Cabela's 2014 Annual Report Download - page 75

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Credit Card Limits – The Financial Services segment bears off-balance sheet risk in the normal course of
its business. One form of this risk is through the Financial Services segment’s commitment to extend credit to
cardholders up to the maximum amount of their credit limits. The aggregate of such potential funding requirements
totaled $30 billion above existing balances at the end of 2014. These funding obligations are not included in our
consolidated balance sheet. While the Financial Services segment has not experienced, and does not anticipate that
it will experience, a significant draw down of unfunded credit lines by its cardholders, such an event would create
a cash need at the Financial Services segment which likely could not be met by our available cash and funding
sources. The Financial Services segment has the right to reduce or cancel these available lines of credit at any time.
Critical Accounting Policies and Use of Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America which requires management to make estimates and judgments that
affect amounts reported in the consolidated financial statements and accompanying notes. Management has
discussed the development, selection, and disclosure of critical accounting policies and estimates with the Audit
Committee of Cabela’s Board of Directors. While our estimates and assumptions are based on our knowledge of
current events and actions we may undertake in the future, actual results may ultimately differ from our estimates
and assumptions. Our estimation processes contain uncertainties because they require management to make
assumptions and apply judgment to make these estimates. Should actual results be different than our estimates,
we could be exposed to gains or losses from differences that may be material.
For a summary of our significant accounting policies, please refer to Note 1 “Nature of Business and
Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements. We believe
the accounting policies discussed below represent accounting policies we apply that are the most critical to
understanding our consolidated financial statements.
Merchandise Revenue Recognition
Revenue is recognized on our Direct sales when merchandise is delivered to the customer at the point of
delivery, with the point of delivery based on our estimate of shipping time from our distribution centers to the
customer. We recognize reserves for estimated product returns based upon our historical return experience and
expectations. Had our estimate of merchandise in-transit to customers and our estimate of product returns been
different by 10% at the end of 2014, our operating income would have been higher or lower by approximately
$1 million. Sales of gift instruments are recorded in merchandise revenue when the gift instruments are redeemed
in exchange for merchandise or services and as a liability prior to redemption. We recognize breakage on gift
instruments as revenue when the probability of redemption is remote. Had our estimate of breakage on our
recorded liability for gift instruments been different by 10% of the recorded liability at the end of 2014, our
merchandise revenue would have been higher or lower by approximately $1 million.
Inventories
Inventories are stated at the lower of average cost or market. All inventories are finished goods. We estimate
the provision for inventory shrinkage based on our historical inventory accuracy rates as determined by periodic
and annual cycle counts. The provision for damaged goods from returns is based upon our historical experience.
We estimate provisions for obsolete or slow moving inventory based on historical loss, specific identification,
product performance statistics, and future merchandising objectives. Had our estimated inventory reserves been
different by 10% at the end of 2014, our cost of sales would have been higher or lower by approximately $2 million.
Allowance for Loan Losses on Credit Cards
The allowance for loan losses represents management’s estimate of probable losses inherent in the credit card
loan portfolio. The allowance for loan losses is established through a charge to the provision for loan losses and is
evaluated by management for adequacy. Loans on a payment plan or non-accrual are segmented from the rest of
the credit card loan portfolio into a restructured credit card loan segment before establishing an allowance for loan