Cabela's 2004 Annual Report Download - page 55

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The trust issues to outside investors various forms of certiÑcates or credit card receivable interests
(the ""CertiÑcates'') each of which has an undivided interest in the assets of the trust. The trust pays to
the holders of the CertiÑcates a portion of future scheduled cash Öows under preset terms and conditions,
the receipt of which is dependent upon cash Öows generated by the underlying performance of the assets
of the trust. We have recently converted our securitization structure to permit the issuance of asset-backed
notes. This involved the formation of a Delaware statutory trust which will purchase a certiÑcate from the
trust, and issue notes secured by that certiÑcate to investors.
In each securitization transaction, we retain a ""transferor interest'' in the securitized receivables,
which ranks equal with the investor certiÑcates, and an ""interest only strip'' which represents the right to
receive excess cash available after repayment of all amounts to the investors. Neither the investors nor the
trust have recourse against us beyond the assets of the trust, other than for breaches of certain customary
representations, warranties and covenants and minimum account balance levels which must be maintained
to support our retained interests. These representations, warranties, covenants, and the related indemnities,
do not protect the trust or the outside investors against credit-related losses on the receivables.
In accordance with SFAS 140 we record our interest only strip as an asset at fair value which is an
amount equal to the estimated present value of cash Öows to be received by us over the expected
outstanding period of the receivables. These cash Öows essentially represent Ñnance charges and late fees
in excess of the amounts paid to CertiÑcate holders, credit losses, and servicing and administration fees.
We use certain valuation assumptions related to the average lives of the receivables sold and anticipated
credit losses, as well as the appropriate market discount rate, in determining the estimated present value of
the interest only strip. Changes in the average life of the receivables sold, discount rate, and credit-loss
percentage could adversely impact the actual value of the interest only strip. Accordingly, actual results
could diÅer materially from the estimates, and changes in circumstances could result in signiÑcant future
changes to the assumptions currently being used.
Gains on securitization transactions, fair value adjustments and earnings on our securitizations are
included in consolidated revenue in the consolidated statement of income and the interest only strip is
included on our consolidated balance sheet as ""retained interests in securitized receivables.'' All of the
bank's securitization transactions are currently accounted for as sale transactions. As a result, the
receivables relating to those pools of assets are not reÖected on our balance sheet, other than our transferor
interest and interest only strip.
A credit card receivable represents a Ñnancial asset. Unlike a mortgage or other closed-end loan
account, the terms of a credit card account permit a customer to borrow additional amounts and to repay
each month an amount the customer chooses, subject to a monthly minimum payment requirement. The
credit card account remains open after repayment of the balance and the customer may continue to use it
to borrow additional amounts. We reserve the right to change the credit card account terms, including
interest rates and fees, in accordance with the terms of the credit card agreement and applicable law. The
credit card account is, therefore, separate and distinct from the loan receivable. In a credit card
securitization, the credit card account relationships are not sold to the securitization entity. We retain
ownership of the credit card account relationship, including the right to change the terms of the credit
card account.
We sell our credit card receivables in the ordinary course of business through a commercial paper
conduit program and we have from time to time entered into longer term Ñxed and Öoating rate
securitization transactions. In a conduit securitization, our credit card receivables are converted into
securities and sold to commercial paper issuers which pool the securities with those of other issuers. The
amount securitized in a conduit structure is allowed to Öuctuate within the terms of the facility which may
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