Cabela's 2011 Annual Report Download - page 73

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63
For a summary of our significant accounting policies, please refer to Note 1 of our 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 2011, our operating income would have been higher or lower by approximately
$0.5 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 2011, our
merchandise revenue would have been higher or lower by approximately $0.7 million.
Inventories
We estimate provisions for inventory shrinkage, damaged goods returned values, and obsolete and
slow-moving items based on historical loss and product performance statistics and future merchandising objectives.
Had our estimated inventory reserves been different by 10% at the end of 2011, our cost of sales would have been
higher or lower by approximately $1.3 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
regularly 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 losses as these loans have a higher probability of loss. Management estimates losses inherent in the credit card
loans segment and restructured credit card loans segment based on a model which tracks historical loss experience on
delinquent accounts, bankruptcies, death, and charge-offs, net of estimated recoveries. WFB uses a migration analysis
and historical bankruptcy and death rates to estimate the likelihood that a credit card loan will progress through the
various stages of delinquency and to charge-off. This analysis estimates the gross amount of principal that will be
charged off over the next 12 months, net of recoveries. This estimate is used to derive an estimated allowance for
loan losses. In addition to these methods of measurement, management also considers other factors such as general
economic and business conditions affecting key lending areas, credit concentration, changes in origination and
portfolio management, and credit quality trends. Since the evaluation of the inherent loss with respect to these factors
is subject to a high degree of uncertainty, the measurement of the overall allowance is subject to estimation risk,
and the amount of actual losses can vary significantly from the estimated amounts. For example, had management’s
estimate of net losses over the next 12 months been different by 10% at the end of 2011, WFB’s allowance for loan
losses and provision for loan losses would have changed by approximately $8 million.
Credit card loans that have been modified through a fixed payment plan or placed on non-accrual are
considered impaired and are collectively evaluated for impairment. WFB charges off credit card loans and
restructured credit card loans on a daily basis after an account becomes at a minimum 130 days contractually
delinquent. Accounts relating to cardholder bankruptcies, cardholder deaths, and fraudulent transactions are
charged off earlier. WFB recognizes charged-off cardholder fees and accrued interest receivable in interest and fee
income that is included in Financial Services revenue.