Cabela's 2009 Annual Report Download - page 84

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CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Except Share and Per Share Amounts)
Cost of Revenue and Selling, Distribution, and Administrative Expenses – Our cost of revenue primarily consists
of merchandise acquisition costs, including freight-in costs, as well as shipping costs. Our selling, distribution, and
administrative expenses consist of the costs associated with selling, marketing, warehousing, retail store replenishment, and
other operating expense activities. All depreciation and amortization expense is associated with selling, distribution, and
administrative activities, and accordingly, is included in this same category on the consolidated statement of operations.
Cash and Cash Equivalents – Cash equivalents include credit card and debit card receivables from other banks,
which settle within one to four business days. Receivables from other banks totaled $13,308 and $9,889 at the end of 2009
and 2008, respectively. Unpresented checks, net of available cash bank balances, are classified as current liabilities. Cash
and cash equivalents of WFB were $371,408 and $402,058 at the end of 2009 and 2008, respectively. Due to regulatory
restrictions on our bank, we are restricted from using cash held by WFB for non-banking operations.
Securitization of Credit Card Loans – WFB sells the majority of its credit card loans to a securitization trust and
recognizes related gains or losses as a component of securitization income in Financial Services revenue. WFB must retain
a minimum 20 day average of 5% of the interests in the securitization trust, which is known as a “transferor interest” in
the securitized loans, and ranks equal with the investor notes. Credit card loans classified as held for sale, which includes
WFB’s transferor’s interest in securitized credit card loans, are carried at the lower of cost or market. Net unrealized
losses, if any, are recognized in income through a valuation allowance. Although WFB continues to service the underlying
credit card accounts and maintains the customer relationships, these securitization transactions are treated as sales and the
securitized loans are not included in our consolidated balance sheet. Gains or losses are recognized at the time of sale, and
depend in part on the carrying amount assigned to the credit card loans sold, which is allocated between the assets sold and
retained interest based on their relative fair values at the date of transfer. WFB recognized a loss on sales totaling $4,157
for 2009 and gains on sales totaling $15,657 and $22,740 for 2008 and 2007, respectively.
WFB retains certain interests in securitized loans, including a transferor’s interest, servicing rights, interest-
only strips, cash reserve accounts, and in some cases cash accounts. WFB classifies the interest-only strips and cash
reserve accounts as retained interests in securitized loans. A servicing asset or liability is not recognized as WFB receives
adequate compensation relative to current market servicing rates.
In addition, WFB owns asset-backed securities from its securitizations, which in some cases are subordinated to
other notes issued as retained interests in securitized loans. The asset-backed securities are classified as trading securities
or available-for-sale securities. Asset-backed trading securities fluctuate daily based on the short-term operational needs
of WFB. Advances and pay downs on the trading securities are at par value. Therefore, the par value of the asset-backed
trading securities approximates fair value. Asset-backed available-for-sale securities are carried at fair value with changes
reflected in accumulated other comprehensive income. For asset-backed available-for-sale securities, WFB estimates fair
value using discounted cash flow projection estimates based upon management’s evaluation of contractual principal and
interest cash flows.
WFB retains rights to future cash flows from (i) finance charge collections, certain fee collections, allocated
interchange, and recoveries on charged-off accounts net of collection costs arising after investors have received the return
for which they are entitled; (ii) reimbursement for charged-off accounts; and (iii) after certain administrative costs, such
as servicing fees. This portion of the retained interests is known as interest-only strips and is subordinate to investor’s
interests. For interest-only strips and cash reserve accounts, WFB estimates related fair values based on the present value
of future expected cash flows using assumptions for credit losses, finance charge yields, payment rates, and discount rates
commensurate with the risks involved, but does not include interchange income since interchange income is earned only
when a charge is made to a customer’s account. The value of the interest-only strips and cash reserve accounts are subject
to credit, payment rate, and interest rate risks on the loans sold. For cash accounts, WFB estimates related fair values based
on the present value of future expected cash flows using discount rates commensurate with the risks involved. Fair value
changes in the interest-only strips and cash reserve accounts are recorded in securitization income included in Financial
Services revenue. Actual results could differ materially from the estimates, and changes in circumstances could result in
significant future changes to the assumptions currently being used.