Cabela's 2012 Annual Report Download - page 62

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In 2011 and 2010, we evaluated the recovery of certain economic development bonds. In 2011, we determined
that the fair value of the bonds was below carrying value, with the decline in fair value deemed to be other
than temporary, which resulted in a fair value adjustment totaling $24 million at the end of 2011. The fair value
adjustment of $24 million reduced the carrying value of the economic development bond portfolio at the end of
2011, and resulted in a corresponding reduction in deferred grant income. This reduction in deferred grant income
resulted in an increase in depreciation expense of $7 million in 2011, which was included in impairment and
restructuring charges in the consolidated statements of income. At the end of 2010, none of the bonds with a fair
value below carrying value were deemed to have other than a temporary impairment.
Operating Income
Operating income comparisons were as follows for the years ended:
2011 2010
Increase
(Decrease) % Change
(Dollars in Thousands)
Total operating income $ 231,548 $ 186,762 $ 44,786 24.0%
Total operating income as a percentage
of total revenue 8.2% 7.0% 1.2%
Operating income by business segment:
Retail $ 263,010 $ 205,768 $ 57,242 27.8
Direct 172,163 156,255 15,908 10.2
Financial Services 59,032 52,401 6,631 12.7
Operating income as a percentage of segment revenue:
Retail 17.0% 14.6% 2.4%
Direct 18.0 15.6 2.4
Financial Services 20.2 23.0 (2.8)
Operating income increased $45 million, or 24.0%, in 2011 compared to 2010, and operating income as a
percentage of revenue increased to 8.2% for 2011. The increases in total operating income and total operating income
as a percentage of total revenue were primarily due to increases in revenue from our Retail and Financial Services
segments as well as an increase in our merchandise gross profit. These improvements were partially offset by lower
revenue from our Direct business segment and higher consolidated operating expenses. Selling, distribution, and
administrative expenses increased in 2011 compared to 2010 due to increases in comparable and new store costs and
related support areas, pre-opening costs, and costs related to our customer relationship management system, but were
partially offset by the decrease of $8 million related to the 2009 FDIC compliance examination.
During 2011 and 2010, under a contractual arrangement, the Financial Services segment incurred a marketing
fee paid to the Retail and Direct business segments. The marketing fee was calculated based on the terms of a
contractual arrangement consistently applied to both years presented. The marketing fee is included in selling,
distribution, and administrative expenses as an expense for the Financial Services segment and as a credit to
expense for the Retail and Direct business segments. The marketing fee paid by the Financial Services segment to
these two business segments increased $55 million in 2011 compared to 2010 – a $33 million increase to the Retail
segment and a $22 million increase to the Direct business segment.
Interest (Expense) Income, Net
Interest expense, net of interest income, decreased $3 million to $24 million in 2011 compared to 2010. The
net decrease in interest expense was primarily due to interest expense accrued on increases in certain unrecognized
tax benefits reflected in 2010, partially offset by a decrease in interest expense due to a lower average balance of
debt outstanding from managed debt reduction and lower weighted average interest rates in 2011 compared to 2010.