Cabela's 2012 Annual Report Download - page 48

38
The proposed rule would exempt certain risk mitigating hedging activities, liquidity commitments, and bona fide
market-making activity. It is not clear how the final rule will differ from the proposed rule, if at all. The final rule’s
impact on the securitization market and the Financial Services segment is also unclear at this time.
Proposed Settlement of Visa Litigation – 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 July 13, 2012, the parties to this litigation announced that they had entered into a
memorandum of understanding, which subject to certain conditions, including court approval, obligates the parties
to enter into a settlement agreement to resolve the claims brought by the class members. On November 9, 2012,
the settlement received preliminary court approval. 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. To date,
WFB has not been named as a defendant in any credit card industry lawsuits. Management believes that the
10 basis point reduction of default interchange across all credit rate categories for a period of eight consecutive
months would result in a reduction of interchange income of approximately $12.5 million in the Financial Services
segment. Accordingly, the Company has recorded a liability of $12.5 million as of December 29, 2012, to accrue for
such proposed settlement as a reduction of interchange income in the Financial Services segment.
Impact of Change in Accounting Principles in 2010 – The accounting guidance on consolidations and
accounting for transfers of financial assets and the criteria for determining whether to consolidate a variable
interest entity resulted in the consolidation of the Trust effective January 3, 2010, which resulted in an increase in
total assets and liabilities of $2.15 billion and $2.25 billion, respectively, and a decrease in retained earnings and
other comprehensive income of $93 million, after tax. In 2010, we began reporting the results of operations of our
Financial Services segment in a manner similar to our historical managed presentation for financial performance of
the total managed portfolio of credit card loans, excluding income derived from the changes in the valuation of our
interest-only strip, cash reserve accounts, and cash accounts associated with the securitized loans.
Operations Review
Our operating results expressed as a percentage of revenue were as follows for the years ended:
2012 2011 2010
Revenue 100.00% 100.00% 100.00%
Cost of revenue 56.86 57.39 59.16
Gross profit (exclusive of depreciation and amortization) 43.14 42.61 40.84
Selling, distribution, and administrative expenses 33.63 33.94 33.62
Impairment and restructuring charges 0.65 0.43 0.21
Operating income 8.86 8.24 7.01
Other income (expense):
Interest expense, net (0.65) (0.87) (1.03)
Other income, net 0.20 0.26 0.28
Total other income (expense), net (0.45) (0.61) (0.75)
Income before provision for income taxes 8.41 7.63 6.26
Provision for income taxes 2.83 2.56 2.05
Net income 5.58% 5.07% 4.21%