following (in millions):



	Three months ended
	November 30, 2019		November 30, 2018
Trade accounts receivable sold	$	1,962	$	1,834
Cash proceeds received	$	1,957	$	1,826
Pre-tax losses on sale of receivables⁽¹⁾	$	5	$	8

⁽¹⁾

Recorded to other expense within the Condensed Consolidated Statement of Operations.