Cabela's 2008 Annual Report Download - page 49

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44
Corporate Overhead, Distribution Centers, and Other:
• An increase in employee compensation and benefits of $9 million from the expansion and improvement of
our infrastructure to support our growth.
• Depreciation expense increase of $3 million on information system upgrades implemented in 2006 and 2007.
• An increase in contract labor costs and software expense of $1 million on information system upgrades and
expansion.
Operating Income
Operating income increased $7 million, or 5.1%, for 2007. Operating income as a percentage of revenue decreased
to 6.4% for 2007 from 7.0% for 2006. Operating income comparisons between 2007 and 2006 are impacted by 1) the
addition of new retail stores in 2007 and 2006, 2) sales increases for our Direct business, and 3) the profitability of our
Financial Services business segment. The Financial Services segment incurs a marketing fee paid to the Retail and Direct
business segments. This 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 $4 million in 2007 compared to
2006 – a $1 million increase to the Direct business segment and a $3 million increase to the Retail segment.
Interest (Expense) Income, Net
Interest expense, net of interest income, increased $3 million to $19 million for 2007 compared to 2006. The net
increase in interest expense was primarily due to additional debt incurred for financing our retail store expansion.
During 2007, we capitalized interest totaling $4 million on qualifying fixed assets relating primarily to retail store
construction compared to $0.4 million during 2006.
Other Non-Operating Income, Net
Other income decreased $3 million to $7 million for 2007 from $10 million in 2006 due to a decrease in interest
earned on economic development bonds. Our investment in economic development bonds was lower in 2007 than
2006 because of retirements as we monetized bonds in both years.
Provision for Income Taxes
Our effective tax rate was 36.9% for 2007 compared to 37.5% in 2006. The decrease in our effective tax rate for
2007 was primarily due to less state income taxes in 2007 compared to 2006.