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The AAO Weblog covers accounting issues and current events as they relate the practice of investment analysis. All posts prior to September, 2007 are in the public domain, but after September 4, 2007, only subscribers to The Analyst's Accounting Observer will see all posts going forward. Only selected, occasional posts will be released to the public domain from September 4 forward.

Cold Water For Coldwater Creek

Location: Blogs AAO Weblog (Public)
Posted by: Jack Ciesielski	5/25/2006 6:32 AM
It's been a while since we visited the restatement zoo... Today's trip is brought to you by retailer Coldwater Creek, who filed a non-reliance 8-K yesterday covering last year's financials. Coldwater Creek had co-marketed a credit card with an unnamed card issuer; it received an upfront fee from the issuer when a customer signed on for a card and activated. Coldwater had been accounting for the "marketing fee" in its entirety upon activation in 2005 - but it should have been deferring the fee and recognizing it as revenue over a longer stretch. (The 8-K didn't say what stretch.) The restatement will slice $.06 from the 2005 earnings of $.32, making it a lucrative arrangement. The 8-K didn't go into details about the nature of the accounting involved, but it sounds a lot like a SFAS 91 issue. That standard calls for "origination fees" tied to loans to be spread over the life of a loan rather than recognized up front. A "marketing fee" charged by Coldwater Creek for procuring a credit card customer - a borrower who's being extended credit by the card issuer - sounds much like an origination fee. So perhaps CC is now going to recognize the revenue over the average outstanding balance of the customers procured. If SFAS 91 sounds familiar, it's because Fannie Mae had her problems with it, as announced yesterday. Do not jump to the conclusion that this is the beginning of a new restatement wave. Calling it a coincidence makes much more sense for now.

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