Cabela's 2004 Annual Report Download - page 51

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not directly comparable to other participants in the bankcard industry. Our charge-oÅ activity for the
managed portfolio for Ñscal years 2004, 2003 and 2002 is summarized below:
Fiscal Year
2004 2003 2002
Gross charge-oÅsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $23,134 $19,554 $15,074
Recoveries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,477 2,499 1,907
Net charge-oÅs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 19,658 17,055 13,167
Net charge-oÅs as a percentage of average managed loans ÏÏÏÏÏÏ 2.21% 2.42% 2.45%
Liquidity and Capital Resources
Overview
Our merchandising business and our Financial Services segment have signiÑcantly diÅerent liquidity
and capital needs. The primary cash requirements of our merchandising business relate to purchase of
inventory, capital for new destination retail stores, purchases of economic development bonds related to the
development of new destination retail stores, investments in our management information systems and
other infrastructure, and other general working capital needs. We historically have met these requirements
by generating cash from our merchandising business operations, borrowing under revolving credit facilities,
issuing debt and equity securities, obtaining economic development grants from state and local
governments in connection with developing our destination retail stores and collecting principal and interest
payments on our economic development bonds. The cash Öow we generate from our merchandising
business is seasonal, with our peak cash requirements for inventory occurring between May and
September. While we have consistently generated overall positive annual cash Öow from our operating
activities, other sources of liquidity are generally required by our merchandising business during these peak
cash use periods. These sources historically have included short-term borrowings under our revolving credit
facility and access to debt markets, such as the private placement of long-term debt securities we
completed in September 2002. While we generally have been able to manage our cash needs during peak
periods, if any disruption occurred to our funding sources, or if we underestimated our cash needs, we
would be unable to purchase inventory and otherwise conduct our merchandising business to its maximum
eÅectiveness which would result in reduced revenues and proÑts.
The primary cash requirements of our Financial Services segment relate to the generation of credit
card receivables and the purchase of points used in the customer loyalty rewards program from our
merchandising business. The bank obtains funds for these purposes through various Ñnancing activities,
which include engaging in securitization transactions, borrowing under federal funds bank credit facilities,
selling certiÑcates of deposit and generating cash from operations. Due to the limited nature of its state
charter, the bank is prohibited from making commercial or residential loans. Consequently, it cannot lend
money to Cabela's Incorporated or our other aÇliates. The bank is subject to capital requirements imposed
by Nebraska banking law and the VISA membership rules, and its ability to pay dividends is limited by
Nebraska and federal banking law.
We believe that we will have suÇcient capital available from current cash on hand, operations and
our revolving credit facility and other borrowing sources, including the possible monetization of our
economic development bonds, to fund our existing operations and growth plan for the next twelve months.
Operating, Investing and Financing Activities
Cash provided by operating activities was $47.0 million in Ñscal 2004 as compared with $67.2 million
in Ñscal 2003. Cash decreased primarily due to an increase in cash used to originate credit card loans in
excess of cash received from the sale of interests in credit card loans in connection with securitization
transactions of $49.6 million. We increased the amount of cash spent for inventory by $5.4 million. Total
inventory was up $50.2 million in Ñscal 2004 compared to an increase of $44.9 million in Ñscal 2003.
39