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    September 08, 2018

    Value Investing Warren Buffett Recounts His Role During 2008 Financial Crisis

    Warren Buffett Recounts His Role During 2008 Financial Crisis

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    Question on Accounts Receivable securitization disclosures

    Posted: 07 Sep 2018 09:00 AM PDT

    I'm looking over Atos (ATO:FP), which had a small controversy over financial arrangements last month. I've been trying to work through it myself but the reporting is confusing.

    In the 2017 financial report (pg.82), Atos says:

    Atos securitization program of trade receivables has been renewed for 5 years on June 18, 2013 with a maximum amount of receivables sold of € 500.0 million and a maximum amount of financing of € 200.0 million.

    The program is structured with two compartments, called ON and OFF:

    • compartment "ON" is similar to the previous program (i.e. the receivables are maintained in the Group balance sheet) which remains by default the compartment in which the receivables are sold. This compartment was used at its lower level;

    • compartment "OFF" is designed so the credit risk (insolvency and overdue) of the debtors eligible to this compartment of the program is fully transferred to the purchasing entity of a third party financial institution.

    As of December 31, 2017, the Group has sold:

    • in the compartment "ON" € 277.0 million receivables for which € 10.0 million were received in cash. The sale is with recourse, thus re-consolidated in the balance sheet;

    • in the compartment "OFF" € 39.7 million receivables which qualify for de-recognition as substantially all risks and rewards associated with the receivables were transferred.

    First question:

    In a press release, Atos said the DSO effect of securitization in 2017 was -23 days. On 12,691 million revenue, I would expect A/R sold of about 1,158 (rearranging DSO with 252 days to solve for A/R). The quote from the statement above sounds like they sold 277+40 = 314 total (and received 10 million?), which isn't anywhere near 23 days outstanding.

    Is the figure quoted maybe the sold but uncollected, without total sold (collected and not) explicitly listed? Is it fair to loosely infer the total sold and collected from the income statement's revenue and the DSO formula like I did just above?

    Second question:

    My interpretation of securitization is that cash flows will only be systemically exaggerated if the uncollected A/R accumulates over time. If securitization and uncollected A/R fluctuate and stay relatively level, there is no trend in distortion, and the issue is more why the company finds it worthwhile to securitize at a cost vs. collecting receivables. Is that reasonable?

    submitted by /u/TreesWereMistaken
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