Cabela's 2004 Annual Report Download - page 84

CABELA'S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(Dollar Amounts in Thousands Except Share and Per Share Amounts)
due, except in the case of cardholder bankruptcies, cardholder deaths and fraudulent transactions, which
are charged oÅ earlier. Interest income is accrued on accounts that carry a balance from the statement
date through the end of the month.
Cost of Revenue and SG&A Expenses Ì The Company's consolidated cost of revenues primarily
consists of merchandise acquisition costs, including freight-in costs, as well as shipping costs. The
Company's consolidated SG&A expenses primarily consist of selling expense, marketing expenses,
including amortization of deferred catalog costs, warehousing, returned merchandise processing costs, retail
occupancy costs, costs of operating our bank, depreciation, amortization and general and administrative
expenses.
Land Held for Sale or Development Ì The Company owns a fully consolidated subsidiary, whose
primary activity is real estate development. Land that is purchased and held for sale is shown in other
assets. Proceeds from sale of land are recorded in other revenue and the corresponding cost of the land
sold is recorded in cost of revenue.
Cash and Cash Equivalents Ì Cash equivalents consist of commercial paper and other investments
that are readily convertible into cash and have maturities at date of purchase of three months or less.
Unpresented checks net of bank balance in a single bank account are classiÑed as current liabilities. WFB
had $58,147 and $77,237 of cash and cash equivalents in Ñscal years 2004 and 2003, respectively. Due to
regulatory restrictions the Company is restricted from using this cash for non-banking operations, including
for working capital for the direct and retail businesses.
Securitization of Credit Card Loans Ì WFB sells a substantial portion of its credit card loans. Thus a
majority of the credit card loans are classiÑed as held for sale and are carried at the lower of cost or
market. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.
Although WFB continues to service the underlying credit card accounts and maintains the customer
relationships, these transactions are treated as sales and the securitized receivables are removed from the
consolidated balance sheet. WFB retains certain interests in the loans, including interest-only strips, cash
reserve accounts and servicing rights.
Under Statement of Financial Accounting Standards (""SFAS'') No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities, gains or losses are recognized at the
time of each sale. These gains or losses on sales depend in part on the carrying amount assigned to the
loans sold allocated between the assets sold and retained interest based on their relative fair values at the
date of transfer. For the Ñscal years ended 2004, 2003 and 2002, WFB recognized gains on sale of
$8.9 million, $5.9 million and $7.7 million, respectively, which are reÖected as a component of Ñnancial
services revenue.
Since WFB receives adequate compensation relative to current market servicing rates, a servicing
asset or liability is not recognized.
For interest-only strips, WFB uses its best estimates for fair values based on the present value of
future expected cash Öows using assumptions for credit losses, payment rates and discount rates
commensurate with the risks involved. The future expected cash Öows do not include interchange income
since interchange income is only earned when and if a charge is made to a customer's account. However,
WFB has the rights to the remaining cash Öows (including interchange fees, if any) after the other costs
of the trust are paid. Consequently, interchange income on securitized receivables is included within
securitization income of Ñnancial services revenue. Financial services revenue is presented in Note 20.
WFB is required to maintain a cash reserve account as part of the securitization program. In addition,
WFB owns Class B certiÑcates from one of its securitizations. The fair value of the cash reserve account is
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