Cabela's 2009 Annual Report Download - page 83

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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 a retailer of hunting, fishing, and outdoor gear, offering products
through retail stores, the Internet, and regular and special catalog mailings. Cabela’s operates 30 retail stores, 29 located
in 21 states and one located in Winnipeg, Manitoba. World’s Foremost Bank (“WFB” or “bank”), a wholly-owned
subsidiary of Cabela’s, is a limited purpose bank formed under the Competitive Equality Banking Act of 1987. 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.
Principles of Consolidation – The consolidated financial statements include the accounts of Cabela’s Incorporated
and its wholly-owned subsidiaries (“Cabela’s,” “Company,” “we,” “our,” or “us”). All material intercompany accounts
and transactions have been eliminated in consolidation.
Reporting Year – Our fiscal year 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 53 weeks ended January 2, 2010 (“2009”
or “year ended 2009”), the 52 weeks ended December 27, 2008 (“2008” or “year ended 2008”), and the 52 weeks ended
December 29, 2007 (“2007” or “year ended 2007”). WFB follows a calendar fiscal period and, accordingly, fiscal years
end on December 31st. Fiscal 2009 consisted of 53 weeks and fiscal 2008 consisted of 52 weeks. The effect of the extra
week in 2009 on total revenues was an increase of $51,444, or 2.0%, compared to 2008.
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 store sales at the time of the sale in the store and for Direct
sales when the merchandise is delivered to the customer. We recognize a reserve for estimated product returns based on
our historical returns experience. Shipping fees charged to customers are included in net revenue and shipping costs are
included in cost of revenue.
Revenue from the sale of gift certificates, gift cards, and e-certificates is recognized in revenue when the gift
instruments are redeemed for merchandise or services. We record gift instrument breakage as revenue when the
probability of redemption is remote. Historically, the Company recognized breakage seven years after the issuance of a
gift certificate or gift card. In the fourth quarter of 2008, we began recognizing breakage on gift instruments four years
after issuance as a result of changes in trends in the types of gift instruments issued and the related redemption rates.
The impact of the change in estimate in the fourth quarter of 2008 was an increase in revenue and operating income of
$8,702. Total gift instrument breakage was $4,522, $10,152, and $1,458 for 2009, 2008, and 2007, respectively. Our gift
instrument liability at the end of 2009 and 2008 was $103,305 and $106,159, 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 – Financial Services revenue includes credit card interest and fees relating to
late payments, over limit, returned check, payment assurance, and cash advance transactions. 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 agreements on credit
card loans until the date of charge-off. Charge-offs for credit card loans are recorded when accounts are, at a minimum,
130 days contractually delinquent. Accounts relating to cardholder bankruptcies, cardholder deaths, and fraudulent
transactions are charged off earlier. Interest income is accrued on accounts that carry a balance from the statement date
through the end of the month.