Cabela's 2004 Annual Report Download - page 74

Download and view the complete annual report

Please find page 74 of the 2004 Cabela's annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 130

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130

Economic downturns and social and other factors could cause our credit card charge-oÅs and
delinquencies to increase, which would decrease our proÑtability.
Economic downturns generally lead to increased charge-oÅs and credit losses in the consumer Ñnance
industry, which would cause us to experience increased charge-oÅs and delinquencies in our credit card
receivables portfolio. An economic downturn can hurt our Ñnancial performance as cardholders default on
their balances or carry lower balances. A variety of social and other factors also may cause changes in
credit card use, payment patterns and the rate of defaults by cardholders. These social factors include
changes in consumer conÑdence levels, the public's perception of the use of credit cards, changing
attitudes about incurring debt and the stigma of personal bankruptcy. Additionally, credit card accounts
tend to exhibit a rising trend in credit loss and delinquency rates between 18 to 30 months after they are
issued. If the rate of growth in new account generation slows, the proportion of accounts in the portfolio
that have been open for between 18 to 30 months will increase and the percentage of charge-oÅs and
delinquencies may increase. Our underwriting criteria and product design may be insuÇcient to protect the
growth and proÑtability of our Ñnancial services business during a sustained period of economic downturn
or recession or a material shift in social attitudes, and may be insuÇcient to protect against these
additional negative factors.
The performance of our Ñnancial services business may be negatively aÅected by the performance of our
merchandising businesses.
Negative developments in our direct and retail businesses could aÅect our ability to grow or maintain
our Ñnancial services business. We believe our ability to maintain cardholders and attract new cardholders
is highly correlated with customer loyalty to our merchandising businesses and to the strength of the
Cabela's brand. In addition, transactions on cardholder accounts produce loyalty points which the
cardholder may apply to future purchases from us. Adverse changes in the desirability of products we sell,
negative trends in retail customer service and satisfaction or the termination or modiÑcation of the loyalty
program could have a negative impact on our bank subsidiary's ability to grow its account base and to
attract desirable co-branding opportunities with third parties.
Changes in interest rates could have a negative impact on our earnings.
In connection with our Ñnancial services business, we borrow money from institutions and accept
funds by issuing certiÑcates of deposit, which we then lend to cardholders. We earn interest on the
cardholders' account balances, and pay interest on the certiÑcates of deposit and borrowings we use to fund
those loans. Changes in these two interest rates aÅect the value of the assets and liabilities of our Ñnancial
services business. If the rate of interest we pay on borrowings increases more (or more rapidly) than the
rate of interest we earn on loans, our net interest income, and therefore our earnings, could fall. Our
earnings could also be adversely aÅected if the rates on our credit card account balances fall more quickly
than those on our borrowings. In addition, as of Ñscal year end 2004, approximately 39.6% of our
cardholders did not maintain balances on their credit card accounts. We do not earn any interest from
these accounts but do earn other fees from these accounts such as VISA interchange fees. In the event
interest rates rise, the spread between the interest rate we pay on our borrowings and the fees we earn
from these accounts may change and our proÑtability may be adversely aÅected.
Fluctuations in the value of our interests in our securitizations relating to our Ñnancial services business
may adversely aÅect our earnings.
In connection with our securitizations relating to our Ñnancial services business, we retain certain
interests in the assets included in the securitization. These interests are carried in our consolidated
Ñnancial statements at fair value and include our retained interest, or a ""transferor interest,'' in the
securitized receivables, an ""interest only strip'' which represents our right to receive excess cash available
after repayment of all amounts due to the investors, and in some cases Class B certiÑcates which are
subordinate to the investors certiÑcates. See ""Management's Discussion and Analysis of Financial
Condition and Results of Operations Ì Liquidity and Capital Resources Ì Credit Card Loan Receivable
62