Cabela's 2006 Annual Report Download - page 68

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64
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Except Share and Per Share Amounts)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business — Cabela’s Incorporated is the World’s Foremost Outfitter of hunting, fishing and outdoor
gear. Cabela’s is a retailer and direct merchant, offering its products through regular and special catalog mailings,
the Internet and 18 destination retail stores located in 12 states. The products of Cabela’s are sold throughout the
United States as well as many foreign countries. World’s Foremost Bank (“WFB”), a wholly-owned bank subsidiary,
is a limited purpose bank formed under the Competitive Equality Banking Act of 1987. Due to the limited nature
of its charter, the lending activities of WFB are limited to credit card lending and its deposit issuance is limited to
time deposits of at least one hundred thousand dollars. The operations of WFB are accounted for in the Company’s
Financial Services segment.
Principles of Consolidation — The consolidated financial statements include the accounts of Cabela’s
Incorporated and its wholly owned subsidiaries (the “Company”). All material intercompany accounts and
transactions have been eliminated in consolidation.
Initial Public Offering — On June 30, 2004, the Company closed its initial public offering of 6,250,000 shares
of common stock, resulting in net proceeds of $114,219. The Company used $38,088 of the net proceeds to repay
the outstanding balance on its open line of credit. The remaining amount was used for capital expenditures and the
purchase of economic development bonds related to the construction and opening of new destination retail stores.
Reporting Year — The fiscal year of the Company ends on the Saturday nearest to December 31. Unless
otherwise stated, the fiscal years referred to in the notes to these consolidated financial statements are the 52 weeks
ended December 30, 2006 (“fiscal 2006” or “fiscal year ended 2006”), the 52 weeks ended December 31, 2005
(“fiscal 2005” or “fiscal year ended 2005”), and the 52 weeks ended January 1, 2005 (“fiscal 2004” or “fiscal year
ended 2004”). The fiscal year of WFB ends on December 31.
Use of Estimates — The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition — Revenue is recognized for retail sales at the time of the sale in the store and for direct
sales when the merchandise is delivered to the customer. The Company records a reserve for estimated product
returns in each reporting period, which is equal to the gross profit on projected merchandise returns and impairment
of merchandise, based on its historical returns experience. Shipping fees charged to customers are included in net
revenue and shipping costs are included in cost of revenue. Gift certificates and gift cards (“gift instruments”) are
recorded in revenue as the gift instruments are redeemed for merchandise. The gift instruments are recorded as a
liability prior to their redemption. The Company records breakage as revenue related to its gift instruments using
a specific identification approach. Breakage is recognized as revenue when the probability of redemption, which is
based on Company historical gift instrument redemption patterns, is remote. The gift instrument liability at the end
of fiscal 2006 and 2005 was $86,974 and $73,182, respectively. WFB recognizes gains on sales of credit card loans as
these loans are securitized and sold. Interchange income is earned when a charge is made to a customer’s account.
Credit Card Interest and Fees — Credit card interest and fees are included as Financial Services revenue
and include interest as well as fees relating to late payments, over limit, returned check, cash advance transactions
and other credit card fees. These fees are assessed according to the terms of the related cardholder agreements
and recognized as revenue when charged to the cardholders’ accounts. Interest and fees are accrued in accordance
with the terms of the applicable cardholder agreement on credit card loans until the date of charge-off, which is
generally on the 24th day of the month after an account becomes 115 days contractually past due, except in the case
of cardholder bankruptcies, cardholder deaths and fraudulent transactions, which are charged off earlier. Interest
income is accrued on accounts that carry a balance from the statement date through the end of the month.