Cabela's 2010 Annual Report Download - page 67

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After purchasing the bonds, we typically record them on our consolidated balance sheet classified as
“available for sale” and value them based upon management’s projections of the amount of tax revenue expected
to be generated to support principal and interest payments on the bonds. Because of the unique features of each
project, there is no independent market data for valuation of these types of bonds. If sufficient tax revenue is not
generated by the subject properties, we will not receive scheduled payments and will be unable to realize the full
value of the bonds carried on our consolidated balance sheet. At January 1, 2011, and January 2, 2010, economic
development bonds totaled $104 million and $108 million, respectively.
The negotiation of these economic development arrangements has been important to our retail store
expansion in the past, and these arrangements may be an important factor in our retail store expansion strategy in
certain locations because they allow us to avoid or recapture a portion of the costs involved with opening a new
store.
Grants – We generally have received grant funding in exchange for commitments made by us to the state or
local government providing the funding. The commitments, such as assurance of agreed employment and wage
levels at our retail stores or that the retail store will remain open, typically phase out over approximately five to
ten years. If we fail to maintain the commitments during the applicable period, the funds we received may have
to be repaid or other adverse consequences may arise, which could affect our cash flows and profitability. At
January 1, 2011, and January 2, 2010, the total amount of grant funding subject to specific contractual remedies
was $13 million and $10 million, respectively.
Securitization of Credit Card Loans
Our Financial Services business historically has funded most of its growth in credit card loans through an
asset securitization program. WFB utilizes the Trust for the purpose of routinely selling and securitizing credit
card loans and issuing beneficial interest to investors. The Trust issues variable funding facilities and long-term
notes each of which has an undivided interest in the assets of the Trust. WFB must retain a minimum 20 day
average of 5% of the loans in the securitization trust which ranks pari passu with the investors’ interests in the
securitization trusts. In addition, WFB owns notes issued by the Trust from some of the securitizations, which in
some cases may be subordinated to other notes issued. WFB’s retained interests are eliminated upon consolidation
of the Trust. The consolidated assets of the Trust are subject to credit, payment, and interest rate risks on the
transferred credit card loans. The credit card loans of the Trust are restricted for the repayment of the secured
borrowings of the Trust.
To protect investors, the securitization structures include certain features that could result in earlier-than-
expected repayment of the securities, which could cause WFB to sustain a loss of one or more of its retained
interests and could prompt the need for WFB to seek alternative sources of funding. The primary investor
protection feature relates to the availability and adequacy of cash flows in the securitized pool of loans to meet
contractual requirements, the insufficiency of which triggers early repayment of the securities. WFB refers to
this as the “early amortization” feature. Investors are allocated cash flows derived from activities related to the
accounts comprising the securitized pool of loans, the amounts of which reflect finance charges collected, certain
fee assessments collected, allocations of interchange, and recoveries on charged off accounts. These cash flows are
considered to be restricted under the governing documents to pay interest to investors, servicing fees, and to absorb
the investor’s share of charge-offs occurring within the securitized pool of loans. Any cash flows remaining in
excess of these requirements are reported to investors as excess spread. An excess spread of less than zero percent
for a contractually specified period, generally a three-month average, would trigger an early amortization event.
Such an event could result in WFB incurring losses related to its retained interests. In addition, if WFB’s retained
interest in the loans falls below the 5% minimum 20 day average and WFB fails to add new accounts to the
securitized pool of loans, an early amortization event would be triggered. The investors have no recourse to WFB’s
other assets for failure of debtors to pay other than for breaches of certain customary representations, warranties,
and covenants. These representations, warranties, covenants, and the related indemnities do not protect the Trust or
third party investors against credit-related losses on the loans.