Cabela's 2007 Annual Report Download - page 55

49
2007 2006 2005
As a percentage of total balances outstanding:
Balances carrying interest rate based upon the national prime lending rate ........ 61.1% 60.2% 58.0%
Balances carrying an interest rate of 9.99% ................................. 3.1 3.3 3.0
Balances carrying an interest rate of 0.00% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 0.1 0.1
Balances not carrying interest because their previous
month’s balance was paid in full ....................................... 35.5 36.4 38.9
100.0% 100.0% 100.0%
Charges on the credit cards issued by our Financial Services segment are priced at a margin over the defined
national prime lending rate, subject to certain interest rate floors. However, purchases of Cabela’s merchandise,
certain other charges, and balance transfer programs are financed at a fixed interest rate of 9.99%. Together, the
balances on these credit cards represent 64.2% of total balances outstanding at the end of 2007. No interest is charged
if the account is paid in full within 20 days of the billing cycle, which represent 35.5% of total balances outstanding.
Credit card balances with a zero percentage interest rate have increased over prior years due to an increase in
promotional merchandise offers.
Management has performed an interest rate gap analysis to measure the effects of the timing of the repricing
of our interest sensitive assets and liabilities. Based on this analysis, we believe that if there had been an immediate
100 basis point, or 1.0%, increase in the market rates for which our assets and liabilities are indexed during the next
twelve months, our projected operating results would not be materially affected. Management also has performed
a projected interest rate gap analysis for the same future twelve month period to measure the effects of a change in
the spread between the prime interest rate and the LIBOR interest rate. Based on this analysis, we believe that an
immediate spread decrease of 50 basis point, or 0.5%, would cause a pre-tax decrease to income of $5 million, and an
immediate spread increase of 50 basis points would cause a pre-tax increase to income of $7 million on our Financial
Services segment over the next twelve months, which could have a material effect on our operating results.
Merchandising Business Interest Rate Risk
One of our economic development bond agreements, priced at a variable interest rate, had a portion of those
bonds retired in June 2006, and the interest rates were renegotiated. The remaining $43 million of these particular
economic development bonds were redeemed in full in April 2007.
The interest payable on our line of credit is based on variable interest rates and therefore affected by changes in
market interest rates. If interest rates on existing variable rate debt increased 1.0%, our interest expense and results
from operations and cash flows would not be materially affected.
Foreign Currency Risk
We purchase a significant amount of inventory from vendors outside of the United States in transactions that are
primarily U. S. dollar transactions. A small percentage of our international purchase transactions are in currencies
other than the U. S. dollar. Any currency risks related to these transactions are immaterial to us. A decline in the
relative value of the U. S. dollar to other foreign currencies could, however, lead to increased merchandise costs. For
our retail store in Canada, we intend to fund all transactions in Canadian dollars, and we will utilize our unsecured
revolving credit agreement for $14.9 million to fund such operations.