Cabela's 2007 Annual Report Download - page 24

18
We have been, and will continue to be, particularly reliant on funding from securitization transactions for our
Financial Services business. Securitization funding sources include both a commercial paper conduit facility and
fixed and floating rate term securitizations. A failure to renew this facility, to resecuritize the term securitizations
as they mature, or to add additional term securitizations and commercial paper conduits on favorable terms as it
becomes necessary could increase our financing costs and potentially limit our ability to grow our Financial Services
business. Unfavorable conditions in the asset-backed securities markets generally, including the unavailability of
commercial bank liquidity support or credit enhancements, such as financial guaranty insurance, could have a
similar effect.
Furthermore, even if we are able to securitize our credit card loans consistent with past practice, poor
performance of our securitized loans, 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 profitability.
We may have to reallocate capital from our Retail and Direct businesses to meet the capital needs of our
Financial Services business, which could alter our retail store expansion program.
Our bank subsidiary must satisfy the capital maintenance requirements of government regulators and its
agreement with Visa U.S.A., Inc. (“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 significant potential
obligations in the form of the unused credit lines of our cardholders. At the end of 2007, these unfunded amounts
totaled approximately $12 billion. Draws on these lines of credit could materially exceed predicted line usage. In
addition, the occurrence of certain events, such as significant defaults in payment of securitized loans or failure
to comply with the terms of securitization covenants, may cause previously completed securitization transactions
to amortize earlier than scheduled or be reclassified as a liability for financial accounting purposes, both of which
would have a significant effect on our ability to meet the capital maintenance requirements of our bank subsidiary,
as affected off-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 Retail and
Direct businesses, which in turn could significantly alter our retail store expansion strategy.
It may be difficult to sustain the historical growth and profitability of our Financial 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
profits from our Financial 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-off levels of our credit card
accounts;
• lack of growth of potential new customers generated by our Retail and Direct 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.