Cabela's 2005 Annual Report Download - page 62

The trust issues to outside investors various forms of certificates or credit card loan interests (the
“Certificates”) each of which has an undivided interest in the assets of the trust. The trust pays to the holders of
the Certificates a portion of future scheduled cash flows under preset terms and conditions, the receipt of which
is dependent upon cash flows 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 certificate from the trust, and issue notes secured
by that certificate to investors.
In each securitization transaction, we retain a “transferor interest” in the securitized loans, which ranks
equal with the investor certificates, 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 loans.
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 flows to be received by us over the expected outstanding period of
the loans. These cash flows essentially represent finance charges and late fees in excess of the amounts paid to
Certificate holders, credit losses, and servicing and administration fees. We use certain valuation assumptions
related to the average lives of the loans 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 loans sold, discount rate, and credit-loss percentage could adversely impact the actual value of the interest
only strip. Accordingly, actual results could differ materially from the estimates, and changes in circumstances
could result in significant 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 loans.” All of the bank’s securitization
transactions are currently accounted for as sale transactions. As a result, the loans relating to those pools of assets
are not reflected on our balance sheet, other than our transferor interest and interest only strip.
A credit card loan represents a financial 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. 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.
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