Cabela's 2004 Annual Report Download - page 73

conduit capacity on favorable terms as it becomes necessary could increase our Ñnancing costs and
potentially limit our ability to grow our Ñnancial services business. Unfavorable conditions in the asset-
backed securities markets generally, including the unavailability of commercial bank liquidity support or
credit enhancements, such as Ñnancial guaranty insurance, could have a similar eÅect.
Furthermore, even if we are able to securitize our credit card receivables consistent with past practice,
poor performance of our securitized receivables, including increased delinquencies and credit losses, lower
payment rates or a decrease in excess spreads below certain thresholds, could result in a downgrade or
withdrawal of the ratings on the outstanding securities issued in our securitization transactions, cause early
amortization of these securities or result in higher required credit enhancement levels. This could
jeopardize our ability to complete other securitization transactions on acceptable terms, decrease our
liquidity and force us to rely on other potentially more expensive funding sources, to the extent available,
which would decrease our proÑtability.
We may have to reallocate capital from our direct and retail businesses to meet the capital needs of our
Ñnancial services business, which could alter our destination retail store expansion program.
Our bank subsidiary must satisfy the capital maintenance requirements of government regulators and
its agreement with VISA International, Inc., or VISA. A variety of factors could cause the capital
requirements of our bank subsidiary to exceed our ability to generate capital internally or from third party
sources. For example, government regulators or VISA could unilaterally increase their minimum capital
requirements. Also, we have signiÑcant potential obligations in the form of the unused credit lines of our
cardholders. As of the end of Ñscal 2004, these unfunded amounts were approximately $6.0 billion. Draws
on these lines of credit could materially exceed predicted line usage. In addition, the occurrence of certain
events, such as signiÑcant defaults in payment of securitized receivables or failure to comply with the
terms of securitization covenants, may cause previously completed securitization transactions to amortize
earlier than scheduled or be reclassiÑed as a liability for Ñnancial accounting purposes, both of which
would have a signiÑcant eÅect on our ability to meet the capital maintenance requirements of our bank
subsidiary, as aÅected oÅ-balance sheet loans would immediately be recorded on our consolidated balance
sheet and would be subject to regulatory capital requirements. If any of these factors occur, we may have
to contribute capital to our bank subsidiary, which may require us to raise additional debt or equity capital
and/or divert capital from our direct and retail businesses, which in turn could signiÑcantly alter our
destination retail store expansion strategy.
It may be diÇcult to sustain the historical growth and proÑtability of our Ñnancial services business, and
we will be subject to various risks as we attempt to grow the business.
We may not be able to retain existing cardholders, grow account balances or attract new cardholders
and the proÑts from our Ñnancial services business could decline, for a variety of reasons, many of which
are beyond our control, including:
‚ credit risk related to the loans we make to cardholders and the charge-oÅ levels of our credit card
accounts;
‚ lack of growth of potential new customers generated by our direct and retail businesses;
‚ liquidity and funding risk relating to our ability to create the liquidity necessary to extend credit to
our cardholders and provide the capital necessary to meet the requirements of government
regulators and VISA; and
‚ operational risk related to our ability to acquire the necessary operational and organizational
infrastructure, manage expenses as we expand, and recruit management and operations personnel
with the experience to run an increasingly complex and highly regulated business.
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