Cabela's 2012 Annual Report Download - page 89

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CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Except Share and Per Share Amounts)
Financial Services revenue includes credit card interest and fees relating to late payments, payments made
with a customer service representative, payment assurance, foreign currency transactions, and cash advance
transactions. Interest and fees are accrued in accordance with the terms of the applicable cardholder agreements
on credit card loans until the date of charge-off unless placed on non-accrual and fixed payment plans. Interchange
income is earned when a charge is made to a customer’s account.
Cost of Revenue and Selling, Distribution, and Administrative Expenses – The Company’s cost of
revenue primarily consists of merchandise acquisition costs, including freight-in costs, as well as shipping costs.
The Company’s selling, distribution, and administrative expenses consist of the costs associated with selling,
marketing, warehousing, retail store replenishment, and other operating expense activities. All depreciation and
amortization expense is associated with selling, distribution, and administrative activities, and accordingly, is
included in this same category on the consolidated statements of operations.
Cash and Cash Equivalents – Cash equivalents include credit card and debit card receivables from other
banks, which settle within one to four business days. Receivables from other banks totaled $19,735 and $10,677 at
the end of 2012 and 2011, respectively. Unpresented checks, net of available cash bank balances, are classified as
current liabilities. Cash and cash equivalents of the Financial Services segment were $91,365 and $117,035 at the
end of 2012 and 2011, respectively. Due to regulatory restrictions on WFB, the Company cannot use WFB’s cash
for non-banking operations.
Credit Card Loans – Credit card loans are reported at their principal amounts outstanding less the allowance
for loan losses. As part of collection efforts, a credit card loan may be closed and placed on non-accrual or
restructured in a fixed payment plan prior to charge-off. The fixed payment plans consist of a lower interest rate,
reduced minimum payment, and elimination of fees. Loans on fixed payment plans include loans in which the
customer has engaged a consumer credit counseling agency to assist them in managing their debt. Customers who
miss two consecutive payments once placed on a payment plan or non-accrual will resume accruing interest at the
rate they had accrued at before they were placed on a plan. Interest and fees are accrued in accordance with the
terms of the applicable cardholder agreements on credit card loans until the date of charge-off unless placed on
non-accrual. Payments received on non-accrual loans are applied to principal. The Financial Services segment does
not record any liabilities for off-balance sheet risk of unfunded commitments through the origination of unsecured
credit card loans.
The direct credit card account origination costs associated with costs of successful credit card originations
incurred in transactions with independent third parties, and certain other costs incurred in connection with credit
card approvals, are deferred credit card origination costs included in credit card loans and are amortized on a
straight-line basis over 12 months. Other account solicitation costs, including printing, list processing, and postage
are expensed as solicitation occurs.
Allowance for Loan Losses – 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. The Financial Services segment 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