Cabela's 2013 Annual Report Download - page 33

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23
Changes in interest rates could have a negative impact on our earnings.
In connection with our Financial Services segment, we borrow money from institutions and accept
funds by issuing brokered and non-brokered certificates of deposit and securitizations, which we then lend to
cardholders. We earn interest on the cardholders’ account balances, and pay interest on the certificates of deposit
and borrowings we use to fund those loans. Changes in these two interest rates affect the value of the assets and
liabilities of our Financial Services segment. If the rate of interest we pay on borrowings increases more (or more
rapidly) than the rate of interest we earn on loans, our net interest income, and therefore our earnings, could fall.
Our earnings could also be materially adversely affected if the rates on our credit card account balances fall more
quickly than those on our borrowings. In the event interest rates rise, the spread between the interest rate we pay
on our borrowings and the fees we earn from these accounts may change and our profitability may be materially
adversely affected.
Credit card industry litigation and regulation could adversely impact the amount of revenue our
Financial Services segment generates from interchange fees.
Our Financial Services segment faces possible risk from the outcomes of certain credit card industry
litigation and potential regulation of interchange fees. For example, in June 2005, a number of entities, each
purporting to represent a class of retail merchants, sued Visa and several member banks, and other credit card
associations, alleging, among other things, that Visa and its member banks have violated United States antitrust
laws by conspiring to fix the level of interchange fees. On December 13, 2013, the court granted final approval to
a settlement between certain parties. The settlement agreement requires, among other things, (i) the distribution
to class merchants of an amount equal to 10 basis points of default interchange across all credit rate categories
for a period of eight consecutive months, which otherwise would have been paid to issuers like WFB, (ii) Visa to
change its rules to allow merchants to charge a surcharge on credit card transactions subject to a cap, and (iii) Visa
to meet with merchant buying groups that seek to negotiate interchange rates collectively. We recognized a liability
at the end of 2012 for $12.5 million related to the settlement as a reduction of interchange income in the Financial
Services segment. At December 28, 2013, the remaining liability balance for the settlement was $4.7 million, which
reflects adjustments relating to plaintiff opt-outs of the settlement and reevaluation of the merchant charge volume
based on Visa interchange reduction assessments. To date, WFB has not been named as a defendant in any credit
card industry lawsuits. Moreover, the amount of interchange fees that are charged to merchants could be capped
or limited by credit card industry regulation. If the interchange fees that are charged to merchants are reduced as
a result of the interchange lawsuits or regulation, the financial condition and results of operations of our Financial
Services segment may be negatively impacted.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.