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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended January 1, 2005 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 1-32227
CABELA’S INCORPORATED
(Exact name of registrant as specified in its charter)
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Delaware |
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20-0486586 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification Number) |
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One Cabela Drive, Sidney, Nebraska
(Address of principal executive offices) |
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69160
(Zip Code) |
Registrant’s telephone number, including area code:
(308) 254-5505
Securities registered pursuant to Section 12(b) of the
Act:
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| Title of Each Class |
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Name of Each Exchange on Which Registered |
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Class A Common Stock, par value $0.01 per share
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to the filing requirements for at least the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§229.405
of this chapter) is not contained herein, and will not be
contained, to the best of the registrant’s knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange
Act). Yes o No þ
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant was
approximately $775,474,531 as of July 2, 2004 (the last
business day of the registrant’s most recently completed
second fiscal quarter) based upon the closing price of the
registrant’s Class A Common Stock on that date as
reported on the New York Stock Exchange. For the purposes of
this disclosure only, the registrant has assumed that its
directors and executive officers and the beneficial owners of 5%
or more of its voting common stock are affiliates of the
registrant.
Indicate the number of shares outstanding of each of the
issuer’s classes of common stock, as of the latest
practicable date.
Common stock, $0.01 par value: 64,836,116 shares,
including 8,073,205 shares of non-voting common stock, as
of March 15, 2005.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for
the Annual Meeting of Stockholders to be held May 11, 2005,
are incorporated by reference into Part III of this
Form 10-K to the extent stated herein.
CABELA’S INCORPORATED
FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 1, 2005
TABLE OF CONTENTS
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PART I
Special Note Regarding Forward-Looking Statements
This report contains “forward-looking statements” that
are based on our beliefs, assumptions and expectations of future
events, taking into account the information currently available
to us. All statements other than statements of current or
historical fact contained in this report are forward-looking
statements. Forward-looking statements involve risks and
uncertainties that may cause our actual results, performance or
financial condition to differ materially from the expectations
of future results, performance or financial condition we express
or imply in any forward-looking statements. These risks and
uncertainties include, but are not limited to: the ability to
negotiate favorable lease and economic development arrangements,
expansion into new markets; market saturation due to new
destination retail store openings; the rate of growth of general
and administrative expenses associated with building a
strengthened corporate infrastructure to support our growth
initiatives; increasing competition in the outdoor segment of
the sporting goods industry; the cost of our products; supply
and delivery shortages or interruptions; adverse weather
conditions which impact the demand for our products;
fluctuations in operating results; adverse economic conditions;
increased fuel prices; labor shortages or increased labor costs;
changes in consumer preferences and demographic trends;
increased government regulation; inadequate protection of our
intellectual property; other factors that we may not have
currently identified or quantified; and other risks, relevant
factors and uncertainties identified in the “Factors
Affecting Future Results” section of this report. The words
“believe,” “may,” “should,”
“anticipate,” “estimate,”
“expect,” “intend,” “objective,”
“seek,” “plan,” “will,” and
similar statements are intended to identify forward-looking
statements. Given the risks and uncertainties surrounding
forward-looking statements, you should not place undue reliance
on these statements. Our forward-looking statements speak only
as of the date of this report. Other than as required by law, we
undertake no obligation to update or revise forward-looking
statements, whether as a result of new information, future
events or otherwise.
Overview
We are the nation’s largest direct marketer, and a leading
specialty retailer, of hunting, fishing, camping and related
outdoor merchandise. Since our founding in 1961, Cabela’s
has grown to become one of the most well-known outdoor
recreation brands in the United States, and we have long been
recognized as the World’s Foremost Outfitter. Through our
well-established direct business and our growing number of
destination retail stores, we believe we offer the widest and
most distinctive selection of high quality outdoor products at
competitive prices while providing superior customer service.
Our multi-channel retail model –catalog, Internet and
destination retail stores — strategically positions us
to meet our customer’s ever-growing needs. We also issue
the Cabela’s Club VISA credit card through which we offer a
related customer loyalty rewards program as a vehicle for
strengthening our customer relationships.
Our extensive product offering consists of approximately 245,000
stock keeping units, or SKUs, and includes hunting, fishing,
marine and camping merchandise, casual and outdoor apparel and
footwear, optics, vehicle accessories, gifts and home
furnishings with an outdoor theme. Our direct business uses
catalogs and the Internet to increase brand awareness and
generate customer orders via the mail, telephone and the
Internet. In fiscal 2004, we circulated over 120 million
catalogs with 76 separate titles and our website, cabelas.com,
was in the top 1% of sites in the Hitwise Incorporated online
measurement sport and fitness category based on market share of
visits. We opened our first destination retail store in 1987 and
currently operate ten destination retail stores that range in
size from 35,000 square feet to 250,000 square feet,
including our five large-format destination retail stores which
are 150,000 square feet or larger. We currently have plans
to open four new destination retail stores in 2005, at least two
in 2006, and at least two in 2007.
We were initially incorporated as a Nebraska corporation in 1965
and were reincorporated as a Delaware corporation in January of
2004. In June of 2004, we completed our initial public offering
of
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common stock, raising over $114 million, of which
$38.1 million was used to pay the outstanding balance on
our line of credit and the balance was used for retail
expansion. Our common stock is listed on the New York Stock
Exchange under the symbol “CAB.”
Cabela’s®, Cabela’s Club®, World’s
Foremost Outfitter®, World’s Foremost Bank®, and
Bargain Cave® are registered trademarks that we own. Other
service marks, trademarks and trade names referred to in this
report are the property of their respective owners.
Accomplishments in 2004
Fiscal 2004 was a historic year for Cabela’s, as several
exciting things happened which set the stage for our future,
including;
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We raised over $114 million in our initial public offering,
which was used for retail expansion and paying down our line of
credit. |
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We initiated plans to open four new stores in 2005, two in 2006,
and two in 2007. |
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We opened our new Wheeling, West Virginia distribution center,
strategically located around our customer and retail base. |
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We opened a new 176,000 square foot destination retail
store in Wheeling, West Virginia. |
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Our direct business continued on a steady growth pattern and
increased revenues by 5% in fiscal 2004, on a 53 to 52 week
comparison. For the comparative 52 weeks, revenues
increased by 6.6%. We added new catalogs featuring home and
cabin furnishings, women’s and children’s clothing,
and work wear. |
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Our wholly-owned bank subsidiary, World’s Foremost Bank,
reached $1 billion in its managed credit card receivables,
and surpassed the one million credit card accounts mark. |
Business Strategy
Our business strategy emphasizes the following key components:
Continue to open new destination retail stores. We have
grown our destination retail store base from four stores in 1998
to ten in 2004. We currently plan to open four large-format
destination retail stores in 2005, all of which have been
announced. Through our extensive customer database and analysis
of historical sales data generated by our direct business, we
are able to identify geographic areas with a high concentration
of customers that represent potential new markets for our
destination retail stores. We believe that there are many
additional markets throughout the United States that could
potentially support one of our large-format destination retail
stores. Additionally, we believe that smaller-format destination
retail stores could provide further opportunities for future
expansion. We continue to actively seek additional locations to
open new destination retail stores.
Expand our direct business. We plan to expand our direct
business through several initiatives regarding existing and new
customers. We will seek to increase the amount each customer
spends on our merchandise through the continued introduction of
new catalog titles and the development and introduction of new
products. We have begun to take advantage of web-based
technologies such as targeted promotional e-mails, on-line
shopping engines and Internet affiliate programs to increase
sales. We also plan to improve our customer relationship
management system which we expect will allow us to better manage
our customer relationships and more effectively tailor our
marketing programs.
Improve our operating efficiencies and store
productivity. As we continue to grow our business through
opening new destination retail stores and building our direct
business, we believe that we will improve our operating
efficiencies by optimizing and investing in our management
information systems, or MIS, distribution and logistics
capabilities. In addition, we intend to improve destination
retail store productivity by adjusting our in-store staffing
levels and refining our destination retail store layout
strategies.
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Expand the reach of our brand and target market through
complementary opportunities. We focus on increasing consumer
awareness of our company and maintaining and developing our
outdoor lifestyle image by using consistent branding in all of
our distribution channels. We also will seek to continue to
effectively broaden the application of our brand through
opportunistic acquisitions of complementary businesses, as well
as through the internal development of relevant businesses and
product categories. We will continue to leverage our brand
recognition in selected areas through corporate relationships
and alliances. We intend to increase the penetration of our
Cabela’s Club VISA credit card among our customer base
through low cost target marketing and solicitations at our
destination retail stores, which we believe, based upon
historical results, will reinforce our customer loyalty and
retention and thereby increase revenue and net income.
Direct Business
Our direct business uses catalogs and the Internet as marketing
tools to generate sales orders via the telephone, the Internet
and the mail. Our direct business generated $970.6 million
in revenue in fiscal 2004, representing approximately 66% of our
total revenue from our direct and retail businesses for fiscal
2004. See Note 20 to our consolidated financial statements
and our “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” for
additional financial information regarding our direct business.
We have been marketing our products through our print catalog
distributions to our customers and potential customers for over
40 years. We believe that our catalog distributions have
been one of the primary drivers of the growth of our goodwill
and brand name recognition and serve as an important marketing
tool for our destination retail stores. In fiscal 2004, we
mailed more than 120 million catalogs with 76 separate
titles to all 50 states and to more than 120 countries. Our
general catalogs range from 300 to 1,480 pages and our specialty
catalogs range from 52 to 240 pages. Our catalog layouts are
designed to increase sales by presenting products in specific
categories and sections.
Our specialty catalogs offer products focused on one outdoor
activity, such as fly fishing, archery or waterfowl. We
carefully analyze our historical sales data and introduce
targeted specialty catalogs featuring product lines that have
historically generated sufficient customer interest. For
example, as a result of the demand for women’s apparel and
footwear in our general catalogs, we have designed new specialty
catalogs featuring a wide selection of merchandise in that
category. We introduced six new specialty catalogs in 2004 that
focused on outdoor-themed furniture and home accessories as well
as women’s clothing and children’s outdoor clothing.
We use the customer database generated by our direct business to
ensure that customers receive catalogs matching their
merchandise preferences, identify new customers and cross-sell
merchandise to existing customers.
We also market our products through our website which has a
number of features, including product information and ordering
capabilities and general information on the outdoor lifestyle.
This cost-effective medium is designed to offer a convenient,
highly visual, user-friendly and secure online shopping option
for new and existing customers. Our website was in the top 1% of
sites in the Hitwise Incorporated online measurement
sport & fitness category based on market share of
visits.
Our website offers all of the merchandise included in our
catalogs and contains more extensive product descriptions and
photographs, as well as additional sizes and colors of selected
merchandise. In addition to the ability to order the same
products available in our catalogs (including the use of the
catalog product identification number for quick ordering), our
website gives customers the ability to purchase gift
certificates, research outdoor activities and choose from other
services we provide. Our website also offers discontinued
merchandise through a Bargain Cave link which is advertised in
our catalogs.
Our website is our most cost-effective means of offering certain
specialized or hard-to-find merchandise that may not be
available through our catalogs or destination retail stores.
This allows us to
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offer rare and highly specialized merchandise to our customers
which enhances our reputation as a leading authority in the
outdoor recreation market. We have agreements to drop-ship
specialized merchandise directly from our vendors to our
customers, enabling us to provide unusual, hard-to-ship and
hard-to-inventory items, including furniture and perishables, to
our customers without having to physically maintain an inventory
of these items at our distribution centers.
We have been aggressively expanding our e-mail mailing lists as
a way to provide inexpensive communication with customers and as
a means to promote our products and our brand. Our promotional
e-mails are customized to meet customers’ shopping
preferences and merchandise tastes. We believe that with the
growing number of households with Internet and e-mail access, we
can leverage our website to generate more revenue and connect
more frequently with new and existing customers.
Many of our customers read and browse our catalogs, but order
products through our website. Based on our customer surveys, we
believe that approximately 95% of our customers wish to continue
to receive catalogs even though they purchase merchandise and
services through our website. Accordingly, we remain committed
to marketing our products through our catalog distributions and
view our catalogs and the Internet as a unified selling and
marketing tool.
We have acquired selected other businesses that comprise a part
of our direct business which we believe are an extension of our
core competencies. These businesses include Dunn’s, which
offers hunting-dog equipment and high-end hunting accessories,
Van Dyke’s Restorers, which offers home restoration
products, Van Dyke’s Taxidermy, which offers taxidermy
supplies, Wild Wings, which offers wildlife prints and other
collectibles and the Ducks Unlimited catalog, which offers
waterfowl products. In 1996, we acquired the assets of the
Gander Mountain direct business and integrated them into our
business.
Retail Business
We currently operate ten destination retail stores in eight
states. Our retail operations generated $499.1 million in
revenue in fiscal 2004 representing 34% of our total revenues
from our direct and retail businesses for fiscal 2004. See
Note 20 to our consolidated financial statements and our
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” for additional
financial information regarding our retail business.
Building on our success in the direct business, we opened our
first destination retail store in Kearney, Nebraska in 1987. In
1991, we opened a second destination retail store in Sidney,
Nebraska. Since 1998, we expanded our retail business by opening
eight additional destination retail stores in seven states. For
fiscal 2004, our destination retail stores which were open as of
January 4, 2004 generated average net sales per gross
square foot of $398 as compared to $386 per gross square
foot in fiscal 2003.
Store Format and Atmosphere. We have developed a
destination retail store concept that is designed to appeal to
the entire family and draw customers from a broad geographic and
demographic range. Our destination retail stores range in size
from 35,000 to 250,000 square feet and our large-format
destination retail stores are 150,000 square feet or
larger. These destination retail stores are similar in format,
merchandise offered and ambiance, despite variations in their
size. The sites for our destination retail stores are generally
located in close proximity to major traffic arteries and in
regions of the country that have large concentrations of
existing customers of our direct business. Our large-format
destination retail stores have been recognized in some states as
one of the top tourist attractions, often attracting the
construction and development of hotels, restaurants and other
retail establishments in areas adjacent to these stores. The
large size of our destination retail stores allows us to offer a
broad selection of products, helps to provide us with
flexibility to respond to seasonal needs and merchandise trends
and enables us to manage the flow of customer traffic. We
attempt to adjust our staffing levels to meet customer traffic
flows.
We design our destination retail stores to reinforce our outdoor
lifestyle image and to create an enjoyable, friendly and
interactive shopping experience for both casual customers and
outdoor enthusiasts. These stores are designed to communicate an
outdoor lifestyle environment characterized by the outdoor
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feel of our interior lighting, wood or tile flooring, cedar wood
beams, open ceilings, neutral tone decor and lodge type
atmosphere. We also present our merchandise in a customer
friendly fashion with engaging end-cap displays and effective
product category adjacencies and have begun the process of
implementing a new space planning software system for our
destination retail stores which we believe will help us better
utilize the space in our destination retail stores.
In addition, our large-format destination retail stores are
designed to simulate an outdoor lifestyle environment by
including numerous amenities and interactive areas so that
customers can test our products before making a purchase
decision. These attributes differentiate our destination retail
stores making them appeal to entire families and we believe
increase the average shopping time customers spend in our
stores. The design, durability and style of our destination
retail stores also allow us to keep our remodeling and upkeep
costs low.
New Store Site Selection. We have identified locations
that may be suitable for new destination retail stores as part
of our retail expansion strategy. With only ten destination
retail stores in operation at the present time, we believe
opening additional destination retail stores provides a
significant growth opportunity. Through our extensive customer
database generated by our direct business and additional
demographic and competitive research, we can identify geographic
areas with a high concentration of customers that represent
potential new markets for our destination retail stores. We
believe that there are many additional markets throughout the
United States that could potentially support one of our
large-format destination retail stores. We also believe that our
customer database gives us a competitive advantage in tailoring
product offerings in each of our destination retail stores to
reflect our customers’ regional preferences. Additionally,
we believe that smaller-format destination retail stores could
provide further opportunities for future retail expansion.
In August 2004, we opened a new 176,000 square foot
destination retail store in Wheeling, West Virginia. In 2005, we
currently plan on opening a 230,000 square foot destination
retail store in Ft. Worth, Texas, a 185,000 square
foot destination retail store in Buda, Texas, a
150,000 square foot destination retail store in Lehi, Utah,
and a 185,000 square foot destination retail store in
Rogers, Minnesota. We also continue to actively seek additional
locations to open new destination retail stores.
Store Locations and Ownership. We own all of our
destination retail stores. However, in connection with some of
the economic development packages received from state or local
governments where our stores are located, we have entered into
agreements granting ownership of the taxidermy, diorama or other
portions of our stores to these state and local governments. See
Item 2 “Properties” for a listing of locations of
our stores. We have evaluated the Securities and Exchange
Commission’s (SEC) recently issued clarification of
lease accounting and we believe that we have accounted for our
limited number of lease agreements appropriately.
Construction and Store Development. Currently, the
average initial net investment to construct a large-format
destination retail store ranges from approximately
$40 million to $80 million depending on the size of
the store, the location and the amount of public improvements
necessary. This includes the costs of real estate, site work,
public improvements such as utilities and roads, buildings,
fixtures (including taxidermy) and inventory. As we continue to
open new destination retail stores, we believe that the layout
for our future destination retail stores will reflect
improvements in our construction processes, materials and
fixtures, merchandise layout and store design. These
improvements may further enhance the appeal of our destination
retail stores to our customers and lower our overall costs.
Historically, in connection with the acquisition of land for our
new stores, we have attempted to acquire and develop additional
land for use by complementary businesses, such as hotels and
restaurants, which are adjacent to our destination retail
stores. We intend to continue to acquire, develop and sell
additional land adjacent to some of our future destination
retail stores. We have previously aimed to obtain tailored
economic development arrangements from local and state
governments where our destination retail stores are located and
we expect to obtain similar arrangements in connection with the
construction of future destination retail stores.
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Products and Merchandising
We offer our customers a comprehensive selection of high
quality, competitively priced, national and regional brand
products, including our own Cabela’s brand. Our product
offering includes hunting, fishing, marine and camping
merchandise, casual and outdoor apparel and footwear, optics,
vehicle accessories, gifts and home furnishings with an outdoor
theme.
Our merchandise assortment ranges from products at entry-level
price points to premium-priced high-end items and we generally
price our products consistently across our direct and retail
businesses. Our destination retail stores generally offer the
same merchandise available through our direct business augmented
by a selection of seasonal specialty items and gifts appropriate
for the store. We also tailor the merchandise selection in our
destination retail stores to meet the regional tastes and
preferences of our customers.
As of fiscal year end 2004, we had 43 product categories, which
we have combined into five general product categories that are
summarized below. The following chart sets forth the percentage
of revenues contributed by each of the five product categories
for our direct and retail businesses and in total in fiscal
years 2004, 2003 and 2002.
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Direct | |
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Retail | |
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Total | |
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2004 | |
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2003 | |
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2002 | |
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2004 | |
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2003 | |
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2002 | |
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2004 | |
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2003 | |
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2002 | |
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Hunting Equipment
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26.8 |
% |
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27.5 |
% |
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28.5 |
% |
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32.2 |
% |
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31.2 |
% |
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30.1 |
% |
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28.6 |
% |
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28.6 |
% |
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28.9 |
% |
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Fishing & Marine
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13.1 |
% |
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14.0 |
% |
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13.9 |
% |
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16.2 |
% |
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16.4 |
% |
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18.1 |
% |
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14.1 |
% |
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14.8 |
% |
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15.0 |
% |
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Camping Equipment
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15.0 |
% |
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14.8 |
% |
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14.5 |
% |
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11.1 |
% |
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11.0 |
% |
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10.8 |
% |
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13.7 |
% |
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13.7 |
% |
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13.5 |
% |
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Clothing & Footwear
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40.1 |
% |
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39.1 |
% |
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38.5 |
% |
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34.2 |
% |
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35.2 |
% |
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34.7 |
% |
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38.1 |
% |
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37.9 |
% |
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37.6 |
% |
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Gifts
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5.0 |
% |
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4.6 |
% |
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4.6 |
% |
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6.3 |
% |
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6.2 |
% |
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6.3 |
% |
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5.5 |
% |
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5.0 |
% |
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5.0 |
% |
Hunting equipment. We provide equipment, accessories and
consumable supplies for almost every type of hunting and sport
shooting. Our hunting products are supported by services
including gun bore sighting and scope mounting and archery
technicians for bow tuning to service the complete needs of our
customer.
Fishing and marine equipment. We provide products for
fresh water fishing, fly-fishing, salt water fishing and
ice-fishing. We carry in excess of 20,000 types of lures and a
broad selection of rods, reels and combos. In addition, our
fishing and marine equipment offering features a wide selection
of electronics, boats and accessories, canoes, kayaks and other
floatation accessories.
Camping equipment. We primarily focus on outdoor gear for
the outdoor enthusiast, augmented with gear for family camping
and the weekend hiker. In addition, we include automobile and
ATV accessories in this general category.
Clothing and footwear. Our clothing and footwear
merchandise includes both technical gear and lifestyle apparel
and footwear for the active outdoor enthusiast as well as
apparel and footwear for the casual customer.
Gifts and home furnishings. Our gifts and home
furnishings merchandise includes gifts, games, food assortments,
books, jewelry and home furnishings with an outdoor theme.
Private Label Products. In addition to national brands,
we offer our exclusive Cabela’s private label merchandise.
We have a significant penetration of private label merchandise
in casual apparel and footwear as well as in selected hard goods
categories such as camping, fishing and optics. Where possible,
we seek to protect our private label products by applying for
trademark or patent protection for these products. Our private
label products typically generate higher gross profit margins
compared to our branded products. In fiscal 2004, our private
label merchandise accounted for approximately one-third of our
merchandise revenues. By attempting to have an appropriate mix
of branded and private label merchandise, we strive to meet the
expectations and needs of our customers.
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We have in-house teams that are responsible for the design and
development of all private label merchandise. This allows us to
exercise significant control over the merchandise development
process and the quality of our private label products. The
design and development of our products is based on our
understanding of our customers’ styles and preferences as
well as their price expectations. We have our own quality
assurance department that tests the products after the products
have been manufactured by third party vendors to help ensure
that the merchandise meets our specifications.
We intend to continue to design and develop a variety of new
private label products to increase our revenues, enhance our
margins, and expand the recognition of the Cabela’s brand.
In addition, these private label products are important to our
efforts to broaden our customer base and communicate our value
position. In certain categories where there is not a dominant
national brand, we believe that our Cabela’s private label
products have stronger brand recognition than other branded
products.
Merchandising and Sourcing. Our merchandising team is
comprised of approximately 76 people with an average of eight
years of experience working for us. The members of this team are
responsible for selecting our products and negotiating the costs
of our merchandise. We also have a retail merchandising team
that is responsible for the regional and local merchandise needs
of each destination retail store. In addition, our merchants
provide product quality assurance for our retail and direct
businesses. The merchandising teams use historical revenue data
from our direct and retail businesses, feedback from our retail
store managers and industry trends to determine which products
to purchase. Our merchants are outdoor enthusiasts who use our
products in the field to gain a better understanding of our
customers’ needs as well as the functionality and overall
performance of the products. We believe that we are well known
to our customers for providing the widest product offering to
the outdoor recreation market and we continue to look at
category expansion to further serve our customers. We have also
expanded our product offering through the acquisition of related
businesses.
We have developed strong vendor relationships over the past
43 years. These relationships generally provide us with
greater access to technological innovations and new products. We
source our merchandise from approximately 4,000 suppliers in
over 99 countries. In fiscal 2004, over half of our merchandise
was sourced from locations in foreign countries, with
approximately 35.3% of our merchandising being sourced from
China, Taiwan and Japan. During fiscal 2004, no single vendor
represented greater than 10% of total purchases. In order to
exert greater control over product quality, we test products
prior to the time the product is shipped to us.
Inventory Control. Our inventory control team is
comprised of approximately 104 people with an average of seven
years of experience working for us. These individuals are
responsible for initial inventory planning and allocation
decisions. These decisions are made by assessing historical
revenue, performance of our direct and retail businesses, and
anticipated economic outlook. Our inventory control group is
equipped with distribution center and inventory management
systems and is able to effectively assess revenue trends,
customer demand and current inventory positions and allocate
items appropriately. We track revenue at the SKU level on a
daily basis and adjust our reorder and markdown strategies
accordingly. We are also able to utilize our popular Bargain
Cave as a means to sell discontinued and returned merchandise.
Our merchandise and inventory control teams work together to
make decisions regarding appropriate purchasing levels and the
proper flow of merchandise. We believe this joint effort helps
us to maximize the effectiveness of our merchandising team and
effectively manage our inventory levels.
Marketing
Our marketing strategy focuses on using our multi-channel retail
model to build the strength and recognition of our brand by
communicating our wide and distinctive offering of quality
products to our customers and potential customers in a cost
effective manner. Our largest marketing effort consists of
distributing over 120 million catalogs annually in order to
attract customers to our direct and retail businesses. We have
also established our website to market our products to customers
and potential customers who shop via the Internet. We use both
our catalogs and our website to cross-market our
9
destination retail stores. Our marketing strategy is designed to
convey our outdoor lifestyle image, enhance our brand and
emphasize our position in our target markets.
In addition to the use of our catalogs and our website, we also
use a combination of promotional events, traditional advertising
and media programs as marketing tools.
Competition
We compete in a number of large and highly fragmented and
intensely competitive markets, including the outdoor recreation
and casual apparel and footwear markets. The outdoor recreation
market is comprised of several categories including hunting,
fishing and wildlife watching, and we believe it crosses over a
wide range of geographic and demographic segments.
We compete directly or indirectly with other broad-line
merchants, large-format sporting goods stores and chains, mass
merchandisers, warehouse clubs, discount stores and department
stores, small specialty retailers and catalog and Internet-based
retailers.
Many of our competitors have a larger number of stores and some
of them have greater market presence, name recognition, and
financial, distribution, marketing and other resources, than we
have. We believe that we compete effectively with our
competitors on the basis of our wide and distinctive merchandise
selection and the superior customer service associated with the
Cabela’s brand, as well as our commitment to understanding
and providing merchandise that is relevant to our targeted
customer base. We cater to the outdoor enthusiast and the casual
customer, and believe we have an appealing store environment. We
also believe that our multi-channel retail model enhances our
ability to compete by allowing our customers to choose the most
convenient sales channel. This model also allows us to reach a
broader audience in existing and new markets and to continue to
build on our nationally recognized Cabela’s brand.
Customer Service
Since our founding in 1961, we have been deeply committed to
serving our customers by selling high quality products through
sales associates that deliver excellent customer service and
in-depth product knowledge. We strive to provide superior
customer service at the time of sale and after the sale through
our 100 percent money-back guarantee. Our customers can
always access well-trained, knowledgeable associates to answer
their product use and merchandise selection questions. We
believe that our ability to establish and maintain long-term
relationships with our customers and encourage repeat visits and
purchases is due, in part, to the strength of our customer
support and service operations.
Financial Services Business
Through our wholly-owned subsidiary, World’s Foremost Bank,
we issue and manage the Cabela’s Club VISA card and related
customer loyalty rewards program. We believe the Cabela’s
Club VISA card loyalty rewards program is an effective vehicle
for strengthening our relationships with our customers,
enhancing our brand name and increasing our merchandise
revenues. The primary purpose of our financial services business
is to provide our merchandise customers with a rewards program
that will enhance revenues, profitability and customer loyalty
in our direct and retail businesses.
Our bank subsidiary is an FDIC-insured, special purpose,
Nebraska state-chartered bank. Our bank’s charter is
limited to issuing credit cards and selling brokered
certificates of deposit of $100,000 or more and it does not
accept demand deposits or make non-credit card loans. During
fiscal 2004, we had an average of 618,951 active accounts with
an average month-end balance of $1,436. See Note 20 to our
consolidated financial statements and our
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” for financial
information regarding our financial services business.
The Cabela’s Club VISA card loyalty program is a rewards
based credit card program, which we believe has increased brand
loyalty among our customers. Our rewards program is a simple
loyalty program that allows customers to earn points whenever
and wherever they use their credit card and then redeem
10
earned points for products and services through our direct
business or at our destination retail stores. The rewards points
are easy to redeem and never expire as long as the account is in
good standing. The rewards program encourages our customers to
buy more merchandise at a discount when they redeem their
accumulated points. Our rewards program is integrated into our
store point of sale system which adds to the convenience of the
rewards program as our employees can inform customers of their
number of accumulated points when making purchases at our
stores. In fiscal 2004, approximately 17.7% of our total
merchandise sales in our direct and retail businesses were made
to customers who used their Cabela’s Club VISA credit card,
compared to 17.1% in fiscal 2003.
Financial Services Marketing. We adhere to a low cost,
efficient and tailored credit card marketing program that
leverages the Cabela’s brand name. We market the
Cabela’s Club VISA card through a number of channels,
including inbound telemarketing, retail locations, catalogs and
the Internet. Customer service representatives at our customer
care centers offer the Cabela’s Club card to qualifying
customers. The Cabela’s Club card is marketed throughout
our catalogs and Cabela’s Club card offers are inserted in
purchases when shipped to a customer. The Cabela’s Club
card is also offered at our destination retail stores through an
application similar to the offer inserted with customer
purchases. We offer customers who apply for a Cabela’s Club
card while visiting one of our destination retail stores a
voucher for use on merchandise purchased at the store on the
same day the customer applies for the Cabela’s Club card.
Underwriting and Credit Criteria. We attempt to
underwrite high quality credit customers and have historically
maintained attractive credit statistics versus industry
averages. We adhere to strict credit policies and target
consistent profitability in our financial services business.
Fair Isaac & Company, or FICO, scores are a widely-used
tool for assessing a person’s credit rating. As of the end
of fiscal 2004, our cardholders had a median FICO score of 774,
which is well above industry averages. We had net charge-offs as
a percent of total outstanding balances of approximately 2.2% in
2004, compared to an industry average of 5.44% in 2004, which we
believe is due to our credit and operating practices. In
addition, our rewards program has helped reduce customer
attrition in our direct and retail businesses, as demonstrated
by the fact that our customers who use a Cabela’s Club card
are more likely to make another purchase from us over the
subsequent twelve months and spend 15% to 20% more than
non-Cabela’s Club card customers.
The table below illustrates the historically high credit quality
of our managed credit card portfolio, presenting additional data
on our credit card portfolio’s performance in 2004 compared
with industry averages.
| |
|
|
|
|
|
|
|
|
| As a Percentage of Managed Receivables |
|
The Bank | |
|
Industry(1) | |
| |
|
| |
|
| |
|
Delinquencies
|
|
|
0.71 |
% |
|
|
4.22 |
% |
|
Gross charge-offs
|
|
|
2.60 |
% |
|
|
6.22 |
% |
|
Net charge-offs
|
|
|
2.21 |
% |
|
|
5.44 |
% |
|
|
| (1) |
Source: 2004 data from The Nilson Report, February 2005;
Industry includes all VISA and MasterCard accounts. |
Financial Services Customer Service. Each inbound call to
our bank subsidiary’s customer service department is
answered by the interactive voice response, or IVR, available
24 hours per day. Cardholders choose from a menu and
receive detailed information including the following: account
balance, available credit limit, last payment amount, last
payment receipt date, payment due amount, payment due date and
point total. Customer service representatives will handle all
credit-related requests not answered by the IVR. They are also
responsible for referring cardholders to credit analysts to
underwrite Gold Card upgrades and credit line increases that do
not meet the customer service standard guidelines. Cardholders
can pay their bill via the mail, the telephone or the Internet.
Collection and Recoveries. We employ a “cradle to
grave” collection approach whereby a collector will work
all delinquency categories. We classify an account as delinquent
when the minimum payment due on the account is not received by
the payment date specified by the statement cycle. Accounts are
11
placed in collection status with an internal or third party
collector at various stages of delinquency. All delinquent
accounts enter collections no later than 15 days delinquent.
We have outsourced a small percentage of pre-charge-off,
delinquent accounts to third party collection agencies. The
account’s reward score determines whether or not it will be
outsourced for collection and evaluates the predictability of
collecting the delinquent balance.
We outsource the majority of post charged-off collections to
third party collection agencies. If not initially resolved, post
charged-off accounts will then be placed with secondary and
tertiary collection agencies until resolution. We currently
employ one collector who works a limited number of post
charged-off accounts and manages the various collection agency
relationships.
Third Party Card Programs. In 2004, our bank subsidiary
entered into agreements to issue new VISA credit accounts for
fans of International Speedway Corp. and for customers of
Woodworker’s Supply Inc., a retailer of tools for
woodworking enthusiasts. These third party programs represented
only 0.3% of the total net purchases made on our co-branded VISA
cards issued by the bank. In addition, they represented
$5.2 million of credit card loans receivable, as currently
our securitization program does not accept these co-branded
third party receivables. We intend to continue to explore
selected similar co-branding opportunities as additional
vehicles for growth in our financial services business.
Distribution and Fulfillment
We operate four distribution centers located in Sidney,
Nebraska, Prairie du Chien, Wisconsin, Mitchell, South Dakota
and Wheeling, West Virginia. These distribution centers comprise
nearly 2,502,000 square feet of warehouse space which house
all of our inventories. We ship merchandise to our direct
customers via UPS and the United States Postal Service. We use
common carriers and typically deliver inventory two to three
times per week to our destination retail stores. Our primary
returns processing facility is located in Oshkosh, Nebraska.
Management Information Systems
Our management information and operational systems manage our
direct, retail and financial services businesses. These systems
are designed to process customer orders, track customer data and
demographics, order, monitor and maintain sufficient amounts of
inventory, facilitate vendor transactions, and provide financial
reporting. We continually evaluate, modify and update our
information technology systems supporting the product pipeline,
including design, sourcing, merchandise planning, forecasting
and purchase order, inventory, distribution, transportation and
price management. We are planning modifications to our
technology that will involve updating or replacing our systems
with successor systems during the course of several years,
including changes to the sortation systems at our distribution
centers, updating of the space planning and labor scheduling
software for our destination retail stores and improvements to
our customer relationship management system.
Employees
As of March 5, 2005, we employed approximately 7,830
employees, approximately 4,675 of whom were employed full time.
We use part-time and temporary workers to supplement our labor
force at peak times during our third and fourth quarters. None
of our employees are represented by a labor union or are parties
to a collective bargaining agreement. We have not experienced
any work stoppages and consider our relationship with our
employees to be good.
Seasonality
We experience seasonal fluctuations in our net revenue and
operating results. Due to buying patterns around the holidays
and the opening of hunting seasons, our merchandise revenues are
traditionally are higher in the third and fourth fiscal quarters
than in the first and second fiscal quarters, and we typically
earn a disproportionate share of our operating income in the
third and fourth fiscal quarters. See Item 7
12
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Quarterly
Results of Operations and Seasonal Influences”.
Government Regulation
Regulation of our Bank Subsidiary. Our wholly-owned bank
subsidiary is a Nebraska state chartered bank with deposits
insured by the Bank Insurance Fund of the Federal Deposit
Insurance Corporation, or the FDIC. Our bank subsidiary is
subject to comprehensive regulation and periodic examination by
the Nebraska Department of Banking and Finance, or NDBF, and the
FDIC. We are also registered as a bank holding company with the
NDBF and as such are subject to periodic examination by the NDBF.
Our bank subsidiary does not qualify as a “bank” under
the Bank Holding Company Act of 1956, as amended, or the BHCA,
because it is in compliance with a credit card bank exemption
from the BHCA. If it failed to meet the credit card bank
exemption criteria, its status as an insured depository
institution would make us subject to the provisions of the BHCA,
including restrictions as to the types of business activities in
which a bank holding company and its affiliates may engage. We
could be required to either divest our bank subsidiary or divest
or cease any activities not permissible for a bank holding
company and its affiliates, including our direct and retail
businesses. While the consequences of being subject to
regulation under the BHCA would be severe, we believe that the
risk of being subject to the BHCA is minimal as a result of the
precautions we have taken in structuring our business.
There are various federal and Nebraska law regulations relating
to minimum regulatory capital requirements and requirements
concerning the payment of dividends from net profits or surplus,
restrictions governing transactions between an insured
depository institution and its affiliates, and general federal
and Nebraska regulatory oversight to prevent unsafe or unsound
practices. At the end of 2004, our bank subsidiary met the
requirements for a “well capitalized” institution, the
highest of the Federal Deposit Insurance Corporation Improvement
Act’s (FDICIA) five capital ratio levels. A “well
capitalized” classification should not necessarily be
viewed as describing the condition or future prospects of a
depository institution, including our bank subsidiary.
FDICIA also requires the FDIC to implement a system of
risk-based premiums for deposit insurance pursuant to which the
premiums paid by a depository institution will be based on the
probability that the FDIC will incur a loss in respect of that
institution. The FDIC has since adopted a system that imposes
insurance premiums based upon a matrix that takes into account
an institution’s capital level and supervisory rating.
Subject to certain limitations, federal bank agencies may also
require banking organizations such as our bank subsidiary to
hold regulatory capital against the full risk-weighted amount of
its retained securitization interests. We understand that these
federal bank agencies continue to analyze interests in
securitization transactions under their rules to determine the
appropriate capital treatment. Any such determination could
require our bank subsidiary to hold significantly higher levels
of regulatory capital against such interests.
The activities of our bank subsidiary as a consumer lender also
are subject to regulation under the various federal laws,
including the Truth-in-Lending Act, the Equal Credit Opportunity
Act, the Fair Credit Reporting Act, the USA Patriot Act, the
Fair and Accurate Credit Transactions Act of 2003, the Community
Reinvestment Act, the Service members’ Civil Relief Act and
the Gramm-Leach-Bliley Act (GLB), as well as various state laws.
The Truth-in-Lending Act requires disclosure of the
“finance charge” and the “annual percentage
rate” and certain costs and terms of credit. The Equal
Credit Opportunity Act prohibits discrimination against an
applicant for credit because of age, sex, marital status,
religion, race, color, national origin or receipt of public
assistance. The Fair Credit Reporting Act establishes procedures
for correcting mistakes in a person’s credit record and
generally requires that the records be kept confidential. The
USA Patriot Act, among other things, regulates money laundering
and prohibits structuring financial transactions to evade
reporting requirements. The Community Reinvestment Act requires
federal agencies to encourage depository financial institutions
to help meet the credit needs of their communities. The Service
members’ Civil Relief Act provides for temporary suspension
of legal
13
proceedings and financial transactions that may adversely affect
the civil rights of service members during military service. We
spend significant amounts of time ensuring we are in compliance
with these laws and work with our service providers to ensure
that actions they take in connection with services they perform
for us are in compliance with these laws. Depending on the
underlying issue and applicable law, regulators are often
authorized to impose penalties for violations of these statutes
and, in some cases, to order our bank subsidiary to compensate
injured borrowers. Borrowers may also have a private right of
action to bring actions for some violations. Federal bankruptcy
and state debtor relief and collection laws also affect the
ability of our bank subsidiary to collect outstanding balances
owed by borrowers. The GLB Act requires our bank subsidiary to
disclose its privacy policy to customers and consumers, and
requires that such customers and consumers be given a choice
(through an opt-out notice) to forbid the sharing of non-public
personal information about them with non-affiliated third
persons. We have a written Privacy Notice posted on our website
which is delivered to each of our customers when the customer
relationships begin, and annually thereafter, in compliance with
the GLB Act.
Certain acquisitions of our capital stock or our bank
subsidiary’s capital stock may be subject to regulatory
approval or notice under federal or Nebraska law. Investors are
responsible for ensuring that they do not, directly or
indirectly, acquire shares of our capital stock in excess of the
amount which can be acquired without regulatory approval.
Taxation Applicable to Us. We pay applicable corporate
income, franchise and other taxes, to states in which our
destination retail stores are physically located. Upon entering
a new state, we apply for a private letter ruling from the
state’s revenue department stating which types of taxes our
direct and retail businesses will be required to collect and pay
in such state, and we accrue and remit the applicable taxes
based upon the private letter ruling. As we open more
destination retail stores, we will be subject to tax in an
increasing number of state and local taxing jurisdictions.
Although we believe we have properly accrued for these taxes
based on our current interpretation of the tax code and prior
private letter rulings, state taxing authorities may challenge
our interpretation, attempt to revoke their private letter
rulings or amend their tax laws. If state taxing authorities are
successful, additional taxes, interest and related penalties may
be assessed. See “Factors Affecting Future
Results — Our use tax collection policy for our direct
business may expose us to the risk that we may be assessed for
unpaid use taxes which would harm our operating results and cash
flows” and “— Our destination retail store
expansion strategy may result in our direct business
establishing nexus with additional states which may cause our
direct business to pay additional income taxes and require us to
collect use taxes from our direct customers which would have an
adverse effect on the profitability and cash flows of our direct
business.”
Other Regulations Applicable to Us. We must comply with
federal, state and local regulations, including the federal
Brady Handgun Violence Prevention Act, which require us, as a
federal firearms licensee, to perform a pre-sale background
check of purchasers of hunting rifles and other firearms.
We are also subject to a variety of state laws and regulations
relating to, among other things, advertising, pricing, and
product safety/restrictions. Some of these laws prohibit or
limit the sale, in certain states and locations, of certain
items we offer such as black powder firearms, ammunition, bows,
knives and similar products. State and local government
regulation of hunting can also affect our business.
We are subject to certain federal, state and local laws and
regulations relating to the protection of the environment and
human health and safety. We believe that we are in substantial
compliance with the terms of environmental laws and that we have
no liabilities under such laws that we expect to have a material
adverse effect on our business, results of operations or
financial condition.
Our direct business is subject to the Merchandise Mail Order
Rule and related regulations promulgated by the Federal Trade
Commission, or FTC, which affect our catalog mail order
operations. FTC regulations, in general, govern the solicitation
of orders, the information provided to prospective customers,
and the timeliness of shipments and refunds. In addition, the
FTC has established guidelines for advertising and labeling many
of the products we sell.
14
Intellectual Property
Cabela’s®, Cabela’s Club®,
Cabelas.com®, World’s Foremost Outfitter®,
World’s Foremost Bank®, Bargain Cave®,
Dunn’s®, Van Dyke’s®, Wild Wings® and
Herters® are among our registered service marks or
trademarks with the United States Patent and Trademark Office.
We have numerous pending applications for trademarks. In
addition, we own several other registered and unregistered
trademarks and service marks involving advertising slogans and
other names and phrases used in our business. We own several
patents associated with various products. We also own trade
secrets, domain names and copyrights, which have been registered
for each of our catalogs.
We believe that our trademarks are valid and valuable and intend
to maintain our trademarks and any related registrations. We do
not know of any pending claims of infringement or other
challenges to our right to use our marks in the United States or
elsewhere. We have no franchises or other concessions which are
material to our operations.
Available Information
Our website address is www.cabelas.com. There we make available,
free of charge, our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and
any amendments to those reports, as soon as reasonably
practicable after we electronically file such material with or
furnish it to the SEC. Our SEC reports can be accessed through
the investor relations section of our website. The information
on our website, whether currently posted or in the future, is
not part of this or any other report we file with or furnish to
the SEC.
In addition to our destination retail stores listed below, we
also operate a corporate headquarters, administrative offices,
four distribution centers, a return center, five customer care
centers and a taxidermy manufacturing facility. The following
table provides information regarding the general location, use
and approximate size of our non-retail principal properties:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Total | |
|
Segment That | |
| Property |
|
Location | |
|
Square Feet | |
|
Uses Property | |
| |
|
| |
|
| |
|
| |
|
Corporate Headquarters and Customer Care Center
|
|
|
Sidney, NE |
|
|
|
294,000 |
|
|
|
Other, Retail and Direct |
|
|
Administrative Offices
|
|
|
Sidney, NE |
|
|
|
28,000 |
|
|
|
Other |
|
|
Distribution Center
|
|
|
Sidney, NE |
|
|
|
752,000 |
|
|
|
Other |
|
|
Distribution Center
|
|
|
Prairie du Chien, WI |
|
|
|
1,071,000 |
|
|
|
Other |
|
|
Distribution Center
|
|
|
Mitchell, SD |
|
|
|
84,000 |
|
|
|
Other |
|
|
Merchandise Return Center
|
|
|
Oshkosh, NE |
|
|
|
52,000 |
|
|
|
Other |
|
|
Customer Care Center
|
|
|
North Platte, NE |
|
|
|
12,000 |
|
|
|
Direct |
|
|
Administrative Offices and Customer Care Center (including
retail store)
|
|
|
Kearney, NE |
|
|
|
186,000 |
|
|
|
Direct and Retail |
|
|
Customer Care Center
|
|
|
Grand Island, NE(1) |
|
|
|
12,000 |
|
|
|
Direct |
|
|
Customer Care Center and Administrative Offices
|
|
|
Lincoln, NE |
|
|
|
76,000 |
|
|
Direct, Financial Services and Other |
|
Manufacturing and Administrative Offices
|
|
|
Woonsocket, SD |
|
|
|
145,000 |
|
|
|
Direct |
|
|
Distribution Center
|
|
|
Wheeling, WV(1) |
|
|
|
595,000 |
|
|
|
Other |
|
|
|
| (1) |
We own all of these properties except the Grand Island, Nebraska
customer care center and Wheeling, West Virginia distribution
center, which we lease. We have evaluated the SEC’s recent
clarification of lease accounting and we believe that we have
accounted for our limited number of lease agreements
appropriately. |
15
We own all of our destination retail stores. However, in
connection with some of the economic development packages
received from state or local governments where our stores are
located, we have entered into agreements granting ownership of
the taxidermy, diorama, or other portions of our stores to these
state and local governments. The following table shows the
location, opening date, and total square footage of our
destination retail stores used in our retail segment:
| |
|
|
|
|
|
|
|
|
| Location |
|
Opening Date | |
|
Total Sq. Ft. | |
| |
|
| |
|
| |
|
Kearney, NE
|
|
|
October, 1987 |
|
|
|
35,000 |
|
|
Sidney, NE
|
|
|
July, 1991 |
|
|
|
89,000 |
|
|
Owatonna, MN
|
|
|
March, 1998 |
|
|
|
159,000 |
|
|
Prairie Du Chien, WI
|
|
|
September, 1998 |
|
|
|
53,000 |
|
|
East Grand Forks, MN
|
|
|
September, 1999 |
|
|
|
59,000 |
|
|
Dundee, MI
|
|
|
March, 2000 |
|
|
|
228,000 |
|
|
Mitchell, SD
|
|
|
August, 2000 |
|
|
|
84,000 |
|
|
Kansas City, KS
|
|
|
August, 2002 |
|
|
|
186,000 |
|
|
Hamburg, PA
|
|
|
September, 2003 |
|
|
|
247,000 |
|
|
Wheeling, WV
|
|
|
August, 2004 |
|
|
|
176,000 |
|
|
|
| ITEM 3. |
LEGAL PROCEEDINGS |
We are party to certain lawsuits in the ordinary course of our
business. The subject matter of these proceedings primarily
include commercial disputes, employment issues and product
liability lawsuits, including the product liability lawsuits
regarding tree stands described on page 59. We do not believe
that the ultimate dispositions of these proceedings,
individually or in the aggregate, will have a material adverse
effect on our consolidated financial position, results of
operations or liquidity.
|
|
| ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
No matters were submitted to a vote of security holders during
the fourth quarter of fiscal 2004.
PART II
|
|
| ITEM 5. |
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Price Range of Common Stock
We have common stock and non-voting common stock. Our common
stock began trading on June 25, 2004 on the NYSE under the
symbol “CAB”. Prior to that date, there was no public
market for our common stock. Our non-voting common stock is not
listed on any exchange and not traded over the counter.
On January 1, 2005, the closing price of our common stock
on the NYSE was $22.74 per share. As of March 15,
2005, there were 459 holders of record of our common stock and 6
holders of record of our non-voting common stock. This does not
include persons who hold our common stock in nominee or
“street name” accounts through brokers or banks.
The following table sets forth, for the periods indicated, the
high and low sales prices per share of our common stock as
reported on the NYSE:
| |
|
|
|
|
|
|
|
|
| Fiscal 2004 |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
Second Quarter (beginning June 25, 2004)
|
|
$ |
28.82 |
|
|
$ |
25.60 |
|
|
Third Quarter
|
|
$ |
30.27 |
|
|
$ |
23.25 |
|
|
Fourth Quarter
|
|
$ |
26.42 |
|
|
$ |
20.96 |
|
16
Use of Proceeds
On June 30, 2004, we closed the initial public offering of
7,812,500 shares of our common stock at a price of
$20 per share in a firm commitment underwritten offering.
In connection with the offering, certain of our stockholders
(the “Selling Stockholders”) sold 1,562,500 of the
7,812,500 shares offered and granted an option to the
underwriters to purchase up to an additional
1,171,875 shares at a price of $20 per share to cover
over-allotments, which option was exercised in full by the
underwriters and also closed on June 30, 2004. Of the total
offering, we sold 6,250,000 shares, raising net proceeds of
$114.2 million. We did not receive any of the proceeds
($54.7 million before underwriting discounts and
commissions) from any shares of our common stock sold by the
Selling Stockholders or from the exercise of the over-allotment
option. The offering was effected pursuant to a Registration
Statement on Form S-1 (File No. 333-113835), which the
Securities and Exchange Commission declared effective on
June 24, 2004. The proceeds were used to pay the
outstanding balance of $38.1 million on our line of credit,
with the remainder used for our destination retail store
expansion, including the purchase of economic development bonds.
The managing underwriters of our offering were Credit Suisse
First Boston LLC and J.P. Morgan Securities Inc. The
aggregate gross proceeds of the shares offered and sold,
including the over-allotment, were $179.7 million. In
connection with the offering, an aggregate of $12.1 million
in underwriting discounts and commissions was paid to the
underwriters by us and the selling stockholders. In addition,
the following table sets forth the other material expenses we
incurred in connection with the offering:
| |
|
|
|
|
|
SEC registration fee
|
|
$ |
48,000 |
|
|
NASD filing fee
|
|
|
23,500 |
|
|
Printing and engraving expenses
|
|
|
316,000 |
|
|
Legal fees and expenses
|
|
|
1,370,000 |
|
|
Accounting fees and expenses
|
|
|
935,000 |
|
|
Blue Sky fees and expenses
|
|
|
50,000 |
|
|
Transfer agent and registrar fees
|
|
|
65,000 |
|
|
Miscellaneous fees and expenses
|
|
|
535,900 |
|
| |
|
|
|
| |
|
$ |
3,343,400 |
|
| |
|
|
|
On November 16, 2004, certain of our stockholders sold
12,000,000 shares of common stock, including the
underwriters over allotment, at a price of $22.50 per share
in a firm commitment underwritten offering. We did not receive
any proceeds from this sale.
Sales of Unregistered Securities
During the past fiscal year, we issued unregistered securities
to a limited number of persons, as described below. None of
these transactions involved any underwriters or public offerings.
On February 9, 2004, we issued 18,350 shares of common
stock to an employee for an aggregate amount of $182,680 in
connection with the exercise of stock options granted under our
1997 Stock Option Plan. These securities were issued pursuant to
an employee benefit plan, in a transaction exempt from the
registration requirements of the Securities Act in reliance upon
Rule 701 of the Securities Act.
On February 10, 2004, we issued 385,056 shares of
common stock for an aggregate amount of $1,116,576 in connection
with the early exercise of stock options granted under our 1997
Stock Option Plan. These securities were issued pursuant to an
employee benefit plan, in a transaction exempt from the
registration requirements of the Securities Act in reliance upon
Rule 701 of the Securities Act.
On February 16, 2004, we issued 154,140 shares of
common stock to an employee for an aggregate amount of $868,080
in connection with the exercise of stock options granted under
our 1997 Stock Option Plan. These securities were issued
pursuant to an employee benefit plan, in a transaction exempt
from the registration requirements of the Securities Act in
reliance upon Rule 701 of the Securities Act.
17
On March 19, 2004, we issued 3,670 shares of common
stock for an aggregate of $41,090 in connection with the
exercise of stock options under our 1997 Stock Option Plan.
These securities were issued pursuant to an employee benefit
plan, in a transaction exempt from the registration requirements
of the Securities Act in reliance upon Rule 701 of the
Securities Act.
In March, April and May of 2004, we issued 1,149,424 shares
of common stock to employees for an aggregate amount of
$7,284,737.78 in connection with the exercise of stock options
granted under our 1997 Stock Option Plan. These securities were
issued pursuant to an employee benefit plan, in a transaction
exempt from the registration requirements of the Securities Act
in reliance upon Rule 701 of the Securities Act.
In May 2004, we granted options to purchase an aggregate of
1,313,860 shares of common stock under our 2004 Stock Plan
to employees, non-employee directors and advisors. 550,500 of
these options have an exercise price of $13.34 per share
and 763,360 of these options have an exercise price of
$20.00 per share. We received no payment from optionees
upon issuance of these options. These securities were issued
pursuant to an employee benefit plan, in a transaction exempt
from the registration requirements of the Securities Act in
reliance upon Rule 701 of the Securities Act.
Dividend Policy
We have never declared or paid any cash dividends on our common
stock and do not anticipate paying any cash dividends on our
common stock in the foreseeable future. In addition, our
revolving credit facility and our senior notes restrict our
ability to pay dividends to our stockholders based upon our
prior year’s consolidated EBITDA and our consolidated net
worth, respectively. See “Management’s Discussion and
Analysis of Financial Condition and Results of
Operations — Liquidity and Capital
Resources — Credit Facilities and Other
Indebtedness”. We were in compliance with these covenants
as of January 1, 2005.
Equity Compensation Plans
The information under the heading “Executive
Compensation — Equity Compensation Plan Information as
of Fiscal Year-End” in our Proxy Statement relating to our
2005 Annual Meeting of Stockholders is incorporated herein by
reference.
|
|
| ITEM 6. |
SELECTED FINANCIAL DATA |
You should read the selected historical consolidated financial
and other data set forth below in conjunction with
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our audited
consolidated financial statements and the related notes included
elsewhere in this report. In the opinion of management, the
audited consolidated financial statements reflect all
adjustments which are necessary to summarize fairly our
financial position and our results of operations and cash flows
for the periods presented. We have derived the historical
consolidated statement of operations data for our fiscal years
2004, 2003 and 2002 and the historical consolidated balance
sheet data as of the end of our fiscal years 2004 and 2003 from
our audited consolidated financial statements included elsewhere
in this report. We have derived the historical consolidated
statement of operations data for our fiscal year 2001 and 2000
and the historical consolidated balance sheet data as of the end
of our fiscal years 2002, 2001 and 2000 from our audited
historical consolidated financial statements that are not
18
included in this report. The historical results presented below
are not necessarily indicative of the results to be expected for
any future period.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year(1) | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Direct revenue
|
|
$ |
970,646 |
|
|
$ |
924,296 |
|
|
$ |
867,799 |
|
|
$ |
787,170 |
|
|
$ |
735,183 |
|
| |
Retail revenue
|
|
|
499,074 |
|
|
|
407,238 |
|
|
|
305,791 |
|
|
|
262,330 |
|
|
|
207,574 |
|
| |
Financial services revenue(2)
|
|
|
78,104 |
|
|
|
58,278 |
|
|
|
46,387 |
|
|
|
27,329 |
|
|
|
— |
|
| |
Other revenue(3)
|
|
|
8,150 |
|
|
|
2,611 |
|
|
|
4,604 |
|
|
|
770 |
|
|
|
4,635 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total revenue
|
|
|
1,555,974 |
|
|
|
1,392,423 |
|
|
|
1,224,581 |
|
|
|
1,077,599 |
|
|
|
947,392 |
|
|
Cost of revenue
|
|
|
925,665 |
|
|
|
827,528 |
|
|
|
735,445 |
|
|
|
662,186 |
|
|
|
597,434 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
630,309 |
|
|
|
564,895 |
|
|
|
489,136 |
|
|
|
415,413 |
|
|
|
349,958 |
|
|
Selling, general and administrative expenses
|
|
|
533,094 |
|
|
|
479,964 |
|
|
|
413,135 |
|
|
|
353,462 |
|
|
|
297,986 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
97,215 |
|
|
|
84,931 |
|
|
|
76,001 |
|
|
|
61,951 |
|
|
|
51,972 |
|
| |
Interest income
|
|
|
601 |
|
|
|
408 |
|
|
|
443 |
|
|
|
404 |
|
|
|
487 |
|
| |
Interest expense
|
|
|
(8,178 |
) |
|
|
(11,158 |
) |
|
|
(8,413 |
) |
|
|
(7,307 |
) |
|
|
(5,604 |
) |
| |
Other income(4)
|
|
|
10,443 |
|
|
|
5,612 |
|
|
|
4,708 |
|
|
|
4,387 |
|
|
|
6,749 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
100,081 |
|
|
|
79,793 |
|
|
|
72,739 |
|
|
|
59,435 |
|
|
|
53,604 |
|
|
Provision for income taxes
|
|
|
35,085 |
|
|
|
28,402 |
|
|
|
25,817 |
|
|
|
21,020 |
|
|
|
18,824 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
64,996 |
|
|
|
51,391 |
|
|
|
46,922 |
|
|
|
38,415 |
|
|
|
34,780 |
|
|
Less: Cumulative redeemable convertible preferred stock dividend
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,901 |
) |
|
|
(3,569 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$ |
64,996 |
|
|
$ |
51,391 |
|
|
$ |
46,922 |
|
|
$ |
34,514 |
|
|
$ |
31,211 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$ |
1.06 |
|
|
$ |
0.99 |
|
|
$ |
0.94 |
|
|
$ |
0.77 |
|
|
$ |
0.74 |
|
|
Diluted earnings per share
|
|
$ |
1.03 |
|
|
$ |
0.93 |
|
|
$ |
0.88 |
|
|
$ |
0.71 |
|
|
$ |
0.66 |
|
|
Weighted average basic shares outstanding (000’s)
|
|
|
61,277 |
|
|
|
52,060 |
|
|
|
49,899 |
|
|
|
44,920 |
|
|
|
42,308 |
|
|
Weighted average diluted shares outstanding (000’s)
|
|
|
63,277 |
|
|
|
55,307 |
|
|
|
53,400 |
|
|
|
53,742 |
|
|
|
52,567 |
|
|
Selected Balance Sheet Data (as of end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents(5)
|
|
$ |
248,184 |
|
|
$ |
192,581 |
|
|
$ |
178,636 |
|
|
$ |
109,755 |
|
|
$ |
27,724 |
|
|
Working capital
|
|
|
274,746 |
|
|
|
228,580 |
|
|
|
188,229 |
|
|
|
100,082 |
|
|
|
32,103 |
|
|
Total assets
|
|
|
1,228,231 |
|
|
|
963,553 |
|
|
|
834,968 |
|
|
|
646,690 |
|
|
|
426,145 |
|
|
Total debt
|
|
|
148,152 |
|
|
|
142,651 |
|
|
|
161,452 |
|
|
|
62,545 |
|
|
|
24,054 |
|
|
Total redeemable convertible preferred stock(6)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
42,323 |
|
|
Total stockholders’ equity
|
|
|
566,354 |
|
|
|
372,515 |
|
|
|
259,530 |
|
|
|
212,075 |
|
|
|
129,911 |
|
19
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year(1) | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Selected Cash Flow Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities
|
|
$ |
47,018 |
|
|
$ |
67,236 |
|
|
$ |
55,692 |
|
|
$ |
69,373 |
|
|
$ |
41,329 |
|
|
Net cash flows from investing activities
|
|
|
(127,170 |
) |
|
|
(93,718 |
) |
|
|
(84,510 |
) |
|
|
(71,678 |
) |
|
|
(74,383 |
) |
|
Net cash flows from financing activities
|
|
|
135,755 |
|
|
|
40,427 |
|
|
|
97,699 |
|
|
|
84,336 |
|
|
|
17,793 |
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of catalogs mailed (000’s)
|
|
|
120,383 |
|
|
|
103,976 |
|
|
|
96,723 |
|
|
|
83,520 |
|
|
|
76,011 |
|
|
Number of destination retail stores (at end of period)
|
|
|
10 |
|
|
|
9 |
|
|
|
8 |
|
|
|
7 |
|
|
|
7 |
|
|
Total gross square footage (at end of the period)
|
|
|
1,317,060 |
|
|
|
1,140,709 |
|
|
|
893,810 |
|
|
|
707,868 |
|
|
|
707,868 |
|
|
Average sales per gross square foot(7)
|
|
$ |
398 |
|
|
$ |
386 |
|
|
$ |
381 |
|
|
$ |
367 |
|
|
$ |
354 |
|
|
Comparable store sales growth(8)
|
|
|
(0.6 |
)% |
|
|
0.2 |
% |
|
|
3.7 |
% |
|
|
3.8 |
% |
|
|
6.2 |
% |
|
Depreciation and amortization
|
|
$ |
29,843 |
|
|
$ |
26,715 |
|
|
$ |
23,539 |
|
|
$ |
17,355 |
|
|
$ |
14,681 |
|
|
Capital expenditures
|
|
|
52,568 |
|
|
|
72,972 |
|
|
|
53,387 |
|
|
|
47,257 |
|
|
|
64,615 |
|
|
Purchases of marketable securities(9)
|
|
|
74,492 |
|
|
|
18,201 |
|
|
|
32,821 |
|
|
|
13,768 |
|
|
|
7,452 |
|
|
EBITDA(10)
|
|
$ |
137,501 |
|
|
$ |
117,258 |
|
|
$ |
104,248 |
|
|
$ |
83,693 |
|
|
$ |
73,402 |
|
|
EBITDA margin(11)
|
|
|
8.8 |
% |
|
|
8.4 |
% |
|
|
8.5 |
% |
|
|
7.8 |
% |
|
|
7.7 |
% |
|
|
|
| |
(1) |
Our fiscal years are based on the 52-53 week period ending
on the Saturday closest to December 31. Our fiscal years
2004, 2002, 2001 and 2000 consisted of 52 weeks and our
fiscal year 2003 consisted of 53 weeks. |
| |
| |
(2) |
On March 23, 2001, we purchased the remaining 50% ownership
interest in Cabela’s Card, LLC that we did not previously
own and formed a new wholly-owned bank subsidiary, World’s
Foremost Bank. The financial results of the bank were
consolidated with our results beginning March 23, 2001. |
| |
| |
(3) |
Other revenue consists primarily of revenue from our real estate
and travel businesses. |
| |
| |
(4) |
Other income primarily consists of interest earned on economic
development bonds, gains on sales of marketable securities and
equity in undistributed net earnings (losses) of equity method
investees. |
| |
| |
(5) |
At fiscal year end 2004, 2003, 2002 and 2001, cash and cash
equivalents at World’s Foremost Bank were
$58.1 million, $77.2 million, $35.0 million and
$34.4 million, respectively, which is included in our
consolidated cash and cash equivalents. Due to regulatory
restrictions, our ability to use this cash for non- banking
operations, including for working capital for our direct or
retail businesses or for destination retail store expansion, may
be limited. See “Management’s Discussion and Analysis
of Financial Condition and Results of Operations —
Bank Dividend Limitations and Minimum Capital Requirements”. |
| |
| |
(6) |
In September 2001, all outstanding shares of cumulative
redeemable convertible preferred stock were converted to
non-voting common stock. |
| |
| |
(7) |
Average sales per gross square foot includes sales and square
footage of stores that are open at the beginning of the period
and at the end of the period. |
| |
| |
(8) |
Stores are included in our comparable store sales base the first
day of the month following the fifteen month anniversary of its
opening or expansion by greater than 25% of total square
footage. The percentages shown are based on a 52 to 52 week
comparison. We previously reported 2003 on a 53 to 52 week
basis as 2.4%. |
20
|
|
|
| |
(9) |
This amount consists primarily of purchases of economic
development bonds, the proceeds of which are used to construct
our destination retail stores and related infrastructure. See
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Liquidity and
Capital Resources — Retail Store Expansion”. |
|
|
| (10) |
When we use the term “EBITDA”, we are referring to net
income minus interest income plus interest expense, income taxes
and depreciation and amortization. We present EBITDA because we
consider it an important supplemental measure of our performance
and believe it is frequently used by securities analysts,
investors and other interested parties in the evaluation of
companies in our industry. We also use EBITDA to determine our
compliance with some of the covenants under our revolving credit
facility. |
EBITDA has limitations as an analytical tool and you should not
consider it in isolation or as a substitute for net income,
operating income, cash flows from operating, investing or
financing activities or any other measure calculated in
accordance with generally accepted accounting principles. Some
of these limitations are:
|
|
|
| |
• |
EBITDA does not reflect our cash expenditures or future
requirements for capital expenditures or capital commitments; |
| |
| |
• |
EBITDA does not reflect changes in, or cash requirements for,
our working capital needs; |
| |
| |
• |
EBITDA does not reflect the interest expense or cash
requirements necessary to service interest or principal payments
on our debt; |
| |
| |
• |
Although depreciation and amortization are non-cash charges, the
assets being depreciated and amortized will often have to be
replaced in the future, and EBITDA does not reflect any cash
requirements for such replacements; and |
| |
| |
• |
Other companies in our industry may calculate EBITDA differently
than we do, limiting its usefulness as a comparative measure. |
Because of these limitations, EBITDA should not be considered as
a measure of discretionary cash available to us to invest in the
growth of our business and we rely primarily on our GAAP results
and use EBITDA only supplementally.
The following table reconciles EBITDA to net income:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year(1) | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
(Dollars in thousands) | |
|
|
|
Net income
|
|
$ |
64,996 |
|
|
$ |
51,391 |
|
|
$ |
46,922 |
|
|
$ |
38,415 |
|
|
$ |
34,780 |
|
| |
Deprecation and amortization
|
|
|
29,843 |
|
|
|
26,715 |
|
|
|
23,539 |
|
|
|
17,355 |
|
|
|
14,681 |
|
| |
Interest income
|
|
|
(601 |
) |
|
|
(408 |
) |
|
|
(443 |
) |
|
|
(404 |
) |
|
|
(487 |
) |
| |
Interest expense
|
|
|
8,178 |
|
|
|
11,158 |
|
|
|
8,413 |
|
|
|
7,307 |
|
|
|
5,604 |
|
| |
Income taxes
|
|
|
35,085 |
|
|
|
28,402 |
|
|
|
25,817 |
|
|
|
21,020 |
|
|
|
18,824 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$ |
137,501 |
|
|
$ |
117,258 |
|
|
$ |
104,248 |
|
|
$ |
83,693 |
|
|
$ |
73,402 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
EBITDA margin is defined as our consolidated EBITDA as a
percentage of our consolidated revenue. |
21
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of financial condition,
results of operations, liquidity and capital resources should be
read in conjunction with our audited consolidated financial
statements and notes thereto appearing elsewhere in this
Form 10-K. This discussion contains forward-looking
statements that involve risks and uncertainties, including
information with respect to our plans, intentions and strategies
for our businesses. See “Special Note Regarding
Forward-Looking Statements.” For additional information
regarding some of the risks and uncertainties that affect our
business and the industries in which we operate, please see
“Factors Affecting Future Results”. Our actual results
may differ materially from those estimated or projected in any
of these forward-looking statements.
Overview
We are the nation’s largest direct marketer, and a leading
specialty retailer, of hunting, fishing, camping and related
outdoor merchandise. Since our founding in 1961, Cabela’s
has grown to become one of the most well-known outdoor
recreation brands in the United States. Through our
well-established direct business and our growing number of
destination retail stores, we believe we offer the widest and
most distinctive selection of high quality outdoor products at
competitive prices while providing superior customer service.
Our multi-channel retail model — catalog, Internet and
destination retail stores — strategically positions us
to meet our customer’s ever-growing needs. Our extensive
product offering consists of approximately 245,000 stock keeping
units, or SKUs, and includes hunting, fishing, marine and
camping merchandise, casual and outdoor apparel and footwear,
optics, vehicle accessories, gifts and home furnishings with an
outdoor theme. Our co-branded credit card provides revenue from
credit and interchange fees and offers us the opportunity to
enhance our merchandising business revenue by reinforcing our
brand and increasing customer loyalty. To best reflect our
operations, we organize the financial reporting of our business
into the following three segments:
|
|
|
| |
• |
Direct, which consists of our catalogs and website; |
| |
| |
• |
Retail, which consists of our destination retail stores; and |
| |
| |
• |
Financial Services, which consists of our credit card business,
which is managed and administered by our wholly-owned bank
subsidiary, World’s Foremost Bank. |
In the discussion below, where we refer to our
“merchandising business” we are referring to our
Direct and Retail segments, collectively. Where we refer to the
“bank,” we are referring to our Financial Services
segment.
We also operate various other small businesses, which are not
included within these segments but which we believe are an
extension of our overall business strategy and enable us to
offer additional products and services to our customers that
further develop and leverage our brand and expertise. These
businesses are aggregated under the category “Other”
in this discussion and include a travel agency specializing in
big-game hunting, wing shooting, fishing and trekking trips and
a developer of real estate adjacent to some of our destination
retail stores. Corporate and other expenses, consisting of
unallocated shared-service costs and general and administrative
expenses, also are included in the “Other” category.
Unallocated shared-service costs include receiving, distribution
and storage costs, merchandising, quality assurance costs and
corporate occupancy costs. General and administrative expenses
include costs associated with general corporate management and
shared departmental services such as management information
systems, finance, human resources and legal.
Revenue
Revenue consists of sales of our products and services. Direct
revenue includes sales from orders placed over the phone, by
mail and through our website and includes customer shipping
charges. Retail revenue includes all sales made at our
destination retail stores and is driven by sales at new stores
and changes in comparable store sales. A store is included in
our comparable store sales base on the first day
22
of the month following the fifteen month anniversary of its
opening or expansion by greater than 25% of total square
footage. Financial Services revenue includes securitization
income, interest income and interchange and other fees net of
reward program costs, interest expense and credit losses from
our credit card operations.
Cost of Revenue
Cost of revenue for our merchandising business includes cost of
merchandise, shipping costs, inventory shrink and other
miscellaneous costs. However, it does not include occupancy
costs, depreciation, direct labor or warehousing costs, which
are included in selling, general and administrative expenses.
Our Financial Services segment does not have costs classified as
cost of revenue.
Gross Profit
We define gross profit as the difference between revenue and
cost of revenue. As we discuss below, we believe that operating
income presents a more meaningful measure of our consolidated
operating performance than gross profit because of the following
factors:
|
|
|
| |
• |
our Financial Services segment does not have costs classified as
cost of revenue which results in a disproportionate gross profit
contribution for this segment; |
| |
| |
• |
we do not include occupancy costs, depreciation, direct labor or
warehousing costs in cost of revenue, which affects
comparability to other retailers who may account differently for
some or all of these costs; and |
| |
| |
• |
we have historically attempted to price our customer shipping
charges to generally match our shipping expenses, which reduces
gross profit as a percentage of Direct revenue. |
Selling, General and Administrative Expenses
Selling, general and administrative expenses include directly
identifiable operating costs and other expenses, as well as
depreciation and amortization. For our Direct segment, these
operating costs primarily consist of catalog development,
production and circulation costs, Internet advertising costs and
order processing costs. For our Retail segment, these costs
primarily consist of payroll, store occupancy, utilities and
advertising costs. For our Financial Services segment, these
costs primarily consist of advertising costs, third party data
processing costs associated with servicing accounts, payroll and
other administrative fees. Our Other expenses include
shared-service costs, general and administrative expenses and
the costs of operating our various other small businesses
described above which are not included in any of our segments.
Shared-service costs include costs for services shared by two or
more of our business segments (principally our Direct and Retail
segments) and include receiving, distribution and storage costs,
merchandising, quality assurance costs and corporate occupancy
costs. General and administrative expenses include costs
associated with general corporate management and shared
departmental services such as management information systems,
finance, human resources and legal.
Operating Income
Operating income is defined as revenue less cost of revenue and
selling, general and administrative expenses. Given the variety
of segments we report and the different cost classifications
inherent in each of their respective businesses, it is difficult
to compare our consolidated results on the basis of gross
profit. Consequently, we believe that operating income is the
best metric to compare the performance and profitability of our
segments to each other and to judge our consolidated performance
because it includes all applicable revenue and cost items.
Trends and Opportunities
Competitors aggressively building new stores. Our
competitors are actively building retail stores in our markets.
We seek to increase our merchandising revenue by continuing to
make significant investments
23
in new destination retail stores, in initiatives to improve our
website and enhance our customer database and in analysis tools
to improve our catalog marketing, which is the primary form of
marketing for our merchandising business.
Increased gas prices. Increases in gas prices could
affect us more negatively than our other retail competition. We
rely on destination retail store formats where some of our
customers must drive hundreds of miles to visit our stores. If
gas prices continue to increase, customers may opt to shop at
competitors located closer to large populations.
Catalog production and circulation costs. Over the last
several years, catalog production and circulation costs have
increased more rapidly than Direct revenues. This has been
caused by a variety of factors, including our strategy to use
our catalog as an advertising and marketing tool for our entire
business, including mailing additional catalogs into markets
where we have destination retail stores, the established nature
of our Direct business, and an increase in competition from new
brick and mortar retail stores as well the presence of our own
destination retail stores in new markets. Due to the benefit the
catalogs provide to our Retail business, and additional revenues
in our Direct business related to increased circulation, we plan
to continue to increase our catalog circulation despite this
increase in cost. In order to compensate for increased costs, we
plan to maximize the operating efficiencies of our Direct
business by decreasing operating costs in other areas of the
business, such as reducing order processing and distribution
costs.
Effect of retail expansion on direct business. When we
open a destination retail store in a new market, our Direct
revenues in that market generally experience a decline during
the first twelve months of the new store opening despite a
substantial increase in our Retail revenues in that market due
to the presence of our destination retail store. The new retail
store serves as a marketing tool in that geographic area. As a
result, in the year following the opening of the destination
retail store, Direct revenues in that market have historically
resumed their historical growth rates.
Investment in infrastructure. We anticipate that we will
continue investing in our infrastructure to support our new
destination retail stores and management information systems
department to support growth in our website customer base. We
expect that we will make investments in our data systems, and we
expect to hire additional employees in our shared services and
corporate overhead areas, in a manner appropriate to support our
revenue growth.
Our new destination retail store expansion plans will require
significant capital expenditures and effort. We have developed
and refined our destination retail store model and we anticipate
that based upon historical data and construction analyses for
anticipated new destination retail stores the average initial
investment to construct a large-format destination retail store
will range from approximately $40 million to
$80 million depending on the size of the store and the
amount of public improvements necessary. This investment
includes the cost of real estate, site work, public improvements
such as utilities and roads, buildings, equipment, fixtures
(including taxidermy) and inventory. See
“— Liquidity and Capital Resources —
Retail Store Expansion.” Where appropriate, we intend to
continue to utilize economic development arrangements with state
and local governments to offset some of these costs and improve
the return on investment on new destination retail stores. We
also will seek to improve our Retail segment operating
performance through investments in new systems, including
product analysis software, which we believe will help us analyze
and expand our product margins, and store associate scheduling
analysis tools, which we believe will help increase our labor
efficiencies as we expand into new markets.
We currently operate ten destination retail stores, including
our new 176,000 square foot destination retail store in
Wheeling, West Virginia, which we opened in August 2004. In
addition, we currently intend to open four new large-format
destination retail stores in 2005. Our failure to obtain or
negotiate economic development packages with local and state
governments could cause us to significantly alter our
destination retail store strategy or format and/or delay the
construction of one or more of our destination retail stores and
could adversely affect our revenues, cash flows and
profitability. Our Wheeling, West Virginia destination retail
store added 15.4% to our retail square footage in 2004. We
anticipate that the four large-
24
format destination retail stores we currently plan to open in
2005 will add approximately 750,000, or 57%, to our retail
square footage in 2005.
Saturation of our credit card. We anticipate that
Financial Services revenue will increase as our portfolio of
managed receivables matures, and we will seek to further
increase Financial Services revenue by attracting new
cardholders through low cost targeted marketing and enhancing
our loyalty program to encourage increased customer usage of our
credit cards. We are also exploring the further expansion of our
Financial Services segment by offering to manage co-branded VISA
credit cards for selected other businesses, similar to our
recent arrangements with International Speedway Corporation and
Woodworkers Supply, Inc. See “Business —
Financial Services Business — Third Party Card
Programs”. We will seek to control costs in our Financial
Services segment by managing default rates, delinquencies and
charge-offs by continuing our underwriting and account
management standards and practices. We anticipate that we will
continue to sell our credit card loans in the securitization
markets and manage those customer accounts at the bank.
Automated payment opportunities for consumers and fee
changes. In our Financial Services segment, we have
experienced a downward trend in the quantity of transactions and
the amount of fee income as a percentage of outstanding managed
credit card loans. We believe that the reason for this trend is
the increase in the number of payment options, such as payment
via the Internet, which has decreased the amount of fee income
collected. During fiscal 2004, in response to the declines in
the quantity of fee transactions, we adjusted our fee schedules
to reduce further decline in fee income as a percentage of
managed credit card loans. We do not believe that this trend
will have a material effect on the results of our Financial
Services segment in the future.
We have also experienced an increase in interchange fee income
as VISA has raised the interchange rate charged to merchants. In
2004, this change accounted for a $1.4 million increase in
revenue, or 1.8% of our total Financial Services revenue.
Influences on Period Comparability
We believe that the following factors have the potential to
materially impact the comparability of our results of operations
if they differ from period to period:
|
|
|
| |
• |
New destination retail store openings. The timing and
number of our new destination retail store openings will have an
impact on our results. First, we incur one-time expenses related
to opening each new destination retail store. New store expenses
for our large-format destination retail stores, the majority of
which are incurred prior to the store’s opening, have
averaged approximately $4.3 million per store and are
expensed as incurred. Historically, we have received support
from our vendors in a variety of forms including merchandise,
purchase volume discounts and cooperative advertising
allowances. This support has helped to offset the cost of
opening our new destination retail stores and is typically
recorded in selling, general and administrative expenses, but as
we begin to open more than one destination retail store in a
year the support that we receive is likely to decrease on a per
store basis. Second, most destination retail store expenses vary
proportionately with revenue, but there is also a fixed cost
component, consisting primarily of occupancy costs, utilities
and management overhead. These fixed costs typically result in
lower store profitability when a new destination retail store
opens. Due to both of these factors, a new destination retail
store opening may result in temporary declines in operating
income, both in dollars and/or as a percentage of revenue. As
the number of destination retail stores increases, the fixed
costs will be spread over a broader Retail revenue base and
should not represent the same disproportionate percentage of
revenue in the future. |
| |
| |
• |
Securitization of credit card receivables. During the
first quarter of 2003, we completed two securitization
transactions, which resulted in a reduction in securitization
income of $1.3 million. We completed a securitization
transaction in the second quarter of 2004 in which we sold
$75.0 million of fixed rate notes and $175.0 million
of floating rate notes, which contributed to a reduction in
securitization income of $3.1 million. These reductions in
securitization income do not |
25
|
|
|
| |
|
have a material impact on the full fiscal year 2004 results when
compared to the prior full fiscal year results. We expect to
complete a securitization transaction in the third or fourth
fiscal quarter of 2005. |
| |
| |
• |
Rapid interest rate changes. During periods of falling
interest rates, our Financial Services segment generally
benefits as the variable rate of interest paid in connection
with our securitization programs and borrowings generally falls
more rapidly than the interest rates charged to our cardholders.
During periods of rising interest rates, we generally experience
the opposite effect. Interest rates have generally declined or
been steady in the periods presented in our selected financial
data. The recent increases in interest rates have not materially
impacted the operating results of our Financial Services segment
as we have obtained favorable fixed interest rates for a portion
of our securitizations and borrowings and have been able to
increase the interest rates paid by our cardholders. We cannot
assure you that we will be able to obtain similar fixed interest
rates for our securitizations and borrowings in the future. See
“Factors Affecting Future Results — Risks Related
to Our Financial Services Business — Changes in
interest rates could have a negative impact on our
earnings.” |
| |
| |
• |
Changes in segment mix. We record direct labor expenses
of our Retail segment and all of the costs of our Financial
Services segment in selling, general and administrative
expenses. Therefore, an increase in the revenue of those
segments will generally be accompanied by an increase in
selling, general and administrative expenses. In addition, as
discussed above, our Financial Services segment does not have
costs classified as cost of revenue. If revenues in our Retail
or Financial Services segments grow at a disproportionate rate
compared to our Direct segment, our results will reflect the
disproportionate effect on gross profit and selling, general and
administrative expenses that results from our classification of
these expenses. |
| |
| |
• |
Seasonality. Our revenues are seasonal in nature due to
holiday buying patterns and hunting and fishing season openings
across the country. Our merchandise revenues are typically
higher in the third and fourth quarters than in the first and
second quarters. See “Quarterly Results of Operations and
Seasonal Influences.” |
| |
| |
• |
Compensation Charge. On May 1, 2004, we granted
options to purchase 550,500 shares of our common stock
with an exercise price of $13.34 per share. These options
vest in five equal annual installments commencing on
January 1, 2005. We will incur a total pre-tax compensation
charge of approximately $3.7 million which is equal to the
difference between the initial public offering price of
$20.00 per share and the exercise price of $13.34 per
share multiplied by the number of options granted. This charge
will be amortized to expense over the vesting period of the
options. A pre-tax compensation charge of $1.7 million was
incurred in fiscal 2004, and we anticipate pre-tax compensation
charges of $0.9 million, $0.6 million,
$0.3 million and $0.2 million will be incurred in
fiscal years 2005, 2006, 2007 and 2008, respectively. |
| |
| |
• |
Compensation Charges for New Accounting Pronouncements.
On December 15, 2004, the FASB issued FASB
Statement 123R, Share Based Payment (“FASB
123R”). This revises the previously issued FASB 123. It
requires public companies to record compensation at fair value
for newly issued options and for the remaining outstanding
unvested options as of the effective date, which is for periods
beginning after June 15, 2005. We expect to incur a total
non-cash pre-tax compensation charge for the outstanding
unvested options of $2.0 to $3.0 million during fiscal
2005, which is in addition to the amount incurred relating to
our May 1, 2004 option grants discussed above. This does
not include charges for any new option grants that may be
approved during fiscal 2005. |
| |
| |
• |
Land sales impact on other revenue. In fiscal 2004, the
amount of land sales increased over fiscal 2003 by
$5.2 million to $7.5 million compared to
$2.3 million in fiscal 2003. These land sales are included
in other revenue and pertain to development of land around our
destination retail stores. The cost of the land is reflected in
cost of sales as this land was held for sale. The timing and
gross profit of these land sales can have an impact on our
annual and quarterly results. The primary |
26
|
|
|
| |
|
increase in 2004 came from a sale of land that was sold at our
cost, due to the timing of the purchase and the sale of the land
being in close proximity — it was sold at its fair
market value. Therefore, there was no gross profit related to
the sale of that land. However, we expect the development of
that land to help drive customers to our destination retail
stores. Total gross profit on our land sales in fiscal 2004 was
$2.8 million, or 37.3%, of land sales. |
| |
| |
• |
Number of weeks in our fiscal periods. Our fiscal year
ends on the Saturday closest to December 31 and, as a
result, a
53rd week
is added every five or six years. Fiscal year 2003 consisted of
53 weeks ended on January 3, 2004. Fiscal years 2004,
2002, 2001 and 2000 consisted of 52 weeks. In 2004, with
one less week than 2003, the week impacted our total revenue
growth by 1.7%. See the chart, “Fiscal 2004 vs. Fiscal 2003
Information” for information on revenue impact by segment.
Our fiscal year policy only impacts our retail and direct
segments. Our bank’s fiscal year ends on December 31
and therefore is not impacted by the
53rd week. |
Recapitalization Transaction
On September 23, 2003, we entered into a recapitalization
transaction pursuant to which we purchased
10,922,617 shares of our common stock from existing
stockholders for a price of $13.73 per share. We funded
this redemption by selling 7,063,282 shares of our common
stock and 7,531,273 shares of our non-voting common stock
to J.P. Morgan Partners (BHCA) and its affiliates and
affiliated parties of Michael R. McCarthy, one of our directors,
as well as other investors at a price of $13.73 per share.
As a result of this recapitalization, we received net proceeds
of approximately $47.7 million, approximately
$40.1 million of which was paid to employees in connection
with a change in our deferred compensation plan that was
required by the terms of the recapitalization documents and the
remainder of which was used for general corporate purposes.
Initial Public Offering and Secondary Offering
On June 30, 2004, we sold 6,250,000 shares of common
stock at a price of $20.00 per share in our initial public
offering, which consisted of a total of 8,984,375 shares of
common stock. We received net proceeds of $114.2 million
after payment of underwriting discounts and other expenses. We
used $38.1 million of the net proceeds to repay the then
outstanding balance on our line of credit. We used the remaining
net proceeds for the capital expenditures and the purchase of
marketable securities relating to the construction and opening
of new destination retail stores.
On November 16, 2004, certain of our stockholders sold
12,000,000 shares of their common stock, including the
underwriters over allotment, at a price of $22.50 per share
in a firm commitment underwritten offering. We did not receive
any proceeds from this sale. We incurred $0.6 million in
transaction costs, which were expensed as incurred and recorded
in selling, general and administrative costs in our Other
segment.
27
Results of Operations
Our fiscal year ends on the Saturday closest to
December 31. Fiscal year 2003 consisted of 53 weeks,
while fiscal years 2002 and 2004 each consisted of
52 weeks. Our operating results for fiscal years 2004, 2003
and 2002, expressed as a percentage of revenue, were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Years | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Revenue
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Cost of revenue
|
|
|
59.5 |
|
|
|
59.4 |
|
|
|
60.1 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Gross profit
|
|
|
40.5 |
|
|
|
40.6 |
|
|
|
39.9 |
|
|
Selling, general and administrative expenses
|
|
|
34.3 |
|
|
|
34.5 |
|
|
|
33.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
6.2 |
|
|
|
6.1 |
|
|
|
6.2 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Interest income
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
| |
Interest expense
|
|
|
(0.5 |
) |
|
|
(0.8 |
) |
|
|
(0.7 |
) |
| |
Other income (net)
|
|
|
0.7 |
|
|
|
0.4 |
|
|
|
0.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
0.2 |
|
|
|
(0.4 |
) |
|
|
(0.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
6.4 |
|
|
|
5.7 |
|
|
|
5.9 |
|
|
Income tax expense
|
|
|
2.3 |
|
|
|
2.0 |
|
|
|
2.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
4.1 |
% |
|
|
3.7 |
% |
|
|
3.8 |
% |
| |
|
|
|
|
|
|
|
|
|
Segment Information
The following table sets forth the revenue and operating income
of each of our segments for fiscal years 2004, 2003 and 2002.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Years | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(Dollars in thousands) | |
|
Direct revenue
|
|
$ |
970,646 |
|
|
$ |
924,296 |
|
|
$ |
867,799 |
|
|
Retail revenue
|
|
|
499,074 |
|
|
|
407,238 |
|
|
|
305,791 |
|
|
Financial services revenue
|
|
|
78,104 |
|
|
|
58,278 |
|
|
|
46,387 |
|
|
Other revenue
|
|
|
8,150 |
|
|
|
2,611 |
|
|
|
4,604 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total revenue
|
|
$ |
1,555,974 |
|
|
$ |
1,392,423 |
|
|
$ |
1,224,581 |
|
| |
|
|
|
|
|
|
|
|
|
|
Direct operating income
|
|
$ |
146,765 |
|
|
$ |
143,996 |
|
|
$ |
134,011 |
|
|
Retail operating income
|
|
|
72,136 |
|
|
|
56,193 |
|
|
|
41,428 |
|
|
Financial services operating income
|
|
|
31,099 |
|
|
|
19,271 |
|
|
|
12,949 |
|
|
Other operating income (loss)
|
|
|
(152,785 |
) |
|
|
(134,529 |
) |
|
|
(112,387 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Total operating income
|
|
$ |
97,215 |
|
|
$ |
84,931 |
|
|
$ |
76,001 |
|
| |
|
|
|
|
|
|
|
|
|
|
As a Percentage of Total Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct revenue
|
|
|
62.4 |
% |
|
|
66.4 |
% |
|
|
70.8 |
% |
|
Retail revenue
|
|
|
32.1 |
|
|
|
29.2 |
|
|
|
25.0 |
|
|
Financial services revenue
|
|
|
5.0 |
|
|
|
4.2 |
|
|
|
3.8 |
|
|
Other revenue
|
|
|
0.5 |
|
|
|
0.2 |
|
|
|
0.4 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total revenue
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
| |
|
|
|
|
|
|
|
|
|
28
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Years | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(Dollars in thousands) | |
|
As a Percentage of Segment Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating income
|
|
|
15.1 |
% |
|
|
15.6 |
% |
|
|
15.4 |
% |
|
Retail operating income
|
|
|
14.5 |
% |
|
|
13.8 |
% |
|
|
13.5 |
% |
|
Financial services operating income
|
|
|
39.8 |
% |
|
|
33.1 |
% |
|
|
27.9 |
% |
|
Total operating income(1)
|
|
|
6.2 |
% |
|
|
6.1 |
% |
|
|
6.2 |
% |
|
|
| (1) |
The percentage set forth is a percentage of consolidated revenue
rather than revenue by segment as it is based upon our
consolidated operating income. A separate line item is not
included for Other operating income as this amount is reflected
in the total operating income amount, which reflects our
consolidated operating results. |
For credit card loans securitized and sold, the loans are
removed from our balance sheet and the net earnings on these
securitized assets after paying outside investors are reflected
as a component of our securitization income on a GAAP basis. The
following table summarizes the results of our Financial Services
segment for fiscal year 2004, 2003 and 2002 on a GAAP basis with
interest and fee income, interest expense and provision for loan
losses for the credit card receivables we own reported in net
interest income. Non-interest income on a GAAP basis includes
servicing income, gains on sales of loans and income recognized
on retained interest for the entire securitized portfolio, as
well as, interchange income on the entire managed portfolio.
Financial Services Revenue as reported in the Financial
Statements:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Years | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(Dollars in thousands) | |
|
Interest and fee income
|
|
$ |
12,735 |
|
|
$ |
7,858 |
|
|
$ |
5,284 |
|
|
Interest expense
|
|
|
(3,063 |
) |
|
|
(3,226 |
) |
|
|
(3,474 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
9,672 |
|
|
|
4,632 |
|
|
|
1,810 |
|
| |
|
|
|
|
|
|
|
|
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Securitization income(1)
|
|
|
96,466 |
|
|
|
74,472 |
|
|
|
60,727 |
|
| |
Other non-interest income
|
|
|
24,905 |
|
|
|
19,050 |
|
|
|
14,979 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total non-interest income
|
|
|
121,371 |
|
|
|
93,522 |
|
|
|
75,706 |
|
| |
|
|
|
|
|
|
|
|
|
|
Less: Customer rewards costs
|
|
|
(52,939 |
) |
|
|
(39,876 |
) |
|
|
(31,129 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Financial Services revenue
|
|
$ |
78,104 |
|
|
$ |
58,278 |
|
|
$ |
46,387 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
For the fiscal years ended 2004, 2003 and 2002, we recognized
gains on sale of credit card loans of $8.9 million,
$5.9 million and $7.7 million respectively, which are
reflected as a component of securitization income. |
Our “managed” credit card loans represent credit card
loans we own plus securitized credit card loans. Since the
financial performance of the managed portfolio has a significant
impact on the earnings we will receive from servicing the
portfolio, we believe the following table on a
“managed” basis is important information to analyze
our revenue in the Financial Services segment. This non-GAAP
presentation reflects the financial performance of the credit
card loans we own plus those that have been sold for the fiscal
years ended 2004, 2003 and 2002 and includes the effect of
recording the retained interest at fair value. Interest,
interchange (net of customer rewards) and fee income on both the
owned and securitized portfolio is recorded in their respective
line items. Interest paid to outside investors on the
securitized credit card loans is included with other interest
costs and included in interest expense. Credit
29
losses on the entire managed portfolio are included in provision
for loan losses. Although our financial statements are not
presented in this manner, management reviews the performance of
its managed portfolio in order to evaluate the effectiveness of
its origination and collection activities, which ultimately
affects the income we will receive for servicing the portfolio.
The securitization of credit card loans primarily converts
interest income, interchange income, credit card fees, credit
losses and other income and expense related to the securitized
loans into securitization income.
Managed Financial Services Revenue:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(Dollars in thousands except other data) | |
|
Interest income
|
|
$ |
71,309 |
|
|
$ |
54,412 |
|
|
$ |
42,579 |
|
|
Interchange income, net of customer reward costs
|
|
|
36,493 |
|
|
|
28,945 |
|
|
|
19,034 |
|
|
Other fee income
|
|
|
16,841 |
|
|
|
13,605 |
|
|
|
12,905 |
|
|
Interest expense
|
|
|
(26,750 |
) |
|
|
(21,361 |
) |
|
|
(15,352 |
) |
|
Provision for loan losses
|
|
|
(20,208 |
) |
|
|
(17,380 |
) |
|
|
(13,167 |
) |
|
Other
|
|
|
419 |
|
|
|
57 |
|
|
|
388 |
|
| |
|
|
|
|
|
|
|
|
|
|
Managed Financial Services revenue
|
|
$ |
78,104 |
|
|
$ |
58,278 |
|
|
$ |
46,387 |
|
| |
|
|
|
|
|
|
|
|
|
|
As a Percentage of Managed Credit Card Loans Managed
Financial Services Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
8.0 |
% |
|
|
7.7 |
% |
|
|
7.9 |
% |
|
Interchange income, net of customer reward costs
|
|
|
4.1 |
% |
|
|
4.1 |
% |
|
|
3.6 |
% |
|
Other fee income
|
|
|
1.9 |
% |
|
|
1.9 |
% |
|
|
2.4 |
% |
|
Interest expense
|
|
|
(3.0 |
)% |
|
|
(3.0 |
)% |
|
|
(2.9 |
)% |
|
Provision for loan losses
|
|
|
(2.3 |
)% |
|
|
(2.4 |
)% |
|
|
(2.5 |
)% |
|
Other
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.1 |
% |
| |
|
|
|
|
|
|
|
|
|
|
Managed Financial Services revenue
|
|
|
8.7 |
% |
|
|
8.3 |
% |
|
|
8.6 |
% |
| |
|
|
|
|
|
|
|
|
|
|
Average reported credit card loans
|
|
$ |
82,526 |
|
|
$ |
61,850 |
|
|
$ |
47,734 |
|
|
Average managed credit card loans
|
|
$ |
888,730 |
|
|
$ |
705,265 |
|
|
$ |
536,682 |
|
Fiscal 2004 vs. Fiscal 2003 Information:
Information on the extra week of the fiscal year ended
January 3, 2004 is provided to allow investors to separate
the impact of this extra week on reported results in comparison
to reported results for the fiscal year ended January 1,
2005. Management believes these measurements are an important
analytical tool to aid in understanding underlying operating
trends without distortion due to the extra week included in
fiscal 2003.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Period Ending | |
|
Excluding Extra Week | |
| |
|
| |
|
| |
| |
|
January 1, | |
|
January 3, | |
|
|
|
|
|
Comparable | |
| |
|
2005 | |
|
2004 | |
|
% | |
|
January 3, | |
|
% | |
|
Store Sales | |
| |
|
(52 weeks) | |
|
(53 weeks) | |
|
Incr/(Decr) | |
|
2004 | |
|
Incr/(Decr) | |
|
Growth(2) | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
52 weeks vs. 53 weeks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct revenue(1)
|
|
$ |
970,646 |
|
|
$ |
924,296 |
|
|
|
5.0 |
% |
|
$ |
910,270 |
|
|
|
6.6 |
% |
|
|
|
|
|
Retail revenue(1)
|
|
|
499,074 |
|
|
|
407,238 |
|
|
|
22.6 |
% |
|
|
401,233 |
|
|
|
24.4 |
% |
|
|
(0.6 |
)% |
|
Financial services revenue(3)
|
|
|
78,104 |
|
|
|
58,278 |
|
|
|
34.0 |
% |
|
|
58,278 |
|
|
|
34.0 |
% |
|
|
|
|
|
Other revenue
|
|
|
8,150 |
|
|
|
2,611 |
|
|
|
n/a |
|
|
|
2,611 |
|
|
|
n/a |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total revenue
|
|
$ |
1,555,974 |
|
|
$ |
1,392,423 |
|
|
|
11.7 |
% |
|
$ |
1,372,392 |
|
|
|
13.4 |
% |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
| (1) |
In the 52-week vs. 53-week period we take out week 1 of our
fiscal year 2003 in order to show a comparable like calendar
year. Week 1 of fiscal year 2003 accounted for
$14.0 million and $6.0 million, respectively, of
Direct and Retail revenue. |
| |
| (2) |
Comparable store sales growth is calculated on a 52-week basis. |
| |
| (3) |
Our Financial Services revenue is not adjusted for the extra
week as the year end of our wholly-owned bank subsidiary,
World’s Foremost Bank, corresponds to a calendar year end
of December 31, therefore there is no adjustment for the
extra week. |
Fiscal Year 2004 Compared to Fiscal Year 2003
Revenue
Revenue increased by $163.6 million, or 11.7%, to
$1,556.0 million in fiscal 2004 from $1,392.4 million
in fiscal 2003 as we experienced revenue growth in each of our
segments. We had 53 weeks in fiscal 2003 versus
52 weeks in fiscal 2004. On a comparative 52 week
basis, revenue increased by 13.4%.
Direct Revenue. Direct revenue increased by
$46.3 million, or 5.0%, to $970.6 million in fiscal
2004 from $924.3 million in fiscal 2003 primarily due to
growth in sales through our website. When we adjust for the
extra week in fiscal 2003, our direct revenues grew by 6.6%. The
number of customer packages shipped increased by 5.3% to
8.1 million in fiscal 2004. Circulation of our catalogs
increased by 3.3 billion pages, or 10.6%, to
34.5 billion pages in fiscal 2004 from 31.2 billion
pages in fiscal 2003. The number of active customers, which we
define as those customers who have purchased merchandise from us
in the last twelve months, increased by 6.1% to approximately
4.2 million in fiscal 2004 over fiscal 2003. The product
categories that contributed the largest dollar volume increase
to our Direct revenue growth included work wear, home
furnishings and archery with paint ball being our fastest
growing category in the Direct segment for fiscal 2004.
Retail Revenue. Retail revenue increased by
$91.8 million, or 22.5%, to $499.1 million in fiscal
2004 from $407.2 million in fiscal 2003 due to increased
new store sales of $99.8 million. Retail revenue increased
24.4% on a comparative 52 week basis. Revenue for stores in
our comparable base decreased by $8.0 million compared to
fiscal 2003. We believe that the decrease is primarily
attributable to the extra week in fiscal 2003. Our comparable
store sales on a 52 week basis decreased 0.6%. The product
categories that contributed the largest dollar volume increase
to our Retail revenue growth included firearms, archery, and
optics with paint ball being our fastest growing category in the
Retail segment for fiscal 2004.
Financial Services Revenue. Financial Services revenue
increased by $19.8 million, or 34.0%, to $78.1 million
in fiscal 2004 from $58.3 million in fiscal 2003, due to an
increase in securitization income of $22.0 million, an
increase in other non-interest income of $5.9 million and
an increase in net interest and fee income of $5.0 million.
The 29.5% increase in securitization income was primarily a
result of interchange income increasing by $20.6 million as
our customers’ VISA net purchases increased by
26.9%. In addition, an increase in VISA rates improved
interchange income by $1.4 million for the fiscal year. The
increase in securitization income was partially offset by an
increase in customer reward costs of $13.1 million, or
32.8%. These costs generally increase proportionately with the
amount of customer VISA purchases. We had various promotions in
the fourth fiscal quarter where customers earned additional
rewards, which caused reward points expense to increase at a
higher rate than VISA purchases. Compared to fiscal 2003, the
number of average active accounts grew by 18.5% to 618,951 and
the average balance per active account grew by 6.3% to
approximately $1,436.
Gross Profit
Gross profit increased by $65.4 million, or 11.6%, to
$630.3 million in fiscal 2004 from $564.9 million in
fiscal 2003. As a percentage of revenue, gross profit declined
slightly to 40.5% for fiscal 2004, compared to 40.6% in fiscal
2003. Our Financial Services revenue growth of
$19.8 million, which does not have any
31
corresponding increase in cost of revenue, provided for an
increase of 0.5% to the gross profit as a percent of revenue.
However, this was offset by a decline in merchandising margin as
discussed below of 0.4% of revenue and a decline of 0.2% in
gross profit on our other revenue due to a sale of land with no
gross profit.
Merchandising Business. The gross profit of our
merchandising business increased by $46.8 million, or 9.3%,
to $551.5 million in fiscal 2004 from $504.7 million
in fiscal 2003. As a percentage of revenue, gross profit
declined by 0.4% to 37.5% in fiscal 2004, from 37.9% in fiscal
2003. The decline was attributable to increased promotional
activities, increased freight costs and a decrease in our net
shipping margin. Promotional activity recorded in net revenue
had a negative impact on gross merchandising margin of 0.8%.
Increased freight costs of $5.5 million contributed to 0.3%
of the decrease in our gross profit margin. And finally, a
decrease in net shipping margin (shipping income less shipping
expense) decreased our merchandising gross profit by 0.1%. These
decreases were partially offset by improved merchandising
practices.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by
$53.1 million, or 11.1%, to $533.1 million in
fiscal 2004 from $480.0 million in fiscal 2003. Selling,
general and administrative expenses were 34.3% of revenue in
fiscal 2004, compared to 34.5% in fiscal 2003. The most
significant factors contributing to the increase in selling,
general and administrative expenses included:
|
|
|
| |
• |
Selling, general and administrative expenses attributed to
shared services comprised $17.0 million of the total
increase in selling, general and administrative expense and
increased primarily as a result of the addition of new
employees, which increased salary and wages, related taxes,
insurance and benefits, and 401(k) matching expense by
$14.7 million. The additional new employees were hired
primarily in the distribution department, relating to the new
distribution center in Wheeling, West Virginia. In addition to
new employees, there was a $1.7 million compensation charge
related to stock options granted at less than fair market value
under our 2004 stock plan, which was included in the increase in
salary and wages. Professional fees increased over the prior
year by $1.9 million. $0.6 million is attributable to
costs of the secondary offering that were expensed in the fourth
fiscal quarter. We also incurred increases in various selling,
general and administrative expense line items, which in total
were $0.8 million, and were related to moving an operation
to a new location. |
| |
| |
• |
Direct selling, general and administrative expenses
comprised $12.9 million of the total increase in selling,
general and administrative expense and increased primarily as a
result of an increase in catalog production costs of
$12.4 million, or 9.2%. Catalog costs increased to
$146.4 million, or 15.1% of Direct revenue in fiscal 2004,
from $134.0 million, or 14.5% of Direct revenue in fiscal
2003. This increase in catalog costs as a percent of our Direct
revenue was primarily due to the following factors: sales in the
first half of the year that were below our expectations and our
continued use of our catalog as a marketing tool to increase
brand awareness and to encourage customers to visit our
destination retail stores. Our credit card discount fees
increased by $1.1 million but were still in line with the
increase as a percentage of revenue. All other costs remained
flat as a percentage of revenue. |
| |
| |
• |
Retail selling, general and administrative expenses
comprised $15.2 million of the total increase in selling,
general and administrative expense primarily due to new store
operating costs of $16.4 million, which were offset by a
reduction in comparable store costs of $1.2 million.
Included in the new store costs were our pre-opening and
expansion costs, which decreased by $3.4 million over
fiscal 2003. In 2004, we opened a 176,000 square foot store
as compared to 2003 when we opened a 247,000 square foot
store. The size of the store impacted the pre-opening costs. The
pre-opening costs include vendor cooperative payments and direct
reimbursement advertising that reduced the pre-opening costs of
our stores. Included in the comparable store costs was a
reduction in salary and wages of $2.1 million due to better
payroll management and scheduling practices. Total advertising
remained flat as a percent of revenue for the year at 1.8% of
revenue. Total salary |
32
|
|
|
| |
|
and wages, including new stores, decreased as a percent of
retail revenue by 0.8% to 11.2% in fiscal 2004, from 12.0% in
fiscal 2003. |
| |
| |
• |
Financial Services selling, general and administrative
expenses comprised $8.0 million of the total increase in
selling, general and administrative expense. Third-party data
processing services increased by $2.3 million, as the
number of credit card transactions increased. Salary and wages
along with bonus and other related wage costs increased
$2.2 million with the growth of the bank. Advertising and
promotion costs related to new account acquisitions increased by
$1.7 million and bad debt expense increased by
$0.9 million as the amount of managed receivables
outstanding increased. As a percentage of managed receivables
our bad debt expense decreased and continued to be well below
industry standards. Postage increased by $0.8 million, but
as a percentage of revenue it decreased. |
Operating Income
Operating income increased by $12.3 million, or 14.5%, to
$97.2 million in fiscal 2004 from $84.9 million in
fiscal 2003 primarily due to the factors discussed above.
Other Income
Other income increased by $4.8 million to
$10.4 million in fiscal 2004 from $5.6 million in
fiscal 2003 primarily due to an increase in interest earned from
economic development bonds of $2.5 million and due to a
gain on the sale of our investment in Great Wolf Lodge, LLC.
Interest Expense
Interest expense decreased by $3.0 million in fiscal 2004
to $8.2 million as compared with $11.2 million in
fiscal 2003. The interest expense decrease was primarily due to
changes made to our deferred compensation plan in 2003, which
reduced interest by $2.4 million, a reduction in long-term
and short-term borrowings and the discontinuance of our employee
savings plan in December of 2003.
Income Taxes
Our effective tax rate was 35.1% in fiscal 2004 as compared to
35.6% in fiscal 2003. This decline in the effective rate was due
to prior year tax audits that were settled in our favor. We
expect our effective rate to increase in fiscal 2005 as we enter
more states with our destination retail stores.
Fiscal Year 2003 Compared to Fiscal Year 2002
Revenue
Revenue increased by $167.8 million, or 13.7%, to
$1,392.4 million in fiscal 2003 from $1,224.6 million
in fiscal 2002 as we experienced revenue growth in our
merchandising business and Financial Services segment. Revenue
for fiscal 2003 included one extra week of revenue as compared
to fiscal 2002. The extra week accounted for an increase of
approximately 1% over fiscal 2002 revenue.
Direct Revenue. Direct revenue increased by
$56.5 million, or 6.5%, to $924.3 million in fiscal
2003 from $867.8 million in fiscal 2002 primarily due to an
increased number of customer purchases or orders, particularly
through our website. The number of customer orders shipped
increased by 7.2% from 6.4 million in 2002 to
6.9 million in 2003. Circulation of our catalogs increased
by 2.2 billion pages, or 7.7%, to 31.2 billion pages
in fiscal 2003 from 29.0 billion pages in fiscal 2002 as we
increased customer mailings, particularly to customers located
near our destination retail stores. The number of active
customers, which we define as those customers who have purchased
merchandise from us in the last twelve months, increased by 4.9%
to approximately 4.0 million in fiscal 2003 over fiscal
2002. The product categories that contributed the largest dollar
volume increase to our Direct revenue growth included
33
women’s and children’s casual clothing, camping, and
auto/ ATV accessories with women’s and children’s
casual clothing being our fastest growing category in the Direct
segment in 2003.
Retail Revenue. Retail revenue increased by
$101.4 million, or 33.2%, to $407.2 million in fiscal
2003 from $305.8 million in fiscal 2002 primarily as a
result of increased new store sales of $89.4 million. The
product categories that contributed the largest dollar volume
increase to our Retail revenue growth by dollar volume included
hunting equipment, camping equipment, optics and tree stands
with women’s and children’s casual clothing being our
fastest growing category in the Retail segment in 2003.
Financial Services Revenue. Financial Services revenue
increased by $11.9 million, or 25.6%, to $58.3 million
in fiscal 2003 from $46.4 million in fiscal 2002 primarily
as a result of an increase in both the number of active accounts
and the average balance for these accounts, a decline in
interest rates and an increase in interchange income. During
fiscal 2003, the number of active accounts grew by 20.7% to
523,458 and the average balance per active account grew by 9.0%
to approximately $1,347. We believe the growth in average
balance resulted from customers’ desire to receive benefits
under our rewards program and due to the continued maturation of
our account base.
Gross Profit
Gross profit increased by $75.8 million, or 15.5%, to
$564.9 million in fiscal 2003 from $489.1 million in
fiscal 2002. As a percentage of revenue, gross profit increased
by 0.7% to 40.6% in fiscal 2003 from 39.9% in fiscal 2002 as a
result of an increase in Financial Services revenue, which
represented $11.9 million of the increase in gross profit
and has no cost of revenue.
Merchandising Business. The gross profit of our
merchandising business increased by $66.3 million or 15.1%,
to $504.7 million in fiscal 2003 from $438.3 million
in fiscal 2002. As a percentage of revenue, gross profit
increased by 0.6% to 37.9% in fiscal 2003 from 37.3% in fiscal
2002 as we utilized better merchandising practices.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by
$66.9 million, or 16.2%, to $480.0 million in fiscal
2003 from $413.1 million in fiscal 2002. Selling, general
and administrative expenses were 34.5% of revenue in fiscal
2003, compared to 33.7% in fiscal 2002. As a percentage of
revenue, Direct selling, general and administrative expenses
increased while Retail and Financial Services selling, general
and administrative expenses remained consistent with fiscal 2002
levels. The most significant factors contributing to the
increase in selling, general and administrative expenses
included:
|
|
|
| |
• |
Selling, general and administrative expenses attributed to
shared services comprised $19.7 million of the total
increase in selling, general and administrative expenses and
increased primarily as a result of our increased payroll and
benefits of $15.3 million primarily relating to the hiring
of new employees in our management information systems
department. Our property taxes increased by $2.9 million,
and depreciation expense increased by $1.3 million as a
result of additional infrastructure. In addition, an increase in
the equity and interest based components of our deferred
compensation plan, which is no longer available, resulted in an
increase of $2.0 million in benefit expense as compared to
fiscal 2002. |
| |
| |
• |
Direct selling, general and administrative expenses
comprised $18.9 million of the total increase in selling,
general and administrative expense and increased primarily as a
result of an increase of $9.7 million, or 7.8%, in catalog
production costs, such as printing, postage and labor, as we
increased catalog circulation and increased payroll and benefits
of $4.4 million relating to the hiring of additional
employees in this segment. Our advertising expenses increased by
$2.1 million, which was generally proportional to our
increase in Direct revenues. Credit card interchange fees paid
by us increased by $0.9 million. Interchange fees paid by
us grew because more customers purchased products through our
website, for which we are charged a higher interchange rate. |
34
|
|
|
| |
• |
Retail selling, general and administrative expenses
comprised $22.7 million of the total increase in selling,
general and administrative expense and increased primarily as a
result of new store operating costs of $17.6 million.
Advertising expenses increased by $2.3 million in
connection with new store events. Depreciation expense and
property taxes increased by $2.1 million and
$1.5 million, respectively, as we added new stores and
related equipment. These increases were partially offset by a
decrease in pre-opening expenses, as expenses incurred in fiscal
2003 were $0.9 million lower than the expenses incurred in
fiscal 2002. |
| |
| |
• |
Financial Services selling, general and administrative
expenses comprised $5.6 million of the total increase in
selling, general and administrative expense and increased
primarily as a result of increased costs of $1.7 million
for third-party data processing services as a result of an
increased number of credit card transactions. In addition, we
incurred increased professional fees of $1.0 million,
increased costs of advertising and promotional events of
$0.7 million, increased postage expenses of
$0.6 million and increased wages and benefits of
$1.0 million as we added employees in this segment to
support its growth. |
Operating Income
Operating income increased by $8.9 million, or 11.7%, to
$84.9 million in fiscal 2003 from $76.0 million in
fiscal 2002 primarily due to the factors described above.
Interest Expense
Interest expense was $11.2 million in fiscal 2003 as
compared with $8.4 million in fiscal 2002 predominantly due
to the full year impact of interest expense on our
$125 million of long-term debt issued in a private
placement in September 2002.
Income Taxes
Our effective tax rate was 35.6% in fiscal 2003 as compared to
35.5% in fiscal 2002. We have experienced a gradual increase in
our effective tax rate as we have opened stores in new states
and incurred additional state income taxes.
Quarterly Results of Operations and Seasonal Influences
Due to holiday buying patterns and hunting and fishing season
openings across the country, merchandise revenues are typically
higher in the third and fourth quarters than in the first and
second quarters. We anticipate our revenues will continue to be
seasonal in nature.
35
The following table sets forth unaudited financial and operating
data in each quarter during fiscal years 2004 and 2003. This
quarterly information has been prepared on a basis consistent
with our audited financial statements and includes all normal
recurring adjustments that we consider necessary for a fair
presentation of the information shown. This information should
be read in conjunction with our selected financial data and
audited consolidated financial statements and the notes thereto
appearing elsewhere in this report. Our quarterly operating
results may fluctuate significantly as a result of these and a
variety of other factors, and operating results for any quarter
are not necessarily indicative of results for a full fiscal
year. See “— Factors Affecting Future
Results” and “— Influences on Period
Comparability”.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Unaudited | |
| |
|
| |
| |
|
2004 (52 Weeks) | |
|
2003 (53 Weeks) | |
| |
|
| |
|
| |
| |
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
| |
|
Quarter | |
|
Quarter(2) | |
|
Quarter | |
|
Quarter | |
|
Quarter(1) | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
|
|
(Dollars in thousands except EPS) | |
|
|
|
|
|
|
|
Net revenue
|
|
$ |
313,917 |
|
|
$ |
279,139 |
|
|
$ |
383,810 |
|
|
$ |
579,108 |
|
|
$ |
262,303 |
|
|
$ |
250,846 |
|
|
$ |
331,209 |
|
|
$ |
548,065 |
|
|
Gross profit
|
|
|
125,242 |
|
|
|
106,853 |
|
|
|
156,421 |
|
|
|
241,793 |
|
|
|
103,331 |
|
|
|
97,788 |
|
|
|
132,259 |
|
|
|
231,517 |
|
|
Operating income
|
|
|
12,703 |
|
|
|
3,232 |
|
|
|
25,495 |
|
|
|
55,785 |
|
|
|
6,315 |
|
|
|
5,342 |
|
|
|
17,559 |
|
|
|
55,715 |
|
|
Net income
|
|
|
8,046 |
|
|
|
1,987 |
|
|
|
16,503 |
|
|
|
38,460 |
|
|
|
3,077 |
|
|
|
3,090 |
|
|
|
10,237 |
|
|
|
34,987 |
|
|
Earnings per share — basic(3)
|
|
$ |
0.14 |
|
|
$ |
0.03 |
|
|
$ |
0.26 |
|
|
$ |
0.60 |
|
|
$ |
0.06 |
|
|
$ |
0.06 |
|
|
$ |
0.20 |
|
|
$ |
0.62 |
|
|
Earnings per share — diluted(3)
|
|
$ |
0.14 |
|
|
$ |
0.03 |
|
|
$ |
0.25 |
|
|
$ |
0.58 |
|
|
$ |
0.06 |
|
|
$ |
0.06 |
|
|
$ |
0.19 |
|
|
$ |
0.60 |
|
|
As a percentage of full year results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Revenue
|
|
|
20.2 |
% |
|
|
17.9 |
% |
|
|
24.7 |
% |
|
|
37.2 |
% |
|
|
18.8 |
% |
|
|
18.0 |
% |
|
|
23.8 |
% |
|
|
39.4 |
% |
| |
Gross profit
|
|
|
19.9 |
% |
|
|
17.0 |
% |
|
|
24.8 |
% |
|
|
38.3 |
% |
|
|
18.3 |
% |
|
|
17.3 |
% |
|
|
23.4 |
% |
|
|
41.0 |
% |
| |
Operating income
|
|
|
13.1 |
% |
|
|
3.3 |
% |
|
|
26.2 |
% |
|
|
57.4 |
% |
|
|
7.4 |
% |
|
|
6.3 |
% |
|
|
20.7 |
% |
|
|
65.6 |
% |
| |
Net income
|
|
|
12.4 |
% |
|
|
3.1 |
% |
|
|
25.4 |
% |
|
|
59.1 |
% |
|
|
6.0 |
% |
|
|
6.0 |
% |
|
|
19.9 |
% |
|
|
68.1 |
% |
|
|
| (1) |
We recognized an offset to revenue in the first fiscal quarter
of fiscal 2003 of $1.3 million as a result of the
completion of a securitization transaction in that quarter. See
“— Influences on Period Comparability.” |
| |
| (2) |
We recognized an offset to revenue in the second fiscal quarter
of fiscal 2004 as a result of the completion of a securitization
transaction in that quarter. |
| |
| (3) |
Basic and diluted earnings per share are computed independently
for each of the quarters presented. Due to the recapitalization
transaction in 2003 and our initial public offering in the
second fiscal quarter of 2004, the sum of the quarterly earnings
per share may not total the amounts for the applicable periods. |
36
Bank Asset Quality
We securitize a majority of our credit card receivables. On a
quarterly basis, we transfer eligible receivables into a
securitization trust. We are required to own at least a minimum
twenty day average of 5% of the interests in the securitization
trust. Therefore, these retained receivables have the same
characteristics as those receivables sold to outside investors.
Certain accounts are ineligible for securitization because they
are delinquent at the time of addition, originated from sources
other than Cabela’s Club credit cards and various other
requirements. The total amount of ineligible receivables we
owned were $6.1 million and $1.5 million at fiscal
year end 2004 and fiscal year end 2003, respectively. Of the
$6.1 million in ineligible receivables outstanding at
fiscal year end 2004, $5.2 million were originated from
sources other than Cabela’s Club credit cards. The
following table shows credit card receivables available for sale
along with those securitized as of fiscal year end 2004, 2003
and 2002:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
Receivables | |
|
>90 Days | |
|
Receivables | |
|
>90 Days | |
|
Receivables | |
|
>90 Days | |
| |
|
Outstanding | |
|
Delinquent | |
|
Outstanding | |
|
Delinquent | |
|
Outstanding | |
|
Delinquent | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Receivables held for sale (median FICO score of 765 in 2003 and
776 in 2004)
|
|
$ |
4,202 |
|
|
|
— |
|
|
$ |
4,223 |
|
|
|
— |
|
|
$ |
5,003 |
|
|
|
— |
|
|
Receivables securitized and transferor’s interest (median
FICO score of 771 in 2003; and 774 in 2004)
|
|
|
1,072,910 |
|
|
$ |
1,808 |
|
|
|
867,982 |
|
|
|
1,433 |
|
|
|
670,554 |
|
|
|
1,294 |
|
| |
Total
|
|
$ |
1,077,112 |
|
|
$ |
1,808 |
|
|
$ |
872,205 |
|
|
$ |
1,433 |
|
|
$ |
675,557 |
|
|
$ |
1,294 |
|
As reflected in the preceding table, the credit quality of our
reported credit card receivables does not have a significant
effect on the overall quality of our entire managed portfolio.
As a result, we generally only monitor the asset quality of the
managed portfolio.
The quality of our managed credit card portfolio at any time
reflects, among other factors, the creditworthiness of the
individual cardholders, general economic conditions, the success
of our account management and collection activities, and the
life cycle stage of the portfolio. Our financial results are
sensitive to changes in delinquencies and net charge-offs of
this portfolio. During periods of economic weakness,
delinquencies and net charge-offs are more likely to increase.
We have sought to manage this sensitivity by selecting a
customer base that has historically shown itself to be very
creditworthy based on charge-off levels, Fair Isaac &
Company, or FICO, scores and the percentage of qualifying versus
non-qualifying applicants.
37
Our average managed receivables outstanding increased by
$184 million, or 26.1%, to $889 million in fiscal 2004
from $705 million in fiscal 2003. We believe that as credit
card accounts mature they are less likely to charge-off and less
likely to be closed. The following table shows our managed
receivables outstanding at fiscal year end 2004 and 2003 by
months since the account opened.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
Receivables | |
|
Percentage of | |
|
Receivables | |
|
Percentage of | |
| |
|
Outstanding | |
|
Total | |
|
Outstanding | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
(Dollars in thousands) | |
|
|
|
Months Since Account Opened
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 months or Less
|
|
$ |
53,803 |
|
|
|
5.0 |
% |
|
$ |
53,382 |
|
|
|
6.1 |
% |
|
7 — 12 months
|
|
|
70,600 |
|
|
|
6.5 |
% |
|
|
64,177 |
|
|
|
7.3 |
% |
|
13 — 24 months
|
|
|
155,500 |
|
|
|
14.4 |
% |
|
|
151,633 |
|
|
|
17.4 |
% |
|
25 — 36 months
|
|
|
169,804 |
|
|
|
15.7 |
% |
|
|
170,959 |
|
|
|
19.6 |
% |
|
37 — 48 months
|
|
|
183,254 |
|
|
|
16.9 |
% |
|
|
223,776 |
|
|
|
25.6 |
% |
|
49 — 60 months
|
|
|
233,624 |
|
|
|
21.5 |
% |
|
|
79,719 |
|
|
|
9.1 |
% |
|
61 — 72 months
|
|
|
82,640 |
|
|
|
7.6 |
% |
|
|
28,564 |
|
|
|
3.3 |
% |
|
73 — 84 months
|
|
|
28,514 |
|
|
|
2.6 |
% |
|
|
19,553 |
|
|
|
2.2 |
% |
|
85 + months
|
|
|
105,381 |
|
|
|
9.8 |
% |
|
|
81,910 |
|
|
|
9.4 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
1,083,120 |
|
|
|
100.0 |
% |
|
$ |
873,673 |
|
|
|
100.0 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Delinquencies
We consider the entire balance of an account, including any
accrued interest and fees, delinquent if the minimum payment is
not received by the payment due date. Our aging methodology is
based on the number of completed billing cycles during which a
customer has failed to make a required payment. Delinquencies
not only have the potential to reduce earnings by increasing the
unrealized loss recognized to reduce the loans to market value
and reduction in securitization income, but they also result in
additional operating costs dedicated to resolving the
delinquencies. The following chart shows the percentage of our
managed accounts that have been delinquent as of the end of
fiscal years 2004, 2003 and 2002.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Number of days delinquent
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Greater than 30 days
|
|
|
0.71 |
% |
|
|
0.80 |
% |
|
|
0.94 |
% |
| |
Greater than 60 days
|
|
|
0.41 |
% |
|
|
0.43 |
% |
|
|
0.49 |
% |
| |
Greater than 90 days
|
|
|
0.19 |
% |
|
|
0.18 |
% |
|
|
0.21 |
% |
Charge-offs
Gross charge-offs reflect the uncollectible principal, interest
and fees on a customer’s account. Recoveries reflect the
amounts collected on previously charged-off accounts. We believe
that most bankcard issuers charge off accounts at 180 days.
We generally charge off accounts the month after an account
becomes 90 days contractually delinquent, except in the
case of cardholder bankruptcies and cardholder deaths, which are
charged off at the time of notification. As a result, our
charge-off rates are
38
not directly comparable to other participants in the bankcard
industry. Our charge-off activity for the managed portfolio for
fiscal years 2004, 2003 and 2002 is summarized below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Gross charge-offs
|
|
$ |
23,134 |
|
|
$ |
19,554 |
|
|
$ |
15,074 |
|
|
Recoveries
|
|
|
3,477 |
|
|
|
2,499 |
|
|
|
1,907 |
|
|
Net charge-offs
|
|
|
19,658 |
|
|
|
17,055 |
|
|
|
13,167 |
|
|
Net charge-offs as a percentage of average managed loans
|
|
|
2.21 |
% |
|
|
2.42 |
% |
|
|
2.45 |
% |
Liquidity and Capital Resources
Overview
Our merchandising business and our Financial Services segment
have significantly different liquidity and capital needs. The
primary cash requirements of our merchandising business relate
to purchase of inventory, capital for new destination retail
stores, purchases of economic development bonds related to the
development of new destination retail stores, investments in our
management information systems and other infrastructure, and
other general working capital needs. We historically have met
these requirements by generating cash from our merchandising
business operations, borrowing under revolving credit
facilities, issuing debt and equity securities, obtaining
economic development grants from state and local governments in
connection with developing our destination retail stores and
collecting principal and interest payments on our economic
development bonds. The cash flow we generate from our
merchandising business is seasonal, with our peak cash
requirements for inventory occurring between May and September.
While we have consistently generated overall positive annual
cash flow from our operating activities, other sources of
liquidity are generally required by our merchandising business
during these peak cash use periods. These sources historically
have included short-term borrowings under our revolving credit
facility and access to debt markets, such as the private
placement of long-term debt securities we completed in September
2002. While we generally have been able to manage our cash needs
during peak periods, if any disruption occurred to our funding
sources, or if we underestimated our cash needs, we would be
unable to purchase inventory and otherwise conduct our
merchandising business to its maximum effectiveness which would
result in reduced revenues and profits.
The primary cash requirements of our Financial Services segment
relate to the generation of credit card receivables and the
purchase of points used in the customer loyalty rewards program
from our merchandising business. The bank obtains funds for
these purposes through various financing activities, which
include engaging in securitization transactions, borrowing under
federal funds bank credit facilities, selling certificates of
deposit and generating cash from operations. Due to the limited
nature of its state charter, the bank is prohibited from making
commercial or residential loans. Consequently, it cannot lend
money to Cabela’s Incorporated or our other affiliates. The
bank is subject to capital requirements imposed by Nebraska
banking law and the VISA membership rules, and its ability to
pay dividends is limited by Nebraska and federal banking law.
We believe that we will have sufficient capital available from
current cash on hand, operations and our revolving credit
facility and other borrowing sources, including the possible
monetization of our economic development bonds, to fund our
existing operations and growth plan for the next twelve months.
Operating, Investing and Financing Activities
Cash provided by operating activities was $47.0 million in
fiscal 2004 as compared with $67.2 million in fiscal 2003.
Cash decreased primarily due to an increase in cash used to
originate credit card loans in excess of cash received from the
sale of interests in credit card loans in connection with
securitization transactions of $49.6 million. We increased
the amount of cash spent for inventory by $5.4 million.
Total inventory was up $50.2 million in fiscal 2004
compared to an increase of $44.9 million in fiscal 2003.
39
Retail inventory increased $12.3 million primarily due to
our new destination retail store, which added $8.5 million.
The remainder of the retail inventory increase is attributable
to a build up in inventory for our credit card club events that
ran from the week after Christmas to January 9, 2005. These
credit card club events did not take place in this same time
frame in fiscal 2003. The remainder of the overall increase is
attributable to an increase in special buys and private label
inventory, which increase our lead times and are purchased and
held in inventory in larger quantities. These two increased uses
of cash were offset by the difference in net payouts under our
deferred compensation plan of $31.0 million. In 2003,
related to our recapitalization, we had a net pay out of
$29.6 million, while in 2004 we had a net increase in our
deferred compensation plan of $1.4 million.
Cash provided by operating activities was $67.2 million in
fiscal 2003 as compared with $55.7 million in fiscal 2002.
Cash increased partly due to an excess of cash received from the
sale of interests in credit card loans in connection with
securitization transactions over cash used to fund credit card
loans of $22.8 million. Cash provided by operating
activities in fiscal 2003 included a substantial decrease in our
deferred compensation plan account balance of
$29.6 million. This net change was due to a
$40.1 million cash payment of deferred compensation funds
to employees that was required by the recapitalization
transaction, which was partially offset by $10.5 million in
deposits. The entire amount of the payment to employees had
reduced income in the current and prior years when the employees
earned the amounts contributed to the plan and interest on such
amounts and the plan was amended in 2003 to limit this type of
payout in future years. See “— Contractual
Obligations and Commercial Commitments”. Excluding this
payout, cash provided by operating activities would have been
$96.8 million in fiscal 2003. Other increases included the
accrual for compensation and benefits expense in fiscal 2003 of
$21.5 million, an increase in gift certificates and credit
card rewards in fiscal 2003 of $3.2 million, and an
increase in accounts payable and accrued expenses in fiscal 2003
of $15.4 million, each of which occurred as a result of the
growth of our business. In addition, our inventory levels
increased by $13.4 million during fiscal 2003 to stock our
new large-format destination retail store. In all three years,
one of the largest generators of cash provided by operating
activities was net income, and operating cash has been consumed
as we have continued to grow and maintain inventory levels to
support our destination retail store expansion and revenue
growth, trends we expect will continue for as long as we
implement our retail growth strategies.
Cash used in investing activities was $127.2 million in
fiscal 2004 as compared with $93.7 million in fiscal 2003.
The increase in cash used was primarily due to an increase in
the purchase of economic development bonds of $56.3 million
related to our destination retail stores. An additional increase
in cash used for investing activities was due to increased
credit card loans receivable of $5.3 million. These credit
card loans are related to our new third party loans carried by
our bank. These credit card loans receivable are currently not
included in our securitization programs and therefore are held
on our books. These two increases in cash used for investing
activities were offset by a decrease in our capital expenditures
of $20.4 million and the proceeds from our sale of our
investment in Great Wolf Lodge, LLC of $8.8 million.
Cash used in investing activities was $93.7 million in
fiscal 2003 as compared with $84.5 million in fiscal 2002,
primarily due to an increase in capital expenditures of
$19.6 million in fiscal 2003 primarily as a result of a
higher level of spending attributable to destination retail
stores. These increases were partially offset by a decrease in
the amount of economic development bonds purchased in fiscal
2003 of $14.6 million.
We invested significant amounts of cash in all three years as we
have continued to execute on our destination retail store
expansion strategy and invest in infrastructure. Our total
capital expenditures, including the purchase of the bonds, to
develop new destination retail stores in fiscal 2004 and fiscal
2003 was $172.9 million. See “— Retail Store
Expansion — Economic Development Bonds”.
Cash provided by financing activities was $135.8 million in
fiscal 2004 as compared with $40.4 million in fiscal 2003.
This increase in financing activities is primarily attributable
to our initial public offering, which raised net proceeds of
$114.2 million. In addition, our debt payments decreased by
$15.5 million primarily due to an early payoff of a note
that occurred in 2003. In addition, we had a decrease in cash
paid for our employee savings plan of $7.9 million. We
terminated this plan in 2003 and paid most of the
40
balances by the end of fiscal 2003. Finally, there was an
increase in the time deposit activity at our bank, as we sold
additional time deposits of $6.8 million. These increases
to our financing activities were offset by a net decrease in
activity in our employee stock options of $48.9 million.
This includes the amount of stock exercised and paid for by our
employees and stock that was subsequently repurchased by us from
our employees. This decrease in activity is primarily due to
activities related to the recapitalization transaction that
occurred in 2003, whereby a significant number of employee stock
options were exercised.
Cash provided by financing activities was $40.4 million in
fiscal 2003 as compared with $97.7 million in fiscal 2002.
The decrease in cash from financing activities in fiscal 2003
versus fiscal 2002 was primarily due to the $125.0 million
of net proceeds we received from the private placement in fiscal
2002. This decrease was offset by the receipt of cash proceeds
from the issuance of common stock in excess of cash used to
repurchase common stock, the net amount of which was
$61.6 million. This net receipt of proceeds from stock
issuances related primarily to the recapitalization transaction
we completed in September 2003, in which new investors purchased
newly-issued common stock for approximately $200.0 million
and we repurchased shares of common stock from Mr. R.
Cabela and Mr. J. Cabela, resulting in net proceeds after
professional fees to us of $47.7 million. In addition, we
realized $13.9 million from the exercise of options by
employees net of repurchases.
As of January 1, 2005, we had entered into material
commitments in the amount of $182.3 million for fiscal 2005
and $96.3 million for fiscal 2006, for estimated capital
expenditures and the purchase of future economic development
bonds in connection with the construction and development of new
destination retail stores. In addition, we are obligated to fund
$28.0 million of future economic development bonds relating
to expansion of our distribution center in Wheeling, West
Virginia throughout fiscal 2005 and 2006.
Retail Store Expansion
Significant amounts of cash will be needed in order to open new
destination retail stores and implement our retail growth
strategy. Depending upon the location and a variety of other
factors, including store size and the amount of public
improvements necessary, and based upon our prior experience,
opening a single large-format store may require expenditures of
$40 million to $80 million. This includes the cost of
real estate, site work, public improvements such as utilities
and roads, buildings, equipment, fixtures (including taxidermy)
and inventory.
Historically, we have been able to negotiate economic
development arrangements relating to the construction of a
number of our new destination retail stores, including free
land, monetary grants and the recapture of incremental sales,
property or other taxes through economic development bonds, with
many local and state governments. We are able to negotiate these
agreements as we generally have located our destination retail
stores in towns and municipalities that do not have a large base
of commercial businesses. We attempt to design our destination
retail stores to provide exciting tourist and entertainment
shopping experiences for the entire family. Our destination
retail stores employ many people from the local community, draw
customer traffic from a broad geographic range and serve as a
catalyst for the opening of additional retail businesses such as
restaurants, hotels and gas stations in the surrounding areas.
We believe all of these factors increase the revenue for the
state and the local municipality where the destination retail
store is located, making us a compelling partner for community
development and expansion. The structure, amounts and terms of
these arrangements vary greatly by location.
Grants. Under various grant programs, state or local
governments provide funding for certain costs associated with
developing and opening a new destination retail store. We
generally have received grant funding in exchange for
commitments, such as assurance of agreed employment and wage
levels at our destination retail stores or that the destination
retail store will remain open, made by us to the state or local
government providing the funding. The commitments typically
phase out over approximately five to ten years, but if we fail
to maintain the commitments during the applicable period, the
funds we received may have to be repaid or other adverse
consequences may arise. Our failure to comply with the terms of
current economic development packages could result in our
repayment of grant money or other adverse
41
consequences that would affect our cash flows and profitability.
As of January 1, 2005 and January 3, 2004, the total
amount of grant funding subject to a specific contractual remedy
was $17.7 million and $18.5 million respectively.
Portions of three of our destination retail stores, such as
wildlife displays and museums, are subject to forfeiture
provisions. In addition, there are 35.2 acres of
undeveloped property subject to forfeiture.
Economic Development Bonds. Through economic development
bonds, the state or local government sells bonds to provide
funding for land acquisition, readying the site, building
infrastructure and related eligible expenses associated with the
construction and equipping of our destination retail stores. We
typically have been the sole purchaser of these bonds. The bond
proceeds that are received by the governmental entity are then
used to fund the construction and equipping of new destination
retail stores and related infrastructure development. While
purchasing these bonds involves an initial cash outlay by us in
connection with a new store, some or all of these costs can be
recaptured through the repayments of the bonds. The payments of
principal and interest on the bonds are typically tied to sales,
property or lodging taxes generated from the store and, in some
cases, from businesses in the surrounding area, over periods
which range between 20 and 30 years. In addition, some the
bonds that we have purchased may be repurchased for par value by
the governmental entity prior to the maturity date of the bonds.
However, the governmental entity from which we purchase the
bonds is not otherwise liable for repayment of principal and
interest on the bonds to the extent that the associated taxes
are insufficient to pay the bonds. In one location, the bonds
will become subordinated to other bonds associated with the
development if we fail to continue to operate the store over a
prescribed period. After purchasing the bonds, we typically
carry them on our balance sheet as “available for
sale” marketable securities and value them based upon
management’s projections of the amount of tax revenue that
will be generated to support principal and interest payments on
the bonds. We have limited experience in valuing these bonds
and, because of the unique features of each project, there is no
independent market data for valuation of these types of bonds.
If sufficient tax revenue is not generated by the subject
properties, we will not receive scheduled payments and will be
unable to realize the full value of the bonds carried on our
balance sheet. See “— Critical Accounting
Policies and Use of Estimates — Economic Development
Bonds and Factors Affecting Future Results — Risks
Related to our Merchandising Business — The failure of
properties to generate sufficient taxes to amortize the economic
development bonds owned by us that relate to the development of
such properties would have an adverse impact on our cash flows
and profitability.” As of January 1, 2005 and
January 3, 2004, we carried $144.6 million and
$71.6 million, respectively, of economic development bond
receivables on our balance sheet.
The negotiation of these economic development arrangements has
been important to our destination retail store expansion in the
past, and we believe it will continue to be an important factor
to our ability to execute our destination retail store expansion
strategy because we believe they will allow us to avoid or
recapture a portion of the costs involved with opening a new
store. If similar packages are unavailable in the future or the
terms are not as favorable to us, our return on investment in
new stores would be adversely affected and we may choose to
significantly alter our destination retail store expansion
strategy.
Credit Card Loan Receivable Securitizations
Our Financial Services segment historically has funded most of
its growth in credit card receivables through an asset
securitization program. Asset securitization is a practice
commonly used by credit card issuers to fund credit card
receivables at attractive rates. The bank enters into asset
securitization transactions, which involve the two-tier sale of
a pool of credit card receivables from the bank to a wholly
owned special purpose entity, and from that wholly owned special
purpose entity to a second special purpose entity that is
organized as a trust. The trust is administered by an
independent trustee. Because the trust qualifies as a
“qualified special purpose entity” within the meaning
of Statement of Financial Accounting Standards No. 140,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities (“SFAS 140”), its
assets and liabilities are not consolidated in our balance sheet
in accordance with SFAS 140.
42
The trust issues to outside investors various forms of
certificates or credit card receivable interests (the
“Certificates”) each of which has an undivided
interest in the assets of the trust. The trust pays to the
holders of the Certificates a portion of future scheduled cash
flows under preset terms and conditions, the receipt of which is
dependent upon cash flows generated by the underlying
performance of the assets of the trust. We have recently
converted our securitization structure to permit the issuance of
asset-backed notes. This involved the formation of a Delaware
statutory trust which will purchase a certificate from the
trust, and issue notes secured by that certificate to investors.
In each securitization transaction, we retain a “transferor
interest” in the securitized receivables, which ranks equal
with the investor certificates, and an “interest only
strip” which represents the right to receive excess cash
available after repayment of all amounts to the investors.
Neither the investors nor the trust have recourse against us
beyond the assets of the trust, other than for breaches of
certain customary representations, warranties and covenants and
minimum account balance levels which must be maintained to
support our retained interests. These representations,
warranties, covenants, and the related indemnities, do not
protect the trust or the outside investors against
credit-related losses on the receivables.
In accordance with SFAS 140 we record our interest only
strip as an asset at fair value which is an amount equal to the
estimated present value of cash flows to be received by us over
the expected outstanding period of the receivables. These cash
flows essentially represent finance charges and late fees in
excess of the amounts paid to Certificate holders, credit
losses, and servicing and administration fees. We use certain
valuation assumptions related to the average lives of the
receivables sold and anticipated credit losses, as well as the
appropriate market discount rate, in determining the estimated
present value of the interest only strip. Changes in the average
life of the receivables sold, discount rate, and credit-loss
percentage could adversely impact the actual value of the
interest only strip. Accordingly, actual results could differ
materially from the estimates, and changes in circumstances
could result in significant future changes to the assumptions
currently being used.
Gains on securitization transactions, fair value adjustments and
earnings on our securitizations are included in consolidated
revenue in the consolidated statement of income and the interest
only strip is included on our consolidated balance sheet as
“retained interests in securitized receivables.” All
of the bank’s securitization transactions are currently
accounted for as sale transactions. As a result, the receivables
relating to those pools of assets are not reflected on our
balance sheet, other than our transferor interest and interest
only strip.
A credit card receivable represents a financial asset. Unlike a
mortgage or other closed-end loan account, the terms of a credit
card account permit a customer to borrow additional amounts and
to repay each month an amount the customer chooses, subject to a
monthly minimum payment requirement. The credit card account
remains open after repayment of the balance and the customer may
continue to use it to borrow additional amounts. We reserve the
right to change the credit card account terms, including
interest rates and fees, in accordance with the terms of the
credit card agreement and applicable law. The credit card
account is, therefore, separate and distinct from the loan
receivable. In a credit card securitization, the credit card
account relationships are not sold to the securitization entity.
We retain ownership of the credit card account relationship,
including the right to change the terms of the credit card
account.
We sell our credit card receivables in the ordinary course of
business through a commercial paper conduit program and we have
from time to time entered into longer term fixed and floating
rate securitization transactions. In a conduit securitization,
our credit card receivables are converted into securities and
sold to commercial paper issuers which pool the securities with
those of other issuers. The amount securitized in a conduit
structure is allowed to fluctuate within the terms of the
facility which may
43
provide greater flexibility for liquidity needs. The total
amounts and maturities for the term credit card securitizations
as of the end of fiscal 2004 are as follows:
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Expected Final | |
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Series 2001-2
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Term |
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$ |
250,000 |
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Floating |
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November 2006 |
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Series 2003-1
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Term |
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$ |
300,000 |
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Fixed |
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January 2008 |
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Series 2003-2
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Variable Funding |
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$ |
300,000 |
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Floating |
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March 2005 |
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Series 2003-2
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Variable Funding |
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$ |
50,000 |
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Floating |
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February 2005* |
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Series 2004-I
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Term |
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$ |
75,000 |
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Fixed |
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March 2009 |
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Series 2004-II
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Term |
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$ |
175,000 |
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Floating |
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March 2009 |
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| * |
The Series 2003-2, which matured in February of 2005, was a
temporary three month increase in that series. |
We have been, and will continue to be, particularly reliant on
funding from securitization transactions for our Financial
Services business. A failure to renew existing facilities or to
add additional capacity on favorable terms as it becomes
necessary could increase our financing costs and potentially
limit our ability to grow our Financial Services business.
Unfavorable conditions in the asset-backed securities markets
generally, including the unavailability of commercial bank
liquidity support or credit enhancements, such as financial
guaranty insurance, could have a similar effect. We expect to
renew our $300,000 variable funding commercial paper facility
that expires in March 2005.
Furthermore, poor performance of our securitized receivables,
including increased delinquencies and credit losses, lower
payment rates or a decrease in excess spreads below certain
thresholds, could result in a downgrade or withdrawal of the
ratings on the outstanding securities issued in our
securitization transactions, cause early amortization of these
securities or result in higher required credit enhancement
levels. This could jeopardize our ability to complete other
securitization transactions on acceptable terms, decrease our
liquidity and force us to rely on other potentially more
expensive funding sources, to the extent available, which would
decrease our profitability.
Certificates of Deposit. We utilize certificates of
deposit to partially finance the operating activities of our
bank. Our bank issues certificates of deposit in a minimum
amount of $100,000 in various maturities. As of January 1,
2005, we had $100.7 million of certificates of deposit
outstanding with maturities ranging from January 2005 to May
2014 and with weighted average effective annual fixed rate of
3.34%. Certificate of deposit borrowings are subject to
regulatory capital requirements.
Credit Facilities and other Indebtedness
We have a revolving credit facility with a group of banks that
provides us with a $230 million unsecured line of credit,
which is available for our operations. This revolving facility,
which expires on June 30, 2007, provides for a LIBOR-based
rate of interest plus a spread of between 0.80% and 1.425% based
upon our achievement of certain cash flow leverage ratios.
During the term of the facility, we are also required to pay a
facility fee, which ranges from 0.125% to 0.25%. Our credit
facility also permits the issuance of up to $100 million in
letters of credit and standby letters of credit, which are
applied against the overall credit limit available under the
revolver. We utilize these letters of credit to support
purchases from our suppliers in the ordinary course of our
business. The average outstanding amount under these letters of
credit during fiscal 2004 was $44.5 million. There were no
outstanding principal amounts under the credit facility as of
fiscal year end 2004. Our total remaining borrowing capacity
under the credit facility, after subtracting outstanding letters
of credit of $31.1 million, and standby letters of credit
of $6.5 million, as of fiscal year end 2004 was
$192.4 million.
44
Our credit agreement requires that we comply with several
financial and other covenants, including requirements that we
maintain the following financial ratios as set forth in our
credit agreement:
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a current consolidated assets to current consolidated
liabilities ratio of no less than 1.15 to 1.00 as of the last
day of any fiscal year; |
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a fixed charge coverage ratio (the ratio of the sum of
consolidated EBITDA plus certain rental expenses to the sum of
consolidated cash interest expense plus certain rental expenses)
of no less than 2.00 to 1.00 as of the last day of any fiscal
quarter; |
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a cash flow leverage ratio of no more than 2.50 to 1.00 as of
the last day of any fiscal quarter; and |
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a tangible net worth of no less than $300 million plus 50%
of positive consolidated net earnings on a cumulative basis for
each fiscal year beginning with fiscal year ended 2004 as of the
last day of any fiscal quarter. |
In addition, our credit agreement includes a limitation that we
may not pay dividends to our stockholders in excess of 50% of
our prior year’s consolidated EBITDA and a provision that
permits acceleration by the lenders in the event there is a
“change in control.” Our credit agreement defines
“EBITDA” to mean our net income before deductions for
income taxes, interest expense, depreciation and amortization.
Based upon this EBITDA calculation for fiscal 2004, dividends
would not be permissible in fiscal 2005 in excess of
$68.8 million. Our credit agreement defines a “change
in control” to mean any circumstances under which we cease
to own 100% of the voting stock in each of our subsidiaries that
have or have had total assets in excess of $5.0 million,
any event in which any person or group of persons (other than
our stockholders as of May 6, 2004 and their affiliates)
acting in concert acquires beneficial ownership of, or control
over, 20% or more of the combined voting power of all of our
securities entitled to vote in the election of directors and
such voting percentage exceeds the percentage of our common
stock owned by Mr. R. Cabela and Mr. J. Cabela as of
the date of such acquisition, or any change in a majority of the
members of our board of directors within any twelve month period
for any reason (other than by reason of death, disability or
scheduled retirement). As of January 1, 2005, Mr. R.
Cabela and Mr. J. Cabela collectively own
12,641,227 shares (not including 8,663,964 shares
beneficially owned by Mr. R. Cabela through Cabela’s
Family, LLC) of common stock, which represents 19.5% of our
total outstanding common stock and non-voting common stock. Our
credit agreement provides that all loans or deposits from us or
any of our subsidiaries to the bank do not exceed
$20.0 million in the aggregate at any time when loans are
outstanding under the revolving credit facility.
Our bank entered into an unsecured uncommitted Fed Funds Sales
Agreement with a bank on October 7, 2004. The maximum
amount of funds which can be outstanding is $25.0 million
of which no amounts were outstanding at fiscal year end 2004. On
October 8, 2004, our bank entered into an unsecured
uncommitted Fed Funds Line of Credit agreement with another
bank. The maximum amount of funds which can be outstanding is
$40.0 million of which no amounts were outstanding at
fiscal year end 2004.
In addition to our credit facilities, we have from time to time
accessed the private placement debt markets. We currently have
two such note issues outstanding. In September 2002, we issued
$125.0 million in senior unsecured notes bearing interest
at a fixed rate of 4.95%, repayable in five annual installments
of $25.0 million beginning on September 5, 2005. The
entire principal amount under these notes remains unpaid. In
January 1995, we issued $20.0 million in senior unsecured
notes bearing interest at fixed rates ranging between 8.79% and
9.19% per year. The notes amortize, with principal and
interest payable in the amount of $0.3 million per month
through January 1, 2007, thereafter decreasing to
$0.1 million per month through January 1, 2010. The
aggregate principal balance of these notes as of January 1,
2005 was $8.1 million. Both note issuances provide for
prepayment penalties based on yield maintenance formulas.
45
These notes require that we comply with several financial and
other covenants, including requirements that we maintain the
following financial ratios as set forth in the note purchase
agreement:
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a consolidated adjusted net worth in an amount not less than the
sum of (i) $150 million plus (ii) 25% of positive
consolidated net earnings on a cumulative basis for each fiscal
year beginning with the fiscal year ended 2002; and |
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a fixed charge coverage ratio (the ratio of consolidated cash
flow to consolidated fixed charges for each period of four
consecutive fiscal quarters) of no less than 2.00 to 1.00 as of
the last day of any fiscal quarter. |
In addition, the note purchase agreement includes a limitation
that our subsidiaries, excluding the bank, and we may not
create, issue, assume, guarantee or otherwise assume funded debt
in excess of 60% of consolidated total capitalization.
As of January 1, 2005, we were in compliance with all of
the covenants under our credit agreements and unsecured notes.
We may or may not engage in future long-term borrowing
transactions to fund our operations or our growth plans. Whether
or not we undertake such borrowings will depend on a variety of
factors, including prevailing interest rates, our retail growth
plans, our financial strength, alternative sources and costs of
funding and our management’s assessment of potential
returns on investment that may be realized from the proceeds of
such borrowings.
Impact of Inflation
We do not believe that our operating results have been
materially affected by inflation during the preceding three
fiscal years. We cannot assure, however, that our operating
results will not be adversely affected by inflation in the
future.
Contractual Obligations and Commercial Commitments
The following tables provide summary information concerning our
future contractual obligations and commercial commitments,
respectively, as of fiscal year end 2004.
Contractual Obligations
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2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
Thereafter | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
|
|
(Dollars in thousands) | |
|
|
|
|
|
Long-term debt
|
|
$ |
28,183 |
|
|
$ |
28,901 |
|
|
$ |
26,643 |
|
|
$ |
26,583 |
|
|
$ |
26,467 |
|
|
$ |
2,736 |
|
|
$ |
139,513 |
|
|
Interest payments(1)
|
|
|
7,423 |
|
|
|
5,986 |
|
|
|
4,513 |
|
|
|
3,152 |
|
|
|
1,785 |
|
|
|
4,882 |
|
|
|
27,741 |
|
|
Capital lease obligations
|
|
|
500 |
|
|
|
500 |
|
|
|
500 |
|
|
|
500 |
|
|
|
500 |
|
|
|
12,000 |
|
|
|
14,500 |
|
|
Operating leases
|
|
|
2,611 |
|
|
|
2,159 |
|
|
|
1,123 |
|
|
|
336 |
|
|
|
336 |
|
|
|
869 |
|
|
|
7,434 |
|
|
Time deposits by maturity
|
|
|
48,953 |
|
|
|
28,201 |
|
|
|
10,705 |
|
|
|
7,200 |
|
|
|
5,200 |
|
|
|
400 |
|
|
|
100,659 |
|
|
Obligations under economic development arrangements(2)
|
|
|
307,807 |
|
|
|
2,252 |
|
|
|
1,272 |
|
|
|
2,769 |
|
|
|
962 |
|
|
|
4,096 |
|
|
|
319,158 |
|
|
Purchase obligations(3)
|
|
|
299,852 |
|
|
|
60,976 |
|
|
|
2,552 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
363,379 |
|
|
Deferred compensation
|
|
|
3,069 |
|
|
|
1,669 |
|
|
|
108 |
|
|
|
36 |
|
|
|
— |
|
|
|
5,054 |
|
|
|
9,936 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
698,398 |
|
|
$ |
130,644 |
|
|
$ |
47,416 |
|
|
$ |
40,577 |
|
|
$ |
35,250 |
|
|
$ |
30,037 |
|
|
$ |
982,320 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
These amounts do not include estimated interest payments due
under our revolving credit facility described below in
“— Other Commercial Commitments” because the
amount that will be borrowed under this facility in future years
is uncertain at this time. |
46
|
|
| (2) |
In 2005, these obligations include approximately
$72.9 million of contractual obligations, including the
purchase of bonds, associated with our Buda, Texas destination
retail store; $65.4 million of contractual obligations,
including the purchase of bonds, associated with our Fort Worth,
Texas destination retail store; $44.0 million of
contractual obligations, including the purchase of bonds,
associated with our Lehi, Utah destination retail store; and
$28.0 million of contractual obligations, including the
purchase of bonds, associated with our Wheeling, West Virginia
distribution center. In 2006, these obligations include
approximately $96.3 million of contractual obligations,
including the purchase of bonds, associated with our Wheat
Ridge, Colorado destination retail store. |
| |
| (3) |
Our purchase obligations relate primarily to purchases of
inventory, shipping and other goods and services in the ordinary
course of business under binding purchase orders. The amount of
purchase obligations shown is based on assumptions regarding the
legal enforceability against us of purchase orders we had
outstanding as of fiscal year end 2004. Under different
assumptions regarding our rights to cancel our purchase orders
or different assumptions regarding the enforceability of the
purchase orders under applicable laws, the amount of purchase
obligations shown in the table above would be less. |
The foregoing table does not include any amounts for contractual
obligations associated with our Rogers, Minnesota, Gonzales,
Louisiana, Reno, Nevada and East Rutherford, New Jersey
destination retail stores, which obligations were either entered
into subsequent to fiscal 2004, or are in the process of
negotiations. The cost of the Rogers, Minnesota store to be
opened in 2005 is estimated at $52.3 million. The remainder
of the locations, which are still being negotiated, will be
subject to ordinary conditions to closing. If the respective
conditions are met, we expect the total costs of each of these
destination retail stores, including the cost of economic
development bonds, to fall in our estimated range of $40 to
$80 million each. We expect the costs for our Rogers,
Minnesota store to be incurred in 2005, the costs for our
Gonzales, Louisiana and Reno, Nevada stores to be incurred in
2006 and the costs for our East Rutherford, New Jersey store to
be incurred in 2007.
Other Commercial Commitments
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
Thereafter | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Dollars in thousands) | |
|
Revolving line of credit(1)
|
|
$ |
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
— |
|
|
Bank — federal funds lines(2)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Letters of credit
|
|
|
31,088 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
31,088 |
|
|
Standby letters of credit
|
|
|
6,525 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,525 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total(1)
|
|
$ |
37,613 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
37,613 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
The total amount of our revolving line of credit, including
lender letters of credit and standby letters of credit, is
$230.0 million. As of fiscal year end 2004, approximately
$192.4 million was available for borrowing under this
revolving line of credit including letters of credit and standby
letters of credit. |
| |
| (2) |
The maximum amount of funds on the bank federal funds lines
which can be outstanding is $65.0 million of which no
amounts were outstanding at fiscal year end 2004. |
Off-Balance Sheet Arrangements
Operating leases — We lease various items of
office equipment and buildings, all of which are recorded in our
selling, general and administrative expenses. Future obligations
are shown in the contractual obligations table above.
Credit Card Limits — The bank bears off-balance
sheet risk in the normal course of its business. One form of
this risk is through the bank’s commitment to extend credit
to cardholders up to the maximum amount of their credit limits.
The aggregate of such potential funding requirements totaled
$6.0 billion
47
at fiscal year end 2004 and $4.9 billion at fiscal year end
2003, which amounts were in addition to existing balances
cardholders had at such dates. These funding obligations are not
included on our consolidated balance sheet. While the bank has
not experienced, and does not anticipate that it will
experience, a significant draw down of unfunded credit lines by
customers, a significant draw down would create a cash need at
the bank which likely could not be met by our available cash and
funding sources. The bank has the right to reduce or cancel
these available lines of credit at any time.
Securitizations — As described above under
“— Credit Card Loan Receivable
Securitizations,” all of the bank’s securitization
transactions have been accounted for as sale transactions and
the receivables relating to those pools of assets are not
reflected on our consolidated balance sheet.
Bank Dividend Limitations and Minimum Capital Requirements
The ability of the bank to pay dividends to us is limited. Such
dividends, which would only be made at the discretion of our
board of directors and the bank’s board of directors, may
be limited by a variety of factors, such as regulatory capital
requirements, dividend restriction statutes, broad enforcement
powers possessed by regulatory agencies and requirements imposed
by membership in VISA. Under the Nebraska Banking Act, dividends
may only be paid out of “net profits on hand,” which
the Nebraska Banking Act defines to mean, the remainder of all
earnings from current operations plus actual recoveries on loans
and investments and other assets, after deducting from the total
thereof all current operating expenses, losses and bad debts,
accrued dividends on preferred stock, if any, and federal and
state taxes for the present and two immediately preceding
calendar years.
Based on these various restrictions, and assuming the same net
profit levels in 2005 as in 2004, the bank would not be
permitted to pay us more than $18.8 million in dividends
during 2005. Based on this assumption, the bank currently
intends to pay us at least $2.5 million per fiscal quarter
in dividends for fiscal 2005. The bank had $45.5 million in
retained earnings at the end of 2004. Due to minimum capital
requirements under banking laws and the VISA membership rules,
we may be required from time to time to put additional capital
into the bank in order to enable the bank to continue to grow
its credit card portfolio.
Critical Accounting Policies and Use of Estimates
Our consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial
statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and
expenses and related disclosures of contingent assets and
liabilities. The estimates and assumptions are evaluated on a
periodic basis and are based on historical experience and
various other factors that are believed to be reasonable under
the circumstances. Actual results may differ significantly from
these estimates.
Our significant accounting policies are described in Note 1
to the consolidated financial statements. The accounting
policies discussed below are the ones we believe are the most
critical to understanding our consolidated financial statements.
Merchandising Revenue Recognition
Revenue is recognized for retail sales at the time of the sale
in the store. For direct sales, revenue is recognized when the
merchandise is delivered to the customer, with the time of
delivery being based on our estimate of shipping time from our
distribution facility to the customer. We record a reserve for
estimated product returns in each reporting period. The amount
of this reserve is based upon our historical return experience
and our future expectations. If our estimates for these returns
are too low, and we receive more returns than we estimated, we
would have a significant mismatching of revenue and expenses in
the following period. Shipping fees charged to customers are
included in revenue and shipping costs are included in cost of
revenues. Our policy regarding gift certificates is to record
revenue as the certificates
48
are redeemed for merchandise. Prior to their redemption, the
certificates are recorded as a liability for the full-face
amount of the certificates.
Inventory
Merchandise inventories, net of an allowance for shrink,
returned or damaged goods and obsolescence, are stated at the
lower of cost or market. Cost is determined using the
last-in-first-out method, or LIFO, for all inventories except
for those inventories owned by our wholly-owned subsidiaries Van
Dyke Supply Company, Inc., and Wild Wings, LLC which use the
first-in, first-out method. We use a dollar value, link chain
method in calculating LIFO. Current year prices are determined
using an internally developed index applying the first purchase
price method. We estimate a provision for shrink based on
historical cycle count adjustments and periodic physical
inventories. These estimates may vary significantly due to a
variety of internal and external factors. The allowance for
damaged goods from returns is estimated based on historical
experience. Most items that are returned and slightly damaged
are sent to our Retail segment, marked down and sold. We also
reserve our inventory for obsolete or slow moving inventory
based on inventory aging reports and, in certain cases, by
specific identification of slow moving or obsolete inventory.
The aged inventory is grouped and analyzed in various
categories, with particular attention given to fashion-sensitive
categories. All categories that are subject to obsolescence are
reserved for based upon management’s estimates, which
estimates reflect past experience and management’s
assessment of future merchandising trends. Our most
fashion-sensitive categories of merchandise are apparel and
footwear. However, a significant percentage of our inventory has
a low fashion component, such as hunting, camping, and fishing
gear, with a correspondingly lower rate of obsolescence. Slow
moving inventory is marked down and sold in the Bargain Cave
section of our merchandising business.
Catalog Amortization
Prepaid catalog expenses consist of internal and third party
incremental direct costs incurred in the development, production
and circulation of our direct mail catalogs. These costs are
primarily composed of creative design, prepress/production,
paper, printing, postage and mailing costs relating to the
catalogs. All such costs are capitalized as prepaid catalog
expenses and are amortized over their expected period of future
benefit or twelve months, whichever is shorter. Such
amortization is based upon sales lag pattern forecasts, which
are developed using prior similar catalog offerings as a guide.
Prepaid catalog expenses are evaluated for realizability at each
reporting period by comparing the carrying amount associated
with each catalog to actual sales data and to the estimated
probable remaining future revenue (net revenue less merchandise
cost of goods sold, selling expenses and catalog completions
costs) associated with that catalog. If the carrying amount is
in excess of the estimated probable remaining future revenue,
the excess is expensed in the reporting period. In 2004 and 2003
we had $26.6 million and $26.9 million, respectively,
capitalized at year-end.
Economic Development Bonds
Debt and equity securities with readily determinable fair values
are classified as “available-for-sale” and recorded at
fair value, with unrealized gains and losses, net of related
income taxes, excluded from earnings and reported in accumulated
other comprehensive income. Declines in the fair value of
available-for-sale securities below cost that are deemed to be
other than temporary are reflected in earnings as realized
losses. Gains and losses on the sale of securities are recorded
on the trade date and determined using the specific
identification method. At the time we purchase these bonds we
make estimates of the discounted future cash flow streams they
are expected to generate in the form of interest and principal
payments. Because these cash flows are based primarily on future
property or sales tax collections at our facilities and other
facilities (which in many cases may not yet be operating), these
estimates are inherently subjective and the probability of
ultimate realization is highly uncertain. Any excess of par
value over fair value of bonds acquired as part of the retail
construction are allocated to the basis of the store. Each
reporting period we review the assumptions underlying the
recorded valuation of these bonds to determine whether changes
in actual or anticipated tax collections or other factors
suggest that the bonds
49
have become permanently impaired. Future property tax revenues
are estimated using management’s current knowledge and
assessment of known construction projects and the likelihood of
additional development or land sales at the relevant sites.
Future sales tax revenues are estimated generally using
historical same store sales and projected increases for similar
stores. Declines in the fair value of held-to-maturity and
available-for-sale bonds and securities below cost that are
deemed to be other than temporary are reflected in earnings as
realized losses. Gains and losses on the sale of securities are
recorded on the trade date and determined using the specific
identification method.
Asset Securitization
We use securitization of our credit card receivables as one
source to meet our funding needs for our Financial Services
business. We account for our securitization transactions in
accordance with SFAS 140, issued by the Financial
Accounting Standards Board (“FASB”). When we
securitize credit card receivables, we recognize retained
beneficial interests, including an interest-only strip
receivable. The interest-only strip receivable represents the
contractual right to receive from the trust interest and other
revenue less certain costs over the estimated life of the
securitized receivables.
We estimate the fair value of the interest-only strip receivable
based on the present value of expected future revenue flows
(“excess spread”) based upon certain assumptions and
estimates of our management. Quoted market prices for the
interest-only strip receivable are not available and we have
limited experience in performing this type of valuation. Our
assumptions and estimates include projections concerning
interest income and late fees on securitized loans, recoveries
on charged-off securitized loans, gross credit losses on
securitized loans, contractual servicing fees, and the interest
rate paid to investors in a securitization transaction. These
projections are used to determine the excess spread we expect to
earn over the estimated life of the securitized loan principal
receivables. The other assumptions and estimates we use in
estimating the fair value of the interest-only strip receivable
include projected loan payment rates, which are used to
determine the estimated life of the securitized loan principal
receivables, and an appropriate discount rate.
The assumptions and estimates used to estimate the fair value of
the interest-only strip receivable at each reporting period
reflects management’s judgment as to the expected excess
spread to be earned and payment rates to be experienced on the
securitized loans. These estimates are likely to change in the
future, as the individual components of the excess spread and
payment rates are sensitive to market and economic conditions.
For example, the rates paid to investors in our securitization
transactions are primarily variable rates subject to change
based on changes in market interest rates. Changes in market
interest rates can also affect the projected interest income on
securitized loans, as we could reprice the portfolio as a result
of changes in market conditions. Credit loss projections could
change in the future based on changes in the credit quality of
the securitized loans, our account management and collection
practices, and general economic conditions. Payment rates could
fluctuate based on general economic conditions and competition.
Actual and expected changes in these factors may result in
future estimates of the excess spread and payment rates being
materially different from the estimates used in the periods
covered by this report.
On a quarterly basis, we review and adjust as appropriate, the
assumptions and estimates used in determining the fair value of
the interest-only strip receivable recognized in connection with
our securitization transactions. If these assumptions change, or
actual results differ from projected results, the interest-only
strip receivable and securitization income would be affected. If
management had made different assumptions for the periods
covered by this report that raised or lowered the excess spread
or payment rate, our financial position and results of
operations could have differed materially.
Note 2 to the audited consolidated financial statements
provides further detail regarding the assumptions and estimates
used in determining the fair value of the interest-only strip
receivable and their sensitivities to adverse changes.
50
Impact of Recent Accounting Pronouncements
At the March 17-18, 2004 EITF meeting the Task Force reached a
consensus on Issue No. 03-1. The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments. Issue 03-1 provides guidance for determining
when an investment is other-than-temporarily impaired that is
incremental to the consideration in this Issue- specifically,
whether an investor has the ability and intent to hold an
investment until recovery. In addition, Issue 03-1 contains
disclosure requirements that provide useful information about
impairments that have not been recognized as other than
temporary for investments within the scope of this Issue. The
guidance for evaluating whether an investment is
other-than-temporarily impaired should be applied in
other-than-temporary impairment evaluations made in reporting
periods beginning after June 15, 2004. The disclosures are
effective in annual financial statements for fiscal years ending
after December 15, 2003, for investments accounted for
under SFAS No. 115 Accounting for Certain Investments
in Debt and Equity Securities. For other investments within the
scope of this Issue, the disclosures are effective in annual
financial statements for fiscal years ending after June 15,
2004. The additional disclosure for cost method investments are
effective for fiscal years ending after June 15, 2004.
Comparative information for periods prior to initial application
is not required. The adoption of this Issue did not have a
material impact on the Company’s financial position,
results of operations or cash flows. In September 2004, the FASB
issued Staff Position 03-1-1 which deferred the effective date
for the measurement and recognition guidance contained in
paragraphs 10-20 of Issue 03-1. This delay does not
suspend the requirement to recognize other-than-temporary
impairments as required by existing authoritative literature.
The delay of the effective date for paragraphs 10-20 of
Issue 03-1 will be superseded concurrent with the final
issuance of FSB EITF Issue 03-1a.
On December 16, 2004, the FASB issued Statement
No. 153 Exchanges of Nonmonetary Assets, an amendment of
APB Opinion No. 29. This statement was a result of an
effort by the FASB and the IASB to improve financial reporting
by eliminating certain narrow differences between their existing
accounting standards. One such difference was the exception from
fair value measurement in APB Opinion No. 29, Accounting
for Nonmonetary Transactions, for nonmonetary exchanges of
similar productive assets. Statement 153 replaces this
exception with a general exception from fair value measurement
for exchanges of nonmonetary assets that do not have commercial
substance. A nonmonetary exchange has commercial substance if
the future cash flows of the entity are expected to change
significantly as a result of the exchange. This statement shall
be applied prospectively and is effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after
June 15, 2005. Earlier application is permitted for
nonmonetary asset exchanges occurring in fiscal periods
beginning after the date of issuance of this Statement. The
adoption of FASB No. 153 will not have a significant impact
on the Company’s financial position, results of operations
or cash flows.
On December 16, 2004, the FASB issued Statement
No. 123 (revised 2004), Share-Based Payment.
Statement 123(R) requires all entities to recognize
compensation expense in an amount equal to the fair value of the
share-based payments (e.g., stock options and restricted stock)
granted to employees or by incurring liabilities to an employee
or other supplier (a) in amounts based, at least in part,
on the price of the entity’s shares or other equity
instruments or (b) that require or may require settlement
by issuing the entity’s equity shares or other equity
instruments. This Statement is a revision of FASB Statement
No. 123, Accounting for Stock-Based Compensation. This
Statement supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees, and its related implementation
guidance. This Statement is effective for public entities that
do not file as small business issuers as of the beginning of the
first interim or annual reporting period that begins after
June 15, 2005. The Company will adopt this statement at its
effective date in the third fiscal quarter of 2005. The Company
expects to record pre-tax expense on unvested options of
approximately $2.0 to $3.0 million during the second half
of 2005 after this statement is adopted.
51
Factors Affecting Future Results
Risks Related to Our Merchandising Business
|
|
|
If we cannot successfully implement our destination retail
store expansion strategy, our growth and profitability would be
adversely impacted. |
Since January 1, 1998, we have increased the number of our
destination retail stores from two, totaling 124,000 square
feet, to ten, totaling 1,316,000 square feet. We currently
plan to open one additional destination retail store in each of
Ft. Worth, Texas, Buda, Texas, Lehi, Utah, and Rogers,
Minnesota by the end of 2005. The opening of the Rogers,
Minnesota store may be delayed into early 2006 due to weather
delays. We continue to actively seek additional locations to
open new destination retail stores. Our ability to open new
destination retail stores in a timely manner and operate them
profitably depends on a number of factors, many of which are
beyond our control, including:
|
|
|
| |
• |
our ability to manage the financial and operational aspects of
our retail growth strategy; |
| |
| |
• |
our ability to identify suitable locations, including our
ability to gather and assess demographic and marketing data to
determine consumer demand for our products in the locations we
select; |
| |
| |
• |
our ability to negotiate economic development packages with
local and state governments where our new destination retail
stores would be located; |
| |
| |
• |
our ability to properly assess the implications of economic
development packages and customer density to project the
profitability of potential new destination retail store
locations; |
| |
| |
• |
our ability to secure required governmental permits and
approvals; |
| |
| |
• |
our ability to hire and train skilled store operating personnel,
especially management personnel; |
| |
| |
• |
the availability of construction materials and labor and the
absence of significant construction delays or cost overruns; |
| |
| |
• |
our ability to provide a satisfactory mix of merchandise that is
responsive to the needs of our customers living in the areas
where new destination retail stores are built; |
| |
| |
• |
our ability to supply new destination retail stores with
inventory in a timely manner; |
| |
| |
• |
our competitors building or leasing stores near our destination
retail stores or in locations we have identified as targets for
a new destination retail store; |
| |
| |
• |
general economic and business conditions affecting consumer
confidence and spending and the overall strength of our
business; and |
| |
| |
• |
the availability of financing on favorable terms. |
We may not be able to sustain the growth in the number of our
destination retail stores, the revenue growth historically
achieved by our destination retail stores or to maintain
consistent levels of profitability in our retail business,
particularly as we expand into markets now served by other
large-format sporting goods retailers and mass merchandisers. In
particular, new destination retail stores typically generate
lower operating margins because pre-opening costs are fully
expensed in the year of opening and because fixed costs, as a
percentage of revenue, are higher. In addition, the substantial
management time and resources which our destination retail store
expansion strategy requires may result in disruption to our
existing business operations which may harm our profitability.
|
|
|
Our continued retail expansion will result in a higher
number of destination retail stores, which could adversely
affect the desirability of our destination retail stores and
harm the operating results of our retail business and reduce the
revenues of our direct business. |
As the number of our destination retail stores increases, our
stores will become more highly concentrated in the geographic
regions we serve. As a result, the number of customers and
related revenue
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at individual stores may decline and the average amount of sales
per square foot at our stores may be reduced. In addition, as we
open more destination retail stores and as our competitors open
stores with similar formats, our destination retail store format
may become less unique and may be less attractive to customers
as tourist and entertainment shopping locations. If either of
these events occurs, the operating results of our retail
business could be adversely affected. The growth in the number
of our destination retail stores may also draw customers away
from our direct business. If we are unable to properly manage
the relationship between our direct business and our retail
business, the revenues of our direct business could be adversely
affected.
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Our failure to successfully manage our direct business
could have a material adverse effect on our operating results
and cash flows. |
During fiscal 2004, our direct business accounted for 66% of the
total revenue in our direct and retail businesses. Our direct
business is subject to a number of risks and uncertainties, some
of which are beyond our control, including the following:
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our inability to properly adjust the fixed costs of a catalog
mailing to reflect subsequent sales of the products marketed in
the catalog; |
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lower and less predictable response rates for catalogs sent to
prospective customers; |
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increases in U.S. Postal Service rates, paper costs and
printing costs resulting in higher catalog production costs and
lower profits for our direct business; |
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failures to properly design, print and mail our catalogs in a
timely manner; |
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failures to introduce new catalog titles; |
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failures to timely fill customer orders; |
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changes in consumer preferences, willingness to purchase goods
through catalogs or the Internet, weak economic conditions and
economic uncertainty, and unseasonable weather in key geographic
markets; |
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increases in software filters that may inhibit our ability to
market our products through e-mail messages to our customers and
increases in consumer privacy concerns relating to the Internet; |
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changes in applicable federal and state regulation, such as the
Federal Trade Commission Act, the Children’s Online Privacy
Act, the Fair Credit Reporting Act and the Gramm-Leach-Bliley
Act; |
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breaches of Internet security; and |
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failures in our Internet infrastructure or the failure of
systems of third parties, such as telephone or electric power
service, resulting in website downtime, customer care center
closures or other problems. |
Any one or more of these factors could result in
lower-than-expected revenues for our direct business. These
factors could also result in increased costs, increased
merchandise returns, slower turning inventories, inventory
write-downs and working capital constraints. Because our direct
business accounts for a significant portion of our total
revenues, any performance shortcomings experienced by our direct
business would likely have a material adverse effect on our
operating results and cash flows.
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Intense competition in the outdoor recreation and casual
apparel and footwear markets could reduce our revenues and
profitability. |
The outdoor recreation and casual apparel and footwear markets
are highly fragmented and competitive. We compete directly or
indirectly with the following categories of companies:
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other specialty retailers that compete with us across a
significant portion of our merchandising categories through
direct or retail businesses, such as Bass Pro Shops, Gander
Mountain, Orvis, The Sportsman’s Guide and Sportsman’s
Warehouse; |
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large-format sporting goods stores and chains, such as The
Sports Authority, Dick’s Sporting Goods and Big 5 Sporting
Goods; |
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mass merchandisers, warehouse clubs, discount stores and
department stores, such as Wal-Mart and Target; and |
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casual outdoor apparel and footwear retailers, such as L.L.
Bean, Land’s End and REI. |
Many of our competitors have a larger number of stores, and some
of them have substantially greater market presence, name
recognition and financial, distribution, marketing and other
resources, than we have. In addition, if our competitors reduce
their prices, we may have to reduce our prices in order to
compete. Furthermore, some of our competitors have been
aggressively building new stores in locations with high
concentrations of our direct business customers. As a result of
this competition, we may need to spend more on advertising and
promotion. Some of our mass merchandising competitors, such as
Wal-Mart, do not currently compete in many of the product lines
we offer. If these competitors were to begin offering a broader
array of competing products, or if any of the other factors
listed above occurred, our revenues could be reduced or our
costs could be increased, resulting in reduced profitability.
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Our destination retail store expansion strategy may result
in our direct business establishing nexus with additional states
which may cause our direct business to pay additional income and
use taxes and have an adverse effect on the profitability and
cash flows of our direct business. |
As we open destination retail stores in additional states, state
tax authorities may take the position that our direct business
is subject to the state’s income and use tax laws. This
could result in a significant increase in the tax collection and
payment obligations of our direct business which would reduce
our profitability and cash flows of the direct business. These
tax collection and payment obligations would increase the total
cost of our products to our customers. This increased cost could
negatively affect the sales of our direct business or cause us
to reduce the underlying prices for the products sold through
our direct business. If either of these events occur, they would
also have an adverse effect on the profitability and cash flows
of our direct business.
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We depend on vendors and service providers to operate our
business and any disruption of their supply of products and
services could have an adverse impact on our revenues and
profitability. |
We depend on a number of vendors and service providers to
operate our business, including:
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vendors to supply our merchandise in sufficient quantities at
competitive prices in a timely manner; |
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outside printers and catalog production vendors to print and
mail our catalogs and to convert our catalogs to digital format
for website posting; |
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shipping companies, such as United Parcel Service, the
U.S. Postal Service and common carriers, for timely
delivery of our catalogs, shipment of merchandise to our
customers and delivery of merchandise from our vendors to us and
from our distribution centers to our destination retail stores; |
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telephone companies to provide telephone service to our in-house
customer care centers; |
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communications providers to provide our Internet users with
access to our website and a website hosting service provider to
host and manage our website; and |
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software providers to provide software and related services to
run our operating systems for our direct and retail businesses. |
Any disruption in these services could have a negative impact on
our ability to market and sell our products, and serve our
customers. Our ten largest vendors collectively represented
approximately 15.2% of our total purchases in fiscal 2004. If we
are unable to acquire suitable merchandise or lose one or more
key vendors, we may not be able to offer products that are
important to our merchandise assortment. We are also subject to
risks, such as the unavailability of raw materials, labor
disputes, union organizing activity, strikes, inclement weather,
natural disasters, war and terrorism, and adverse general
economic and political conditions, that might limit our
vendors’ ability to provide us with quality merchandise on
a timely basis. We have no contractual arrangements providing
for continued supply from our key vendors and our vendors may
discontinue selling to us at any time. We may not be able to
develop relationships with new vendors, and products from
alternative sources, if any, may be of a lesser quality and more
expensive than those we currently purchase. Any delay or failure
in offering products to our customers could have an adverse
impact on our revenues and profitability. In addition, if the
cost of fuel continues to rise or remains at current levels, the
cost to deliver merchandise to the customers of our direct
business and from our distribution centers to our destination
retail stores may rise which could have an adverse impact on our
profitability.
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Political and economic uncertainty and unrest in foreign
countries where our vendors are located could adversely affect
our operating results. |
Approximately 57.5% of our merchandise is obtained directly from
vendors located in foreign countries, with approximately 35.3%
of our merchandise being obtained from vendors located in China,
Taiwan and Japan. In addition, we believe that a significant
portion of our other vendors obtain their products from foreign
countries that may also be subject to political and economic
uncertainty. We are subject to risks and uncertainties
associated with changing economic and political conditions in
foreign countries where our vendors are located, such as:
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increased import duties, tariffs, trade restrictions and quotas; |
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work stoppages; |
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economic uncertainties (including inflation); |
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adverse foreign government regulations; |
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wars, fears of war and terrorist attacks and organizing
activities; |
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adverse fluctuations of foreign currencies; and |
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political unrest. |
We cannot predict when, or the extent to which, the countries in
which our products are manufactured will experience any of the
above events. Any event causing a disruption or delay of imports
from foreign locations, would likely increase the cost or reduce
the supply of merchandise available to us and would adversely
affect our operating results, particularly if imports of our
private label merchandise were adversely affected as our margins
are higher on our private label merchandise.
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Due to the seasonality of our business, our annual
operating results would be adversely affected if our revenues
during the third and fourth fiscal quarters were substantially
below expectations. |
We experience seasonal fluctuations in our revenues and
operating results. Historically, we have realized a significant
portion of our revenues and substantially all of our earnings
for the year during the third and fourth fiscal quarters, with a
majority of the revenues and earnings for these quarters
realized in the fourth fiscal quarter. In fiscal 2004, we
generated 24.7% and 37.2% of our revenues, and 25.4% and
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59.1% of our net income, in the third and fourth fiscal
quarters, respectively. We incur significant additional expenses
in the third and fourth fiscal quarters due to higher customer
purchase volumes and increased staffing. If we miscalculate the
demand for our products generally or for our product mix during
these two quarters, our revenues could decline, which would harm
our financial performance. In addition, abnormally warm weather
conditions during the third and fourth fiscal quarters can
reduce sales of many of the products normally sold during this
time period and inclement weather can reduce store traffic or
cause us to temporarily close stores causing a reduction in
revenues. Because a substantial portion of our operating income
is derived from our third and fourth fiscal quarter revenues, a
shortfall in expected third and fourth fiscal quarter revenues
would cause our annual operating results to suffer significantly.
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A decline in discretionary consumer spending could reduce
our revenues. |
Our revenues depend on discretionary consumer spending, which
may decrease due to a variety of factors beyond our control,
including:
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unfavorable general business conditions; |
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increases in interest rates; |
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increases in inflation; |
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war, terrorism or fears of war or terrorism; |
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increases in consumer debt levels and decreases in the
availability of consumer credit; |
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adverse or unseasonable weather conditions; |
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adverse changes in applicable laws and regulations; |
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increases in taxation; |
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adverse unemployment trends; and |
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other factors that adversely influence consumer confidence and
spending. |
Our customers’ purchases of discretionary items, including
our products, could decline during periods when disposable
income is lower or periods of actual or perceived unfavorable
economic conditions. If this occurs, our revenues would decline.
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If we lose key management or are unable to attract and
retain the talent required for our business, our operating
results could suffer. |
Our future success depends to a significant degree on the
skills, experience and efforts of Dennis Highby, our President
and Chief Executive Officer, and other key personnel including
our senior executive management and merchandising teams. With
the exception of our Chairman, Richard N. Cabela, and our Vice
Chairman, James W. Cabela, none of our senior management or
directors have employment agreements other than our Management
Change of Control Severance Agreements. We do not carry key-man
life insurance on any of our executives or key management
personnel. In addition, our corporate headquarters is located in
a sparsely populated rural area which may make it difficult to
attract and retain qualified individuals for key management
positions. The loss of the services of any of these individuals
or the inability to attract and retain qualified individuals for
our key management positions could cause our operating results
to suffer.
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Our business depends on our ability to meet our labor
needs and if we are unable to do so, our destination retail
store expansion strategy may be delayed and our revenue growth
may suffer. |
Our success depends on hiring, training, managing and retaining
quality managers, sales associates and employees in our
destination retail stores and customer care centers. Our
corporate headquarters, distribution centers, return center and
some of our destination retail stores are located in sparsely
populated rural areas. It may be difficult to attract and retain
qualified personnel, especially management
56
and technical personnel, in these areas. Competition for
qualified management and technical employees could require us to
pay higher wages or grant above market levels of stock
compensation to attract a sufficient number of employees. If we
are unable to attract and retain qualified personnel as needed,
the implementation of our destination retail store expansion
strategy may be delayed and our revenue growth may suffer.
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Our use tax collection policy for our direct business may
expose us to the risk that we may be assessed for unpaid use
taxes which would harm our operating results and cash
flows. |
Many states have attempted to require that out-of-state direct
marketers, whose only contacts with the state are solicitations
and delivery to their residents of products purchased through
the mail or the Internet, collect use taxes on the sale of these
products. The U.S. Supreme Court has held that these
states, absent congressional legislation, may not impose tax
collection obligations on out-of-state direct marketers unless
the out-of-state direct marketer has created nexus with the
state. Nexus generally is created by the physical presence of
the direct marketer, its agents or its property within the
state. Our use tax collection policy for our direct business is
to collect and remit use tax in states where our direct business
has established nexus. Prior to the opening of a destination
retail store, we have historically sought a private letter
ruling from the state in which the store will be located as to
whether our direct business will have nexus with that state as a
result of the store opening. Some states have enacted
legislation that requires use tax collection by direct marketers
with no physical presence in that state. In some instances, the
legislation assumes nexus exists because of the physical
presence of an affiliated entity engaged in the same line of
business. We expect that we will challenge the application of
this legislation to us but we may not prevail. Also, if Congress
enacts legislation permitting states to impose these use tax
collection obligations, if the U.S. Supreme Court modifies
or reverses its position or if we are otherwise required to
collect and remit additional use taxes by state tax authorities,
we could be subject to assessments, penalties and interest for
unremitted use taxes, and demands for prospective collection and
remittance of these taxes in amounts which could be material. If
any of these events occur, they may have a material adverse
effect on our operating results and cash flows.
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We must successfully order and manage our inventory to
reflect customer demand and anticipate changing consumer
preferences and buying trends or our revenues and profitability
will be adversely affected. |
Our success depends upon our ability to successfully manage our
inventory and to anticipate and respond to merchandise trends
and customer demands in a timely manner. We cannot predict
consumer preferences with certainty and they may change over
time. We usually must order merchandise well in advance of the
applicable selling season. The extended lead times for many of
our purchases may make it difficult for us to respond rapidly to
new or changing product trends or changes in prices. If we
misjudge either the market for our merchandise or our
customers’ purchasing habits, our revenues may decline
significantly and we may not have sufficient quantities of
merchandise to satisfy customer demand or we may be required to
mark down excess inventory, either of which would result in
lower profit margins. In addition, as we implement our
destination retail store expansion strategy, we will need to
construct additional distribution centers or expand the size of
our existing distribution centers to support our growing number
of destination retail stores. If we are unable to find suitable
locations for new distribution centers or to timely integrate
new or expanded distribution centers into our inventory control
process, we may not be able to deliver inventory to our
destination retail stores in a timely manner which could have an
adverse effect on the revenues and cash flows of our retail
business.
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A natural disaster or other disruption at our distribution
centers or return facility could cause us to lose merchandise
and be unable to effectively deliver to our direct customers and
destination retail stores. |
We currently rely on distribution centers in Sidney, Nebraska,
Prairie du Chien, Wisconsin, Mitchell, South Dakota and
Wheeling, West Virginia to handle our distribution needs. We
also operate a return center in Oshkosh, Nebraska. Any natural
disaster or other serious disruption to these centers due to
fire,
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tornado or any other calamity could damage a significant portion
of our inventory, and materially impair our ability to
adequately stock our destination retail stores, deliver
merchandise to customers and process returns to vendors and
could result in lost revenues, increased costs and reduced
profits.
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We are planning substantial systems changes in support of
our direct business and destination retail store expansion that
might disrupt our supply chain operations. |
Our success depends on our ability to source merchandise
efficiently through appropriate management information and
operational systems and procedures. We are planning
modifications to our technology that will involve updating or
replacing our systems with successor systems during the course
of several years, including changes to the sortation systems at
our distribution centers, updating of the space planning and
labor scheduling software for our destination retail stores and
improvements to our customer relationship management system.
There are inherent risks associated with replacing or modifying
these systems, including supply chain disruptions that could
affect our ability to deliver products to our stores and our
customers. We may be unable to successfully launch these new
systems, the launch of these new systems could result in supply
chain disruptions or the actual cost may exceed the estimated
cost of these new systems, each of which could have an adverse
effect on our revenues and profitability.
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Our failure to obtain or negotiate economic development
packages with local and state governments could cause us to
significantly alter our destination retail store strategy or
format and/or delay the construction of one or more of our
destination retail stores and could adversely affect our
revenues, cash flows and profitability. |
We have received economic development packages from many of the
local and state governments where our destination retail stores
are located. In some locations, we have experienced an increased
amount of government and citizen resistance and critical review
of pending and existing economic development packages. This
resistance and critical review may cause local and state
government officials in future locations to deny or limit
economic development packages that might otherwise be available
to us. The failure to obtain similar economic development
packages in the future for any of these reasons could cause us
to significantly alter our destination retail store strategy or
format. As a result, we could be forced to invest less capital
in our stores which could have an adverse effect on our ability
to construct the stores as attractive tourist and entertainment
shopping destinations, possibly leading to a decrease in
revenues or revenue growth. In addition, the failure to obtain
similar economic development packages for stores built in the
future would have an adverse impact on our cash flows and on the
return on investment in these stores.
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The failure of properties to generate sufficient taxes to
amortize economic development bonds owned by us that relate to
the development of such properties would have an adverse impact
on our cash flows and profitability. |
We often purchase economic development bonds issued by state or
local governmental entities in connection with the development
of our destination retail stores. The proceeds of these bonds
are then used to fund the construction and equipping of new
destination retail stores and related infrastructure
development. The repayments of principal and interest on these
bonds are typically tied to sales, property or lodging taxes
generated from the related destination retail store and, in some
cases, from other businesses in the surrounding area, over
periods which range between 20 and 30 years. However, the
governmental entity from which we purchase the bonds is not
otherwise liable for repayment of principal and interest on the
bonds to the extent that the associated taxes are insufficient
to pay the bonds. At the time we purchase these bonds, we make
estimates of the discounted future cash flow streams they are
expected to generate in the form of interest and principal
payments. Because these cash flows are based primarily on future
property or sales tax collections at our destination retail
stores and other facilities (which in many cases may not be
operating at the time we make our estimates), these estimates
are inherently subjective and the probability of ultimate
realization is highly uncertain. If sufficient tax revenue
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is not generated by the subject properties, we will not receive
the full amount of the expected payments due under the bonds
which would have an adverse impact on our cash flows and
profitability.
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Our failure to comply with the terms of current economic
development agreements could result in our repayment of grant
money or other adverse consequences that would affect our cash
flows and profitability. |
The economic development packages which we have received in
connection with the construction of our current stores have, in
some instances, contained forfeiture provisions and other
remedies in the event we do not fully comply with the terms of
the economic development agreements. Among the terms which could
trigger these remedies are the failure to maintain certain
employment and wage levels, failure to timely open and operate a
destination retail store and failure to develop property
adjacent to a destination retail store. As of the end of fiscal,
2004, the total amount of grant funding subject to repayment
pursuant to a specific contractual remedy was
$17.7 million. Portions of three of our destination retail
stores, such as wildlife displays and museums, are subject to
forfeiture provisions. In addition, there are 35.2 acres of
undeveloped property subject to forfeiture. Other remedies that
have been included in some economic development agreements are
loss of priority to tax payments supporting the repayment of
bonds held by us. Where specific remedies are not set forth, the
local governments would be entitled to pursue general contract
remedies. A default by us under these economic development
agreements could have an adverse effect on our cash flows and
profitability.
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We may incur costs from litigation or increased regulation
relating to products that we sell, particularly tree stands and
firearms, which could adversely affect our revenues and
profitability. |
We may incur damages due to lawsuits relating to products we
sell. Since the beginning of 2001, we have been named as a
defendant in 66 product liability lawsuits, including 20
lawsuits which allege that tree stands we sold failed and caused
physical injuries. Tree stands are seating platforms used by
hunters to elevate themselves in a tree. We are currently a
defendant in 6 lawsuits relating to tree stands. In addition,
sales of firearms and ammunition represented approximately 4.8%
of our merchandise revenues during fiscal 2004. We may incur
losses due to lawsuits, including potential class actions,
relating to our performance of background checks on firearms
purchases and compliance with other sales laws as mandated by
state and federal law. We may also incur losses from lawsuits
relating to the improper use of firearms or ammunition sold by
us, including lawsuits by municipalities or other organizations
attempting to recover costs from manufacturers and retailers of
firearms and ammunition. Our insurance coverage and the
insurance provided by our vendors for certain products they sell
to us may be inadequate to cover claims and liabilities related
to products that we sell. In addition, claims or lawsuits
related to products that we sell or the unavailability of
insurance for product liability claims, could result in the
elimination of these products from our product line reducing
revenues. If one or more successful claims against us are not
covered by or exceed our insurance coverage, or if insurance
coverage is no longer available, our available working capital
may be impaired and our operating results could be adversely
affected. Even unsuccessful claims could result in the
expenditure of funds and management time and could have a
negative impact on our profitability and on future premiums we
would be required to pay on our insurance policies.
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Current and future government regulation may negatively
impact demand for our products and our ability to conduct our
business. |
Federal, state and local laws and regulations can affect our
business and the demand for products. These laws and regulations
include:
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Federal Trade Commission regulations governing the manner in
which orders may be solicited and prescribing other obligations
in fulfilling orders and consummating sales; |
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laws and regulations that prohibit or limit the sale, in certain
states and localities, of certain items we offer such as
firearms, black powder firearms, ammunition, bows, knives and
similar products; |
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The Bureau of Alcohol, Tobacco, Firearms and Explosives
governing the manner in which we sell firearms and ammunition; |
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laws and regulations governing hunting and fishing; |
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laws and regulations relating to the collecting and sharing of
non-public customer information; and |
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U.S. customs laws and regulations pertaining to proper item
classification, quotas, payment of duties and tariffs, and
maintenance of documentation and internal control programs which
relate to importing taxidermy which we display in our
destination retail stores. |
Changes in these laws and regulations or additional regulation
could cause the demand for and sales of our products to
decrease. Moreover, complying with increased or changed
regulations could cause our operating expenses to increase. This
could adversely affect our revenues and profitability.
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Our inability or failure to protect our intellectual
property could have a negative impact on our operating
results. |
Our trademarks, service marks, copyrights, patents, trade
secrets, domain names and other intellectual property are
valuable assets that are critical to our success. Effective
trademark and other intellectual property protection may not be
available in every country in which our products are made
available. The unauthorized reproduction or other
misappropriation of our intellectual property could diminish the
value of our brands or goodwill and cause a decline in our
revenues. Any infringement or other intellectual property claim
made against us, whether or not it has merit, could be
time-consuming, result in costly litigation, cause product
delays or require us to enter into royalty or licensing
agreements. As a result, any such claim could have an adverse
effect on our operating results.
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Failure to successfully integrate any business we acquire
could have an adverse impact on our profitability. |
We may from time to time acquire businesses which we believe to
be complementary to our business. Acquisitions may result in
difficulties in assimilating acquired companies and may result
in the diversion of our capital and our management’s
attention from other business issues and opportunities. We may
not be able to successfully integrate operations that we
acquire, including their personnel, financial systems,
distribution, operations and general operating procedures. If we
fail to successfully integrate acquisitions, we could experience
increased costs associated with operating inefficiencies which
could have an adverse effect on our profitability.
Risks Related to Our Financial Services Business
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We may experience limited availability of financing or
variation in funding costs for our financial services business,
which could limit growth of the business and decrease our
profitability. |
Our financial services business requires a significant amount of
cash to operate. These cash requirements will increase if our
credit card originations increase or if our cardholders’
balances or spending increase. Historically, we have relied upon
external financing sources to fund these operations, and we
intend to continue to access external sources to fund our
growth. A number of factors such as our financial results and
losses, changes within our organization, disruptions in the
capital markets, our corporate and regulatory structure,
interest rate fluctuations, general economic conditions and
accounting and regulatory changes and relations could make such
financing more difficult or impossible to obtain or more
expensive.
We have been, and will continue to be, particularly reliant on
funding from securitization transactions for our financial
services business. Securitization funding sources include both a
commercial paper conduit facility and fixed and floating rate
term securitizations. Our commercial paper conduit facility
expires in March of 2005 and our first term securitization
expires in November of 2006. A failure to renew this facility,
to resecuritize the term securitizations as they mature or to
add additional commercial paper
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conduit capacity on favorable terms as it becomes necessary
could increase our financing costs and potentially limit our
ability to grow our financial services business. Unfavorable
conditions in the asset-backed securities markets generally,
including the unavailability of commercial bank liquidity
support or credit enhancements, such as financial guaranty
insurance, could have a similar effect.
Furthermore, even if we are able to securitize our credit card
receivables consistent with past practice, poor performance of
our securitized receivables, including increased delinquencies
and credit losses, lower payment rates or a decrease in excess
spreads below certain thresholds, could result in a downgrade or
withdrawal of the ratings on the outstanding securities issued
in our securitization transactions, cause early amortization of
these securities or result in higher required credit enhancement
levels. This could jeopardize our ability to complete other
securitization transactions on acceptable terms, decrease our
liquidity and force us to rely on other potentially more
expensive funding sources, to the extent available, which would
decrease our profitability.
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We may have to reallocate capital from our direct and
retail businesses to meet the capital needs of our financial
services business, which could alter our destination retail
store expansion program. |
Our bank subsidiary must satisfy the capital maintenance
requirements of government regulators and its agreement with
VISA International, Inc., or VISA. A variety of factors could
cause the capital requirements of our bank subsidiary to exceed
our ability to generate capital internally or from third party
sources. For example, government regulators or VISA could
unilaterally increase their minimum capital requirements. Also,
we have significant potential obligations in the form of the
unused credit lines of our cardholders. As of the end of fiscal
2004, these unfunded amounts were approximately
$6.0 billion. Draws on these lines of credit could
materially exceed predicted line usage. In addition, the
occurrence of certain events, such as significant defaults in
payment of securitized receivables or failure to comply with the
terms of securitization covenants, may cause previously
completed securitization transactions to amortize earlier than
scheduled or be reclassified as a liability for financial
accounting purposes, both of which would have a significant
effect on our ability to meet the capital maintenance
requirements of our bank subsidiary, as affected off-balance
sheet loans would immediately be recorded on our consolidated
balance sheet and would be subject to regulatory capital
requirements. If any of these factors occur, we may have to
contribute capital to our bank subsidiary, which may require us
to raise additional debt or equity capital and/or divert capital
from our direct and retail businesses, which in turn could
significantly alter our destination retail store expansion
strategy.
|
|
|
It may be difficult to sustain the historical growth and
profitability of our financial services business, and we will be
subject to various risks as we attempt to grow the
business. |
We may not be able to retain existing cardholders, grow account
balances or attract new cardholders and the profits from our
financial services business could decline, for a variety of
reasons, many of which are beyond our control, including:
|
|
|
| |
• |
credit risk related to the loans we make to cardholders and the
charge-off levels of our credit card accounts; |
| |
| |
• |
lack of growth of potential new customers generated by our
direct and retail businesses; |
| |
| |
• |
liquidity and funding risk relating to our ability to create the
liquidity necessary to extend credit to our cardholders and
provide the capital necessary to meet the requirements of
government regulators and VISA; and |
| |
| |
• |
operational risk related to our ability to acquire the necessary
operational and organizational infrastructure, manage expenses
as we expand, and recruit management and operations personnel
with the experience to run an increasingly complex and highly
regulated business. |
61
|
|
|
Economic downturns and social and other factors could
cause our credit card charge-offs and delinquencies to increase,
which would decrease our profitability. |
Economic downturns generally lead to increased charge-offs and
credit losses in the consumer finance industry, which would
cause us to experience increased charge-offs and delinquencies
in our credit card receivables portfolio. An economic downturn
can hurt our financial performance as cardholders default on
their balances or carry lower balances. A variety of social and
other factors also may cause changes in credit card use, payment
patterns and the rate of defaults by cardholders. These social
factors include changes in consumer confidence levels, the
public’s perception of the use of credit cards, changing
attitudes about incurring debt and the stigma of personal
bankruptcy. Additionally, credit card accounts tend to exhibit a
rising trend in credit loss and delinquency rates between 18 to
30 months after they are issued. If the rate of growth in
new account generation slows, the proportion of accounts in the
portfolio that have been open for between 18 to 30 months
will increase and the percentage of charge-offs and
delinquencies may increase. Our underwriting criteria and
product design may be insufficient to protect the growth and
profitability of our financial services business during a
sustained period of economic downturn or recession or a material
shift in social attitudes, and may be insufficient to protect
against these additional negative factors.
|
|
|
The performance of our financial services business may be
negatively affected by the performance of our merchandising
businesses. |
Negative developments in our direct and retail businesses could
affect our ability to grow or maintain our financial services
business. We believe our ability to maintain cardholders and
attract new cardholders is highly correlated with customer
loyalty to our merchandising businesses and to the strength of
the Cabela’s brand. In addition, transactions on cardholder
accounts produce loyalty points which the cardholder may apply
to future purchases from us. Adverse changes in the desirability
of products we sell, negative trends in retail customer service
and satisfaction or the termination or modification of the
loyalty program could have a negative impact on our bank
subsidiary’s ability to grow its account base and to
attract desirable co-branding opportunities with third parties.
|
|
|
Changes in interest rates could have a negative impact on
our earnings. |
In connection with our financial services business, we borrow
money from institutions and accept funds by issuing certificates
of deposit, 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 business.
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 adversely affected if the rates on our
credit card account balances fall more quickly than those on our
borrowings. In addition, as of fiscal year end 2004,
approximately 39.6% of our cardholders did not maintain balances
on their credit card accounts. We do not earn any interest from
these accounts but do earn other fees from these accounts such
as VISA interchange fees. 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 adversely affected.
|
|
|
Fluctuations in the value of our interests in our
securitizations relating to our financial services business may
adversely affect our earnings. |
In connection with our securitizations relating to our financial
services business, we retain certain interests in the assets
included in the securitization. These interests are carried in
our consolidated financial statements at fair value and include
our retained interest, or a “transferor interest,” in
the securitized receivables, an “interest only strip”
which represents our right to receive excess cash available
after repayment of all amounts due to the investors, and in some
cases Class B certificates which are subordinate to the
investors certificates. See “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations — Liquidity and Capital
Resources — Credit Card Loan Receivable
62
Securitizations” and Note 2 to our consolidated
financial statements. The fair value of these retained interests
depends upon income earned on these interests which is affected
by many factors not within our control, including the
performance of the securitized loans, interest paid to the
holders of securitization securities, credit losses and
transaction expenses. The value of our interests in the
securitizations will vary over time as the amount of receivables
in the securitized pool and the performance of those loans
fluctuate. The performance of the loans included in our
securitizations is subject to the same risks and uncertainties
that affect the loans that we have not securitized, including,
among others, increased delinquencies and credit losses,
economic downturns and social factors, interest rate
fluctuations, changes in government policies and regulations,
competition, expenses, dependence upon third-party vendors,
fluctuations in accounts and account balances, and industry
risks.
|
|
| ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposed to interest rate risk through our bank’s
operations and, to a lesser extent, through our merchandising
operations. We also are exposed to foreign currency risk through
our merchandising operations.
Financial Services Interest Rate Risk
Interest rate risk refers to changes in earnings or the net
present value of assets and off-balance sheet positions less
liabilities (termed “economic value of equity”) due to
interest rate changes. To the extent that interest income
collected on managed receivables and interest expense do not
respond equally to changes in interest rates, or that rates do
not change uniformly, securitization earnings and economic value
of equity could be affected. Our net interest income on managed
receivables is affected primarily by changes in short term
interest rate indices such as LIBOR and prime rate, as variable
rate card receivables, securitization certificates and notes and
corporate debts are indexed to LIBOR-based rates of interest and
are periodically repriced. We manage and mitigate our interest
rate sensitivity through several techniques, but primarily by
modifying the contract terms with our cardholders, including
interest rates charged, in response to changing market
conditions. Additional techniques we use include managing the
maturity, repricing and distribution of assets and liabilities
by issuing fixed rate securitization certificates and notes and
by entering into interest rate swaps to hedge our fixed rate
exposure from interest strips. The table below shows the mix of
account balances at each interest rate at fiscal year end 2004,
2003 and 2002.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
As a percentage of total balances outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances carrying interest rate based upon the national prime
lending rate
|
|
|
57.2 |
% |
|
|
58.1 |
% |
|
|
57.3 |
% |
|
Balances carrying an interest rate of 9.99%
|
|
|
3.1 |
% |
|
|
3.8 |
% |
|
|
4.6 |
% |
|
Balances not carrying interest because their previous
month’s balance was paid in full
|
|
|
39.6 |
% |
|
|
38.1 |
% |
|
|
38.0 |
% |
Charges on the credit cards issued by our Financial Services
segment are priced at a margin over the defined national prime
lending rate, subject to certain interest rate floors, except
purchases of Cabela’s merchandise, certain other charges
and balance transfer programs, which are financed at a fixed
interest rate of 9.99%. No interest is charged if the account is
paid in full within 20 days of the billing cycle.
Management has performed an interest rate gap analysis to
measure the effects of the timing of the repricing of our
interest sensitive assets and liabilities. Based on this
analysis, we believe that if there had been an immediate
100 basis point, or 1.0%, increase in the market rates for
which our assets and liabilities were indexed during fiscal
2004, our operating results would not have been materially
affected. Management has also performed an interest rate gap
analysis to measure the effects of a change in the spread
between the prime interest rate and the LIBOR interest rate.
Based on this analysis, we believe that an immediate
50 basis point, or 0.5%, decrease or increase in this
spread would cause an increase or
63
decrease of $3.2 million on the pre-tax income of our
Financial Services segment, which could have a material effect
on our operating results.
Merchandising Interest Rate Risk
Two of our economic development bond agreements are priced at a
variable interest rate. One is tied to the LIBOR rate and one is
tied to the prime rate. In 2004, changes in these rates
decreased our interest income by approximately
$0.1 million. We do not think these interest rate changes
will have a material impact on our operations.
The interest payable on our line of credit is based on variable
interest rates and therefore affected by changes in market
interest rates. If interest rates on existing variable rate debt
rose 1%, our results from operations and cash flows would not be
materially affected.
Foreign Currency Risk
We purchase a significant amount of inventory from vendors
outside of the U.S. in transactions that are primarily
U.S. dollar transactions. A small percentage of our
international purchase transactions are in currencies other than
the U.S. dollar. Any currency risks related to these
transactions are immaterial to us. A decline in the relative
value of the U.S. dollar to other foreign currencies could,
however, lead to increased merchandise costs.
64
|
|
| ITEM 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The information under the heading “Quarterly Results of
Operations and Seasonal Influences” in Item 7 of
Part II of this report under “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” is incorporated herein by reference.
TABLE OF CONTENTS
| |
|
|
|
|
|
| |
|
Page | |
| |
|
| |
|
|
|
|
66 |
|
|
CONSOLIDATED FINANCIAL STATEMENTS:
|
|
|
|
|
| |
|
|
|
67 |
|
| |
|
|
|
68 |
|
| |
|
|
|
69 |
|
| |
|
|
|
70 |
|
| |
|
|
|
71 |
|
65
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Cabela’s Incorporated and Subsidiaries
Sidney, Nebraska
We have audited the accompanying consolidated balance sheets of
Cabela’s Incorporated and Subsidiaries (the
“Company”) as of January 1, 2005 and
January 3, 2004, and the related consolidated statements of
income, stockholders’ equity, and cash flows for each of
the three years in the period ended January 1, 2005. These
financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Cabela’s Incorporated and Subsidiaries as of
January 1, 2005 and January 3, 2004, and the results
of their operations and their cash flows for each of the three
years in the period ended January 1, 2005, in conformity
with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 18, 2005
66
CABELA’S INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except share and per share
amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
January 1, | |
|
January 3, | |
| |
|
2005 | |
|
2004 | |
| |
|
| |
|
| |
|
ASSETS
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
248,184 |
|
|
$ |
192,581 |
|
| |
Accounts receivable, net of allowance for doubtful accounts of
$1,483 at January 1, 2005, and $1,894 at January 3,
2004
|
|
|
33,524 |
|
|
|
32,826 |
|
| |
Credit card loans held for sale (Note 2)
|
|
|
64,019 |
|
|
|
28,013 |
|
| |
Credit card loans receivable, net of allowance of $65 at
January 1, 2005 (Note 2)
|
|
|
5,209 |
|
|
|
— |
|
| |
Inventories
|
|
|
313,002 |
|
|
|
262,763 |
|
| |
Prepaid expenses and deferred catalog costs
|
|
|
31,294 |
|
|
|
31,035 |
|
| |
Deferred income taxes (Note 10)
|
|
|
2,240 |
|
|
|
1,122 |
|
| |
Other current assets
|
|
|
31,015 |
|
|
|
33,291 |
|
| |
|
|
|
|
|
|
| |
|
|
Total current assets
|
|
|
728,487 |
|
|
|
581,631 |
|
| |
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, NET (Note 3)
|
|
|
294,141 |
|
|
|
264,991 |
|
| |
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
| |
Intangible assets, net (Note 4)
|
|
|
4,555 |
|
|
|
4,252 |
|
| |
Land held for sale or development
|
|
|
18,153 |
|
|
|
9,240 |
|
| |
Retained interests in securitized receivables (Note 2)
|
|
|
28,723 |
|
|
|
20,864 |
|
| |
Marketable securities (Note 5)
|
|
|
145,587 |
|
|
|
72,632 |
|
| |
Investment in equity and cost method investees
|
|
|
830 |
|
|
|
4,266 |
|
| |
Other
|
|
|
7,755 |
|
|
|
5,677 |
|
| |
|
|
|
|
|
|
| |
|
|
Total other assets
|
|
|
205,603 |
|
|
|
116,931 |
|
| |
|
|
|
|
|
|
| |
|
|
Total assets
|
|
$ |
1,228,231 |
|
|
$ |
963,553 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
100,826 |
|
|
$ |
91,524 |
|
| |
Unpresented checks net of bank balance
|
|
|
34,653 |
|
|
|
36,788 |
|
| |
Accrued expenses and other liabilities
|
|
|
50,264 |
|
|
|
42,939 |
|
| |
Gift certificates and credit card reward points
|
|
|
97,242 |
|
|
|
80,570 |
|
| |
Accrued employee compensation and benefits
|
|
|
54,925 |
|
|
|
58,217 |
|
| |
Time deposits (Note 6)
|
|
|
48,953 |
|
|
|
12,900 |
|
| |
Current maturities of long-term debt (Note 8)
|
|
|
28,327 |
|
|
|
3,013 |
|
| |
Income taxes payable
|
|
|
38,551 |
|
|
|
27,100 |
|
| |
|
|
|
|
|
|
| |
|
|
Total current liabilities
|
|
|
453,741 |
|
|
|
353,051 |
|
| |
|
|
|
|
|
|
|
LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
| |
Long-term debt, less current maturities (Note 8)
|
|
|
119,825 |
|
|
|
139,638 |
|
| |
Long-term time deposits (Note 6)
|
|
|
51,706 |
|
|
|
68,764 |
|
| |
Deferred compensation
|
|
|
8,614 |
|
|
|
7,248 |
|
| |
Deferred grant income
|
|
|
11,366 |
|
|
|
5,552 |
|
| |
Deferred income taxes (Note 10)
|
|
|
16,625 |
|
|
|
16,785 |
|
| |
|
|
|
|
|
|
| |
|
|
Total long-term liabilities
|
|
|
208,136 |
|
|
|
237,987 |
|
| |
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 12 and 19)
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY: (Notes 15 and 17)
|
|
|
|
|
|
|
|
|
| |
Common stock, $0.01 par value:
|
|
|
|
|
|
|
|
|
| |
|
Class A Voting, 245,000,000 shares authorized;
56,494,975 and 41,677,228 shares issued and outstanding at
January 1, 2005 and January 3, 2004, respectively
|
|
|
566 |
|
|
|
417 |
|
| |
|
Class B Non-voting, 245,000,000 shares authorized;
8,073,205 and 14,927,582 shares issued and outstanding at
January 1, 2005 and January 3, 2004, respectively
|
|
|
80 |
|
|
|
149 |
|
| |
Preferred stock, 10,000,000 shares authorized, no shares
issued or outstanding
|
|
|
— |
|
|
|
— |
|
| |
Additional paid-in capital
|
|
|
236,198 |
|
|
|
109,437 |
|
| |
Retained earnings
|
|
|
326,794 |
|
|
|
261,798 |
|
| |
Accumulated other comprehensive income
|
|
|
2,716 |
|
|
|
714 |
|
| |
|
|
|
|
|
|
| |
|
|
Total stockholders’ equity
|
|
|
566,354 |
|
|
|
372,515 |
|
| |
|
|
|
|
|
|
| |
|
|
Total liabilities and stockholders’ equity
|
|
$ |
1,228,231 |
|
|
$ |
963,553 |
|
| |
|
|
|
|
|
|
See notes to consolidated financial statements.
67
CABELA’S INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands except per share and share
amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Merchandise sales
|
|
$ |
1,469,720 |
|
|
$ |
1,331,534 |
|
|
$ |
1,173,590 |
|
| |
Financial services revenue
|
|
|
78,104 |
|
|
|
58,278 |
|
|
|
46,387 |
|
| |
Other revenue
|
|
|
8,150 |
|
|
|
2,611 |
|
|
|
4,604 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total revenues
|
|
|
1,555,974 |
|
|
|
1,392,423 |
|
|
|
1,224,581 |
|
| |
|
|
|
|
|
|
|
|
|
|
COST OF REVENUE:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of merchandise sales
|
|
|
918,206 |
|
|
|
826,869 |
|
|
|
735,269 |
|
| |
Cost of other revenue
|
|
|
7,459 |
|
|
|
659 |
|
|
|
176 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total cost of revenue (exclusive of depreciation and
amortization)
|
|
|
925,665 |
|
|
|
827,528 |
|
|
|
735,445 |
|
| |
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
630,309 |
|
|
|
564,895 |
|
|
|
489,136 |
|
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
533,094 |
|
|
|
479,964 |
|
|
|
413,135 |
|
| |
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
97,215 |
|
|
|
84,931 |
|
|
|
76,001 |
|
| |
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest income
|
|
|
601 |
|
|
|
408 |
|
|
|
443 |
|
| |
Interest expense
|
|
|
(8,178 |
) |
|
|
(11,158 |
) |
|
|
(8,413 |
) |
| |
Other income, net (Note 9)
|
|
|
10,443 |
|
|
|
5,612 |
|
|
|
4,708 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
2,866 |
|
|
|
(5,138 |
) |
|
|
(3,262 |
) |
| |
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE PROVISION FOR INCOME TAXES
|
|
|
100,081 |
|
|
|
79,793 |
|
|
|
72,739 |
|
|
INCOME TAX EXPENSE (Note 10)
|
|
|
35,085 |
|
|
|
28,402 |
|
|
|
25,817 |
|
| |
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$ |
64,996 |
|
|
$ |
51,391 |
|
|
$ |
46,922 |
|
| |
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE (Note 16):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
1.06 |
|
|
$ |
0.99 |
|
|
$ |
0.94 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
$ |
1.03 |
|
|
$ |
0.93 |
|
|
$ |
0.88 |
|
| |
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING (Note 16):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
61,277,352 |
|
|
|
52,059,926 |
|
|
|
49,899,203 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
|
63,277,400 |
|
|
|
55,306,294 |
|
|
|
53,399,546 |
|
| |
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
68
CABELA’S INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollar Amounts in Thousands Except Share Amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
| |
|
|
|
|
|
Additional | |
|
|
|
Other | |
|
|
|
|
| |
|
Common | |
|
Common | |
|
Paid-In | |
|
Retained | |
|
Comprehensive | |
|
|
|
Comprehensive | |
| |
|
Stock Shares | |
|
Stock | |
|
Capital | |
|
Earnings | |
|
Income (Loss) | |
|
Total | |
|
Income | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
BALANCE, Beginning of fiscal year 2002
|
|
|
49,899,203 |
|
|
$ |
499 |
|
|
$ |
47,926 |
|
|
$ |
163,485 |
|
|
$ |
165 |
|
|
$ |
212,075 |
|
|
|
|
|
| |
Comprehensive income (Note 17):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
46,922 |
|
|
|
— |
|
|
|
46,922 |
|
|
$ |
46,922 |
|
| |
|
Unrealized gains on marketable securities, net of taxes of $357
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
622 |
|
|
|
622 |
|
|
|
622 |
|
| |
|
Derivative adjustment, net of taxes of $(26)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(46 |
) |
|
|
(46 |
) |
|
|
(46 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
47,498 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Repurchase of common stock
|
|
|
(12,845 |
) |
|
|
— |
|
|
|
(129 |
) |
|
|
— |
|
|
|
— |
|
|
|
(129 |
) |
|
|
|
|
| |
Exercise of employee stock options
|
|
|
12,845 |
|
|
|
— |
|
|
|
63 |
|
|
|
— |
|
|
|
— |
|
|
|
63 |
|
|
|
|
|
| |
Tax benefit of employee stock option exercises
|
|
|
— |
|
|
|
— |
|
|
|
23 |
|
|
|
— |
|
|
|
— |
|
|
|
23 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, End of fiscal year 2002
|
|
|
49,899,203 |
|
|
|
499 |
|
|
|
47,883 |
|
|
|
210,407 |
|
|
|
741 |
|
|
|
259,530 |
|
|
|
|
|
| |
Comprehensive income (Note 17):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
51,391 |
|
|
|
— |
|
|
|
51,391 |
|
|
$ |
51,391 |
|
| |
|
Unrealized loss on marketable securities, net of taxes of $(160)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(265 |
) |
|
|
(265 |
) |
|
|
(265 |
) |
| |
|
Derivative adjustment, net of taxes of $127
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
238 |
|
|
|
238 |
|
|
|
238 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
51,364 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Issuance of common stock, net of transaction costs
|
|
|
14,594,555 |
|
|
|
146 |
|
|
|
197,577 |
|
|
|
— |
|
|
|
— |
|
|
|
197,723 |
|
|
|
|
|
| |
Repurchase of common stock
|
|
|
(11,106,118 |
) |
|
|
(111 |
) |
|
|
(151,758 |
) |
|
|
— |
|
|
|
— |
|
|
|
(151,869 |
) |
|
|
|
|
| |
Exercise of employee stock options
|
|
|
3,217,170 |
|
|
|
32 |
|
|
|
11,981 |
|
|
|
— |
|
|
|
— |
|
|
|
12,013 |
|
|
|
|
|
| |
Tax benefit of employee stock option exercises
|
|
|
— |
|
|
|
— |
|
|
|
3,754 |
|
|
|
— |
|
|
|
— |
|
|
|
3,754 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, End of fiscal year 2003
|
|
|
56,604,810 |
|
|
|
566 |
|
|
|
109,437 |
|
|
|
261,798 |
|
|
|
714 |
|
|
|
372,515 |
|
|
|
|
|
| |
Comprehensive income (Note 17):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
64,996 |
|
|
|
— |
|
|
|
64,996 |
|
|
$ |
64,996 |
|
| |
|
Unrealized gain on marketable securities, net of taxes of $1,216
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,207 |
|
|
|
2,207 |
|
|
|
2,207 |
|
| |
|
Derivative adjustment, net of taxes of $(113)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(205 |
) |
|
|
(205 |
) |
|
|
(205 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
66,998 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Issuance of common stock, net of transaction costs
|
|
|
6,250,000 |
|
|
|
63 |
|
|
|
114,156 |
|
|
|
— |
|
|
|
— |
|
|
|
114,219 |
|
|
|
|
|
| |
Repurchase of common stock
|
|
|
(95,420 |
) |
|
|
(1 |
) |
|
|
(1,272 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,273 |
) |
|
|
|
|
| |
Stock based compensation (Note 15)
|
|
|
— |
|
|
|
— |
|
|
|
1,674 |
|
|
|
— |
|
|
|
— |
|
|
|
1,674 |
|
|
|
|
|
| |
Employee stock purchase plan issuances
|
|
|
22,824 |
|
|
|
— |
|
|
|
494 |
|
|
|
|
|
|
|
|
|
|
|
494 |
|
|
|
|
|
| |
Exercise of employee stock options
|
|
|
1,785,966 |
|
|
|
18 |
|
|
|
9,747 |
|
|
|
— |
|
|
|
— |
|
|
|
9,765 |
|
|
|
|
|
| |
Tax benefit of employee stock option exercises
|
|
|
— |
|
|
|
— |
|
|
|
1,962 |
|
|
|
— |
|
|
|
— |
|
|
|
1,962 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, End of fiscal year 2004
|
|
|
64,568,180 |
|
|
$ |
646 |
|
|
$ |
236,198 |
|
|
$ |
326,794 |
|
|
$ |
2,716 |
|
|
$ |
566,354 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
69
CABELA’S INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
64,996 |
|
|
$ |
51,391 |
|
|
$ |
46,922 |
|
| |
Adjustments to reconcile net income to net cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation
|
|
|
28,385 |
|
|
|
25,509 |
|
|
|
21,189 |
|
| |
|
Amortization
|
|
|
1,458 |
|
|
|
1,206 |
|
|
|
2,350 |
|
| |
|
Stock based compensation
|
|
|
1,674 |
|
|
|
— |
|
|
|
— |
|
| |
|
Equity in undistributed net (earnings) losses of equity
method investee
|
|
|
(532 |
) |
|
|
86 |
|
|
|
82 |
|
| |
|
Deferred income taxes
|
|
|
(2,379 |
) |
|
|
8,674 |
|
|
|
124 |
|
| |
|
Other
|
|
|
(2,067 |
) |
|
|
3,442 |
|
|
|
277 |
|
| |
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Accounts receivable
|
|
|
(2,749 |
) |
|
|
(3,554 |
) |
|
|
(9,570 |
) |
| |
|
|
Proceeds from new securitizations
|
|
|
169,000 |
|
|
|
206,000 |
|
|
|
165,000 |
|
| |
|
|
Origination of credit card loans held for sale, net of
collections
|
|
|
(205,006 |
) |
|
|
(192,455 |
) |
|
|
(174,281 |
) |
| |
|
|
Inventories
|
|
|
(50,239 |
) |
|
|
(44,864 |
) |
|
|
(31,502 |
) |
| |
|
|
Prepaid expenses
|
|
|
(259 |
) |
|
|
(2,007 |
) |
|
|
(1,788 |
) |
| |
|
|
Other current assets
|
|
|
1,966 |
|
|
|
(10,131 |
) |
|
|
(3,680 |
) |
| |
|
|
Land held for sale or development
|
|
|
(2,875 |
) |
|
|
(3,092 |
) |
|
|
(1,636 |
) |
| |
|
|
Accounts payable
|
|
|
9,302 |
|
|
|
4,704 |
|
|
|
5,257 |
|
| |
|
|
Accrued expenses and other liabilities
|
|
|
5,985 |
|
|
|
19,831 |
|
|
|
3,885 |
|
| |
|
|
Gift certificates and credit card reward points
|
|
|
16,672 |
|
|
|
17,826 |
|
|
|
14,593 |
|
| |
|
|
Accrued compensation and benefits
|
|
|
(2,209 |
) |
|
|
16,811 |
|
|
|
(4,688 |
) |
| |
|
|
Income taxes payable
|
|
|
13,413 |
|
|
|
(1,726 |
) |
|
|
7,340 |
|
| |
|
|
Deferred revenue
|
|
|
1,116 |
|
|
|
(773 |
) |
|
|
6,005 |
|
| |
|
|
Deferred compensation
|
|
|
1,366 |
|
|
|
(29,642 |
) |
|
|
9,813 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash flows from operating activities
|
|
|
47,018 |
|
|
|
67,236 |
|
|
|
55,692 |
|
| |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Capital expenditures
|
|
|
(52,568 |
) |
|
|
(72,972 |
) |
|
|
(53,387 |
) |
| |
(Investment in) distribution from equity and cost method
investees
|
|
|
1,145 |
|
|
|
182 |
|
|
|
(32 |
) |
| |
Proceeds from sale of cost method investment
|
|
|
8,755 |
|
|
|
— |
|
|
|
— |
|
| |
Purchases of intangibles
|
|
|
(1,761 |
) |
|
|
(267 |
) |
|
|
(3,983 |
) |
| |
Purchases of marketable securities
|
|
|
(74,492 |
) |
|
|
(18,201 |
) |
|
|
(32,821 |
) |
| |
Change in credit card loans receivable
|
|
|
(5,313 |
) |
|
|
— |
|
|
|
— |
|
| |
Change in retained interests
|
|
|
(7,859 |
) |
|
|
(6,983 |
) |
|
|
(895 |
) |
| |
Maturities of marketable securities
|
|
|
4,959 |
|
|
|
2,596 |
|
|
|
1,768 |
|
| |
Other
|
|
|
(36 |
) |
|
|
1,927 |
|
|
|
4,840 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash flows from investing activities
|
|
|
(127,170 |
) |
|
|
(93,718 |
) |
|
|
(84,510 |
) |
| |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Advances on line of credit
|
|
|
53,106 |
|
|
|
117,023 |
|
|
|
368,516 |
|
| |
Payments on line of credit
|
|
|
(53,106 |
) |
|
|
(117,023 |
) |
|
|
(368,516 |
) |
| |
Change in unpresented checks net of bank balance
|
|
|
(2,135 |
) |
|
|
(1,905 |
) |
|
|
(3,468 |
) |
| |
Proceeds from issuance of long-term debt
|
|
|
98 |
|
|
|
61 |
|
|
|
125,605 |
|
| |
Payments on long-term debt
|
|
|
(3,325 |
) |
|
|
(18,862 |
) |
|
|
(27,119 |
) |
| |
Change in time deposits, net
|
|
|
18,995 |
|
|
|
12,224 |
|
|
|
1,185 |
|
| |
Net (decrease) increase in employee savings plan
|
|
|
(1,083 |
) |
|
|
(8,958 |
) |
|
|
1,562 |
|
| |
Issuance of common stock for initial public offering, net of
transaction costs of $3,343
|
|
|
114,219 |
|
|
|
— |
|
|
|
— |
|
| |
Proceeds from exercise of employee stock options and stock
purchase plan, and recapitalization (Note 17)
|
|
|
10,259 |
|
|
|
209,736 |
|
|
|
63 |
|
| |
Repurchase of common stock
|
|
|
(1,273 |
) |
|
|
(151,869 |
) |
|
|
(129 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash flows from financing activities
|
|
|
135,755 |
|
|
|
40,427 |
|
|
|
97,699 |
|
| |
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
55,603 |
|
|
|
13,945 |
|
|
|
68,881 |
|
|
CASH AND CASH EQUIVALENTS, Beginning of Year
|
|
|
192,581 |
|
|
|
178,636 |
|
|
|
109,755 |
|
| |
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, End of Year
|
|
$ |
248,184 |
|
|
$ |
192,581 |
|
|
$ |
178,636 |
|
| |
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
70
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts 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 the World’s Foremost Outfitter® of
hunting, fishing and outdoor gear. The Company is a retailer and
direct merchant, offering its products through regular and
special catalog mailings, the Internet and ten retail stores
located in Nebraska, Kansas, Minnesota, South Dakota, Michigan,
Wisconsin, Pennsylvania and West Virginia. The Company’s
products are sold throughout the United States as well as many
foreign countries. On January 8, 2004, the Company
incorporated in the state of Delaware; previously the Company
was incorporated in Nebraska.
Principles of Consolidation — The
consolidated financial statements include the accounts of
Cabela’s® Incorporated and its wholly owned
subsidiaries (the “Company”). All material
intercompany accounts and transactions have been eliminated.
World’s Foremost Bank (“WFB”), a wholly-owned
bank subsidiary, is a limited purpose bank formed under the
Competitive Equality Banking Act (“CEBA”) of 1987. Due
to the limited nature of its charter, WFB’s lending
activities are limited to credit card lending and the
bank’s deposit issuance is limited to time deposits of at
least one hundred thousand dollars. During 2003, WFB converted
from a national chartered bank to a state chartered bank.
Initial Public Offering — On
June 30, 2004, the Company closed its initial public
offering of 6,250,000 shares of common stock, resulting in
proceeds of $114,219, net of underwriting discounts and other
expenses. The Company used $38,088 of the net proceeds to repay
the outstanding balance on its open line of credit. The
remaining amount was used for capital expenditures and the
purchase of economic development bonds related to the
construction and opening of new destination retail stores.
Transaction costs of $3,343 were recognized as a reduction to
the proceeds.
Reporting Year — The Company’s
fiscal year ends on the Saturday nearest December 31.
Unless otherwise stated, references to years in this report
relate to fiscal years rather than to calendar years.
| |
|
|
|
|
|
|
|
|
| Fiscal Year |
|
Ended | |
|
Weeks | |
| |
|
| |
|
| |
|
2004
|
|
|
January 1, 2005 |
|
|
|
52 |
|
|
2003
|
|
|
January 3, 2004 |
|
|
|
53 |
|
|
2002
|
|
|
December 28, 2002 |
|
|
|
52 |
|
WFB’s fiscal year ends on December 31.
Revenue Recognition — Revenue is
recognized for retail sales at the time of the sale in the store
and for direct sales when the merchandise is delivered to the
customer. The Company records a reserve for estimated product
returns in each reporting period, which is equal to the gross
profit on projected merchandise returns and impairment of
merchandise, based on its historical returns experience.
Shipping fees charged to customers are included in net revenues
and shipping costs are included in cost of revenue. The
Company’s policy regarding gift certificates is to record
revenue as the certificates are redeemed for merchandise. Prior
to their redemption, the certificates are recorded as a
liability. WFB recognizes gains on sales as credit card loans
are securitized and sold. Interchange income is earned when a
charge is made to a customer’s account.
Credit Card Interest and Fees — Credit
card interest and fees are included in Financial Services
revenues and include interest, over limit, returned check, cash
advance transaction fees and other credit card fees. These fees
are assessed according to the terms of the related cardholder
agreements and recognized as revenue when charged to the
cardholder’s accounts. Interest and fees are accrued in
accordance with the terms of the applicable cardholder agreement
on credit card loans until the date of charge-off, which is
generally in the month following when an account becomes
90 days contractually past
71
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
due, except in the case of cardholder bankruptcies, cardholder
deaths and fraudulent transactions, which are charged off
earlier. Interest income is accrued on accounts that carry a
balance from the statement date through the end of the month.
Cost of Revenue and SG&A Expenses —
The Company’s consolidated cost of revenues primarily
consists of merchandise acquisition costs, including freight-in
costs, as well as shipping costs. The Company’s
consolidated SG&A expenses primarily consist of selling
expense, marketing expenses, including amortization of deferred
catalog costs, warehousing, returned merchandise processing
costs, retail occupancy costs, costs of operating our bank,
depreciation, amortization and general and administrative
expenses.
Land Held for Sale or Development — The
Company owns a fully consolidated subsidiary, whose primary
activity is real estate development. Land that is purchased and
held for sale is shown in other assets. Proceeds from sale of
land are recorded in other revenue and the corresponding cost of
the land sold is recorded in cost of revenue.
Cash and Cash Equivalents — Cash
equivalents consist of commercial paper and other investments
that are readily convertible into cash and have maturities at
date of purchase of three months or less. Unpresented checks net
of bank balance in a single bank account are classified as
current liabilities. WFB had $58,147 and $77,237 of cash and
cash equivalents in fiscal years 2004 and 2003, respectively.
Due to regulatory restrictions the Company is restricted from
using this cash for non-banking operations, including for
working capital for the direct and retail businesses.
Securitization of Credit Card Loans —
WFB sells a substantial portion of its credit card loans. Thus a
majority of the credit card loans are classified as held for
sale and are carried at the lower of cost or market. Net
unrealized losses, if any, are recognized through a valuation
allowance by charges to income. Although WFB continues to
service the underlying credit card accounts and maintains the
customer relationships, these transactions are treated as sales
and the securitized receivables are removed from the
consolidated balance sheet. WFB retains certain interests in the
loans, including interest-only strips, cash reserve accounts and
servicing rights.
Under Statement of Financial Accounting Standards
(“SFAS”) No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities, gains or losses are recognized at the time of
each sale. These gains or losses on sales depend in part on the
carrying amount assigned to the loans sold allocated between the
assets sold and retained interest based on their relative fair
values at the date of transfer. For the fiscal years ended 2004,
2003 and 2002, WFB recognized gains on sale of
$8.9 million, $5.9 million and $7.7 million,
respectively, which are reflected as a component of financial
services revenue.
Since WFB receives adequate compensation relative to current
market servicing rates, a servicing asset or liability is not
recognized.
For interest-only strips, WFB uses its best estimates for fair
values based on the present value of future expected cash flows
using assumptions for credit losses, payment rates and discount
rates commensurate with the risks involved. The future expected
cash flows do not include interchange income since interchange
income is only earned when and if a charge is made to a
customer’s account. However, WFB has the rights to the
remaining cash flows (including interchange fees, if any) after
the other costs of the trust are paid. Consequently, interchange
income on securitized receivables is included within
securitization income of financial services revenue. Financial
services revenue is presented in Note 20.
WFB is required to maintain a cash reserve account as part of
the securitization program. In addition, WFB owns Class B
certificates from one of its securitizations. The fair value of
the cash reserve account is
72
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
estimated by discounting future cash flows using a rate that
reflects the risks commensurate with similar types of
instruments. For the Class B certificates, the fair value
approximates the book value of the underlying receivables. These
retained interests (interest-only strip, cash reserve account
and Class B certificates) are measured like investments in
debt securities classified as trading under
SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities.
Inventories — Inventories are stated at
the lower of cost or market. Cost is determined using the
last-in, first-out method (dollar value, link-chain) for all
inventories except for those inventories owned by Van Dyke
Supply Company, and Wild Wings, LLC, subsidiaries of the
Company, which use the first-in, first-out method. If all
inventories had been valued using the first-in, first-out
method, which approximates replacement cost, the stated value
would have been greater by $0 and $48 as of the fiscal years
ended 2004 and 2003, respectively. All inventories are in one
inventory class and are classified as finished goods. A
provision for shrink is estimated, based on historical cycle
count adjustments and periodic physical inventories. The
allowance for damaged goods from returns is based upon
historical experience. Inventory is adjusted for obsolete or
slow moving inventory based on inventory aging reports and, in
some cases, by specific identification of slow moving or
obsolete inventory. Provisions for inventory losses included
within cost of merchandise sales were approximately $1,862,
$4,756, and $2,362 for fiscal years ended 2004, 2003 and 2002,
respectively.
Accounting for Vendor Allowances —
Vendor allowances include allowances, rebates and cooperative
advertising funds received from vendors. These funds are
determined for each fiscal year and the majority is based on
various quantitative contract terms. Amounts expected to be
received from vendors relating to purchase of merchandise
inventories are recognized as a reduction of costs of goods sold
as the merchandise is sold. Amounts that represent a
reimbursement of costs incurred, such as advertising, are
recorded as a reduction to the related expense in the period
that the related expense is incurred. Fair value of expenses
reimbursed is determined using actual costs incurred, such as
print and production costs for media or catalog advertising.
Reimbursements received from vendors that exceed related
expenses are classified as a reduction of merchandise costs of
goods sold when the merchandise is sold.
The Company records an estimate of earned allowances based on
the latest projected purchase volumes. Historical program
results, current purchase volumes, and inventory projections are
reviewed when establishing the estimate for earned allowances,
and a reserve based on historical adjustments is recorded as a
reduction to the total estimated allowance.
Deferred Catalog Costs and Advertising —
The Company expenses the production cost of advertising as the
advertising takes place, except for catalog advertising costs,
which are capitalized and amortized over the expected period of
future benefits.
Catalog advertising consists primarily of catalogs for the
Company’s products. The capitalized costs of the
advertising are amortized over a four to twelve month period
following the mailing of the catalogs.
At fiscal year ends 2004 and 2003, $26,592 and $26,928,
respectively, of catalog costs were included in prepaid expenses
in the accompanying consolidated balance sheets. Advertising
expense was $157,623, $146,062 and $129,090 for the fiscal years
ended 2004, 2003 and 2002, respectively. Advertising vendor
allowances recorded as a reduction to advertising expense,
included in the amounts above were approximately $3,290, $4,044
and $2,254 for the fiscal years ended 2004, 2003, and 2002,
respectively.
Store Preopening Expenses — Non-capital
costs associated with the opening of new stores are expensed as
incurred.
Property and Equipment — Property and
equipment are stated at cost. Depreciation and amortization are
provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their
73
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
estimated service lives. Leasehold improvements are amortized
over the lives of the respective leases or the service lives of
the improvements whichever is shorter. The straight-line method
of depreciation is used for financial reporting. Assets held
under capital lease agreements are amortized using the
straight-line method over the shorter of the estimated useful
lives of the assets or the lease term. Major improvements that
extend the useful life of an asset are charged to the property
and equipment accounts. Routine maintenance and repairs are
charged against earnings. The cost of property and equipment
retired or sold and the related accumulated depreciation are
removed from the accounts and any related gain or loss is
included in earnings. Long-lived assets used by the Company are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. The Company capitalizes interest costs on
construction of projects while they are being constructed and
before they are placed into service. For the fiscal years ended
2004, 2003 and 2002, the Company capitalized $0, $246 and $151
of interest costs.
The Company follows the American Institute of Certified Public
Accountants Statement of Position (“SOP”)
No. 98-1, Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use. In accordance with
SOP No. 98-1, the Company capitalizes all costs related to
internally developed or purchased software and amortizes these
costs on a straight-line basis over their estimated useful lives.
Intangible Assets — Intangible assets
consist of purchased credit card relationships, deferred
financing costs, non-compete agreements and goodwill. Purchased
credit card relationships represent the intangible value of
acquired credit card relationships. Recorded goodwill is tested
annually for impairment by comparing the fair value of the
Company’s reporting units to their carrying value. The
Company performed its annual goodwill impairment test in the
fourth quarter of fiscal 2003 and 2004. Fair value was
determined using a discounted cash flow methodology. As a result
of these tests, no impairments were recognized and there were no
changes in the carrying amount of goodwill.
Marketable Securities — Economic
development bonds (“bonds”) that are issued by the
state and local municipalities that management has the positive
intent and ability to hold to maturity are classified as
“held-to-maturity” and recorded at amortized cost. WFB
holds mortgage backed securities from the Nebraska Investment
Finance Authority (NIFA), which are classified as
“held-to-maturity” and recorded at amortized cost. For
bonds classified as available-for-sale where quoted market
prices are not available, fair values are estimated using
present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on
available market information and judgments about the bonds, such
as estimates of timing and amount of expected future cash flows.
Such estimates do not reflect any premium or discount that could
result from offering for sale at one time the Company’s
entire holdings of a particular bond, nor do they consider the
tax impact of the realization of unrealized gains or losses.
Equity securities with readily determinable fair values, are
classified as “available-for-sale” and recorded at
fair value, with unrealized gains and losses, net of related
income taxes, excluded from earnings and reported in accumulated
other comprehensive income.
Declines in the fair value of held-to-maturity and
available-for-sale bonds and securities below cost that are
deemed to be other than temporary are reflected in earnings as
realized losses. Gains and losses on the sale of securities are
recorded on the trade date and determined using the specific
identification method.
Investment in Equity and Cost Method
Investees — Companies that are 50% or less
owned by the Company have been excluded from consolidation. The
Company reflects its 33% investment in Three Corners LLC at cost
plus its equity in undistributed net earnings or losses since
acquisition reduced by dividends. Dividends received from Three
Corners LLC were $150, $0, and $0 for the fiscal years ended
2004, 2003 and 2002, respectively. In December 2004, the Company
disposed of its investment in Great
74
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
Wolf Lodge, LLC, and recorded a gain in other income of $2,532.
The Company reflected its 17.5% investment in Great Wolf Lodge,
LLC at cost due to the preferred nature of its investment, which
did not provide for sharing in the earnings and losses, and was
adjusted only for other-than-temporary declines in fair value.
Distributions received in excess of earnings, subsequent to the
date of investment were considered a return on investment and is
recorded as a reduction of the cost of the investment.
Distributions received from Great Wolf Lodge, LLC were $995,
$182 and $0 for the fiscal years ended 2004, 2003 and 2002,
respectively.
Government Economic Assistance — In
conjunction with the Company’s expansion into new
communities, the Company often receives economic assistance from
the local governmental unit in order to encourage economic
expansion in the local government’s area. This assistance
typically comes through the use of proceeds from the sale of
economic development bonds and grants. The bond proceeds and
grants are made available to fund the purchase of land (where
not donated), construction of the retail facility and
infrastructure improvements. The economic development bonds
issued to fund the project, in certain cases, will be repaid by
sales taxes generated by the Company’s facilities, while in
other cases the economic development bonds are repaid through
property taxes generated within a designated tax area. The
government grants have been recorded as deferred grant income
and have been classified as a reduction to the cost basis of the
applicable property and equipment. The deferred grant income is
amortized to earnings, as a reduction of depreciation expense
over the average useful life of the project.
In order to facilitate the transaction, the Company generally
agrees to purchase these economic development bonds, and in one
case, has agreed to guarantee any deficiency. In the one case
the Company has agreed to guarantee the deficiency of an
economic development bond, the term of the bond and the
guarantee is through October, 2014. Each period the Company
estimates the remaining amount of the governmental grant to be
received associated with the project. If it is determined that
Company will not receive the full amount remaining, the Company
will adjust the deferred grant income to appropriately reflect
the change in estimate and the Company will immediately record a
cumulative additional depreciation charge that would have been
recognized to date as expense, in the absence of the grant.
Additionally, in connection with these arrangements, local
governments at times donate land to the Company. Land grants
typically include the land where the retail store is constructed
as well as other land which is divided into parcels for future
sale and development. The Company records the fair value of the
land granted with a corresponding credit to deferred grant
income that is classified as a reduction to the basis of the
land. The deferred grant income is recognized as grant income
over the life of the related assets constructed upon it. As
parcels of land are sold any appreciation or decline in the
value of the land is recognized at the time of sale. Land
received by the Company under government economic assistance
totaled $14,384, $1,201 and $6,400 for the fiscal years ended
2004, 2003 and 2002, respectively.
In certain cases, the Company has agreed to guarantee any
deficiency in tax proceeds that are used for debt service of the
economic development bonds. In those situations in which the
Company guarantees the economic development bonds, the Company
records the obligation as debt on its balance sheet in
accordance with EITF 91-10, Accounting for Special
Assessments and Tax Increment Financing Entities. Such
amounts are recorded in long-term debt (See Note 8). As of
the fiscal years ended 2004 and 2003, the Company has guaranteed
total outstanding economic development bonds of $4,430 and
$4,635, respectively. As of January 1, 2005, it does not
appear that any payments which might be required by the Company
under these guarantees, would have a material impact on the
Company’s financial position.
As a condition of the receipt of certain grants, the Company is
required to comply with certain covenants. The most restrictive
of these covenants are to maintain certain employment levels,
maintain retail stores in certain locations or to maintain
office facilities in certain locations. For these types of
grants, the Company records the grants as a component of
deferred grant income, and recognizes them as
75
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
the milestones associated with the grant are met. As of the
fiscal years ended 2004 and 2003, the Company was in compliance
with all material requirements.
Credit Card Reward Program — Every
Cabela’s Club VISA cardholder receives Cabela’s points
based on the dollar amount transacted on WFB’s credit card.
Cabela’s points can be redeemed at any Cabela’s store
or through a Cabela’s catalog or internet purchase. Classic
or Gold cards are issued. Classic Cardholders receive 1% in
points for every dollar spent and 2% in points for purchases at
Cabela’s. Gold Cardholders receive 1% in points for every
dollar spent and 3% in points for purchases at Cabela’s.
There is no limit or expiration on points that can be earned by
a cardholder. Points are accrued and expensed as the cardholder
earns them. The expense is shown as a reduction of financial
services revenue. The amount of unredeemed credit card points
was $38,552 and $30,946 as of the fiscal years ended 2004 and
2003, respectively. In addition to credit card points, vouchers
and gift certificates are issued to card members at Club events
and to new members when they apply for the card membership.
These vouchers and gift certificates are used to purchase
Cabela’s merchandise. All of these items are part of the
customer rewards program. The amount of credit card rewards
expensed as an offset to financial services revenue was $52,939,
$39,876 and $31,129 in 2004, 2003 and 2002, respectively.
Income Taxes — The Company files
consolidated federal and state income tax returns with its
wholly owned subsidiaries. The consolidated group follows a
policy of requiring each entity to provide for income taxes in
an amount equal to the income taxes that would have been
incurred if each were filing separately. The Company’s tax
year-end is the Saturday closest to September 30.
Deferred income taxes are computed using the liability method
under which deferred income taxes are provided on the temporary
differences between the tax bases of assets and liabilities and
their financial reported amounts.
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 revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Stock-Based Compensation — The Company
follows Accounting Principles Board (“APB”) Opinion
No. 25, Accounting for Stock Issued to Employees and
related interpretations. The Company has adopted the
disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, as amended by
SFAS No. 148, Accounting for Stock-Based
Compensation — Transition and Disclosure. Under
SFAS No. 123, the fair value of stock option awards to
employees is calculated through the use of option pricing
models, even though such models were developed to estimate the
fair value of freely tradable, fully transferable options
without vesting restrictions, which differ from the
Company’s stock option awards. These models also require
subjective assumptions, including future stock price volatility
and expected time to exercise, which affect the calculated
values. The Company’s calculations are based on a single
option valuation approach and forfeitures are recognized as they
occur. Stock-based compensation costs are reflected in net
income where the options granted under those plans had an
exercise price that is less than the fair value of the
underlying common stock on the date of grant.
76
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
For purposes of pro forma disclosures, the estimated fair value
of the options granted is amortized to expense over the
options’ vesting period. The Company’s pro forma net
income for 2004, 2003 and 2002 were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Net income — as reported
|
|
$ |
64,996 |
|
|
$ |
51,391 |
|
|
$ |
46,922 |
|
|
Add: Stock based employee compensation recognized, net of tax
|
|
|
1,086 |
|
|
|
— |
|
|
|
— |
|
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects
|
|
|
(4,759 |
) |
|
|
(953 |
) |
|
|
(1,032 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net income — pro forma
|
|
$ |
61,323 |
|
|
$ |
50,438 |
|
|
$ |
45,890 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic — as reported
|
|
$ |
1.06 |
|
|
$ |
0.99 |
|
|
$ |
0.94 |
|
| |
Basic — proforma
|
|
$ |
1.00 |
|
|
$ |
0.97 |
|
|
$ |
0.92 |
|
| |
Diluted — as reported
|
|
$ |
1.03 |
|
|
$ |
0.93 |
|
|
$ |
0.88 |
|
| |
Diluted — proforma
|
|
$ |
0.94 |
|
|
$ |
0.92 |
|
|
$ |
0.87 |
|
The fair value of options granted subsequent to the filing of
the initial public offering were estimated on the date of the
grant using the Black-Scholes option pricing model with the
following weighted-average assumptions. The expected stock price
volatility was 50%; the risk free interest at grant date was
3.57% and the expected term was 4.5 years. Prior to the
May 1, 2004 option grant, the Company used a binomial model
and did not include a volatility factor.
Financial Instruments and Credit Risk
Concentrations — Financial instruments, which
potentially subject the Company to concentrations of credit
risk, are primarily cash, investments and accounts receivable.
The Company places its investments primarily in tax-free
municipal bonds or commercial paper with short-term maturities,
and limits the amount of credit exposure to any one entity.
Concentrations of credit risk with respect to accounts
receivable are limited due to the nature of the Company’s
receivables.
Fair Value of Financial Instruments —
The carrying amount of cash and cash equivalents, receivables,
credit card loans held for sale, retained interests in asset
securitizations, accounts payable, notes payable to banks and
accrued expenses approximate fair value because of the short
maturity of these instruments. The fair values of each of the
Company’s long-term debt instruments are based on the
amount of future cash flows associated with each instrument
discounted using the Company’s current borrowing rate for
similar debt instruments of comparable maturity. The fair value
estimates are made at a specific point in time and the
underlying assumptions are subject to change based on market
conditions. At fiscal year ended 2004 and 2003, the carrying
amount of the Company’s long-term debt was $148,152 and
$142,651, respectively, with an estimated fair value of
approximately $150,910 and $149,597, respectively. For purposes
of estimating fair value, time deposits are pooled in
homogeneous groups and the future cash flows of those groups are
discounted using current market rates offered for similar
products. At fiscal year end 2004 and 2003, the carrying amounts
of the Company’s time deposits were $100,659 and $81,664,
respectively, with an estimated fair value of approximately
$100,636 and $82,917, respectively.
Derivatives — The Company uses
derivatives for the purpose of hedging exposure to changes in
interest rates and foreign currency exchange rates. The fair
value of each derivative is recognized in the balance sheet
within current assets or current liabilities. Changes in the
fair value of derivatives are recognized immediately in the
income statement for derivatives that do not qualify for hedge
accounting. For derivatives designated as a hedge and used to
hedge an anticipated transaction, changes in the fair value of
the derivatives are deferred in the balance sheet within
accumulated other comprehensive income
77
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
to the extent the hedge is effective in mitigating the exposure
to the related anticipated transaction. Any ineffectiveness
associated with the hedge is recognized immediately in the
income statement. Amounts deferred within accumulated other
comprehensive income are recognized in the income statement in
the same period during which the hedged transaction affects
earnings.
Comprehensive Income — Comprehensive
income consists of net income, derivative adjustments and
unrealized gains and losses on available-for-sale securities,
net of related income taxes.
Earnings Per Share — Basic earnings per
share (“EPS”) is computed by dividing net income by
the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share is
computed by dividing net income by the sum of the weighted
average number of shares outstanding plus all additional common
shares that would have been outstanding if potentially dilutive
common share equivalents had been issued.
Reclassifications — Certain
reclassifications have been made to prior year financial
statements and the notes to conform to the current year
presentation.
Supplemental Cash Flow Information — The
following table sets forth non-cash financing and investing
activities and other cash flow information.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Non-cash financing and investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Contribution of assets in exchange for investment in Great Wolf
Lodge, LLC
|
|
$ |
3,400 |
|
|
$ |
— |
|
|
$ |
4,000 |
|
| |
Contribution of land
|
|
$ |
6,038 |
|
|
$ |
— |
|
|
$ |
— |
|
| |
Capital lease obligation
|
|
$ |
8,728 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Other cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest paid, net of amounts capitalized
|
|
$ |
11,360 |
|
|
$ |
11,086 |
|
|
$ |
6,756 |
|
| |
Income taxes
|
|
$ |
24,026 |
|
|
$ |
21,453 |
|
|
$ |
20,104 |
|
Recently Issued Accounting Pronouncements —
At the March 17-18, 2004 EITF meeting the Task Force
reached a consensus on Issue No. 03-1. The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments. Issue 03-1 provides guidance for determining when
an investment is other-than-temporarily impaired that is
incremental to the consideration in this Issue- specifically,
whether an investor has the ability and intent to hold an
investment until recovery. In addition, Issue 03-1 contains
disclosure requirements that provide useful information about
impairments that have not been recognized as other than
temporary for investments within the scope of this Issue. The
guidance for evaluating whether an investment is
other-than-temporarily impaired should be applied in
other-than-temporary impairment evaluations made in reporting
periods beginning after June 15, 2004. The disclosures are
effective in annual financial statements for fiscal years ending
after December 15, 2003, for investments accounted for
under SFAS No. 115 Accounting for Certain Investments
in Debt and Equity Securities and SFAS No. 124 Accounting
for Certain Investment Held by Not-for-Profit Organizations. For
other investments within the scope of this Issue, the
disclosures are effective in annual financial statements for
fiscal years ending after June 15, 2004. The additional
disclosure for cost method investments are effective for fiscal
years ending after June 15, 2004. Comparative information
for periods prior to initial application is not required. The
adoption of this Issue did not have a material impact on the
Company’s financial position, results of operations or cash
flows. In September 2004, the FASB issued Staff Position 03-1-1
which deferred the effective date for the measurement and
recognition guidance contained in EITF paragraphs 10-20 of Issue
03-1. This delay does not suspend the requirement to
78
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
recognize other-than-temporary impairments as required by
existing authoritative literature. The delay of the effective
date for paragraphs 10-20 of Issue 03-1 will be superseded
concurrent with the final issuance of FSB EITF Issue 03-1a.
On December 16, 2004, the FASB issued Statement
No. 153 Exchanges of Nonmonetary Assets, an amendment of
APB Opinion No. 29. This statement was a result of an
effort by the FASB and the IASB to improve financial reporting
by eliminating certain narrow differences between their existing
accounting standards. One such difference was the exception from
fair value measurement in APB Opinion No. 29, Accounting
for Nonmonetary Transactions, for nonmonetary exchanges of
similar productive assets. Statement 153 replaces this exception
with a general exception from fair value measurement for
exchanges of nonmonetary assets that do not have commercial
substance. A nonmonetary exchange has commercial substance if
the future cash flows of the entity are expected to change
significantly as a result of the exchange. This statement shall
be applied prospectively and is effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after
June 15, 2005. Earlier application is permitted for
nonmonetary asset exchanges occurring in fiscal periods
beginning after the date of issuance of this Statement. The
adoption of FASB No. 153 will not have a significant impact
on the Company’s financial position, results of operations
or cash flows.
On December 16, 2004, the FASB issued Statement
No. 123 (revised 2004), Share-Based Payment. Statement
123(R) requires all entities to recognize compensation expense
in an amount equal to the fair value of the share-based payments
(e.g., stock options and restricted stock) granted to employees
or by incurring liabilities to an employee or other supplier (a)
in amounts based, at least in part, on the price of the
entity’s shares or other equity instruments or
(b) that require or may require settlement by issuing the
entity’s equity shares or other equity instruments. This
Statement is a revision of FASB Statement No. 123,
Accounting for Stock-Based Compensation. This Statement
supersedes APB Opinion No. 25, Accounting for Stock Issued
to Employees, and its related implementation guidance. This
Statement is effective for public entities that do not file as
small business issuers as of the beginning of the first interim
or annual reporting period that begins after June 15, 2005.
The Company will adopt this statement at its effective date in
the third fiscal quarter of 2005. The Company expects to record
pre-tax compensation expense of approximately $2.0 to
$3.0 million during the second half of 2005 after this
statement is adopted.
|
|
| 2. |
SALE OF CREDIT CARD LOANS |
WFB has established a trust for the purpose of routinely selling
and securitizing credit card loans. WFB maintains responsibility
for servicing the securitized receivables and receives 1.25%
(annualized) of the average outstanding receivables in the
trust. Additionally, WFB earns 0.75%, but only to the extent
that the trust generates sufficient interchange income to make
that portion of the payment. Servicing fees are paid monthly.
The trust issues commercial paper, long term bonds or long term
notes. Variable bonds and notes are priced on a floating rate
basis with a spread over a benchmark rate. The fixed rate notes
are priced on a five-year swap rate plus a spread. WFB retains
rights to future cash flows arising after investors have
received the return for which they are entitled and after
certain administrative costs of operating the trust. These
retained interests are known as interest-only strips and are
subordinate to investor’s interests. The value of the
interest-only strips is subject to credit, payment rate and
interest rate risks on the loans sold. The investors have no
recourse to WFB’s assets for failure of debtors to pay.
However, as contractually required, WFB establishes certain cash
accounts, known as cash reserve accounts, to be used as
collateral for the benefit of investors.
WFB owned $2,562 and $3,550 of the Series 2003-2
Class B certificates at fiscal year end 2004 and 2003,
respectively.
79
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
Retained interests in securitized receivables consist of the
following at fiscal years ended 2004 and 2003:
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Cash reserve account
|
|
$ |
16,158 |
|
|
$ |
10,330 |
|
|
Interest-only strip
|
|
|
10,003 |
|
|
|
6,984 |
|
|
Class B certificates
|
|
|
2,562 |
|
|
|
3,550 |
|
| |
|
|
|
|
|
|
| |
|
$ |
28,723 |
|
|
$ |
20,864 |
|
| |
|
|
|
|
|
|
Credit card loans held for sale and credit card loans receivable
consist of the following at fiscal years ended 2004 and 2003:
| |
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Composition of credit card loans held for sale and credit card
loans receivable:
|
|
|
|
|
|
|
|
|
| |
Loans serviced
|
|
$ |
1,083,120 |
|
|
$ |
873,673 |
|
| |
Loans securitized and sold to outside investors
|
|
|
(1,010,000 |
) |
|
|
(841,000 |
) |
| |
Securitized loans with certificates owned by WFB which are
classified as retained interests
|
|
|
(2,562 |
) |
|
|
(3,550 |
) |
| |
|
|
|
|
|
|
| |
|
|
70,558 |
|
|
|
29,123 |
|
| |
Less adjustments to market value and allowance for loan losses
|
|
|
(1,330 |
) |
|
|
(1,110 |
) |
| |
|
|
|
|
|
|
|
Total
|
|
$ |
69,228 |
|
|
$ |
28,013 |
|
| |
|
|
|
|
|
|
|
Delinquent loans in the managed credit card loan portfolio at
fiscal year end:
|
|
|
|
|
|
|
|
|
| |
|
30-89 days
|
|
$ |
5,591 |
|
|
$ |
5,418 |
|
| |
|
90 days or more and still accruing
|
|
$ |
2,098 |
|
|
$ |
1,619 |
|
|
Total net charge-offs on the managed credit card loans portfolio
for fiscal year ended
|
|
$ |
19,658 |
|
|
$ |
17,055 |
|
|
Annual average credit card loans:
|
|
|
|
|
|
|
|
|
| |
Managed credit card loans
|
|
$ |
888,730 |
|
|
$ |
705,265 |
|
| |
Securitized credit card loans including seller’s interest
|
|
$ |
877,280 |
|
|
$ |
693,828 |
|
|
Total net charge-offs as a percenage of annual average managed
loans
|
|
|
2.21 |
% |
|
|
2.42 |
% |
Key economic assumptions used throughout 2004 and 2003 to
estimate the fair value of the interest only strips resulting
from the securitization of credit card loans were as follows:
80
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
| |
|
|
|
|
|
|
|
|
|
| |
|
Ranges | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Payment rates:
|
|
|
|
|
|
|
|
|
| |
Month 1
|
|
|
47.15% to 48.60% |
|
|
|
47.40% to 48.61% |
|
| |
Following months
|
|
|
14.83% to 15.33% |
|
|
|
14.93% to 15.60% |
|
| |
Weighted average life in years
|
|
|
0.542 |
|
|
|
0.625 |
|
|
Expected credit losses:
|
|
|
|
|
|
|
|
|
| |
Month 1
|
|
|
2.17% to 2.31% |
|
|
|
2.30% to 2.52% |
|
| |
Following months
|
|
|
3.58% to 3.75% |
|
|
|
3.75% to 4.16% |
|
|
Servicing fee
|
|
|
1.25% |
|
|
|
1.25% |
|
|
Discount rate
|
|
|
9.70% to 10.03% |
|
|
|
9.66% to 10.27% |
|
|
Weighted average interest rate paid to investors
|
|
|
2.83% to 3.39% |
|
|
|
2.66% to 2.93% |
|
At fiscal year ended 2004, key economic assumptions and the
sensitivity of the current fair value of retained interests of
$28,723 to immediate 10% and 20% adverse changes in those
assumptions are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
2004 | |
| |
|
|
|
Impact on Fair | |
| |
|
|
|
Value of an Adverse | |
| |
|
|
|
Change of | |
| |
|
|
|
| |
| |
|
Assumption | |
|
10% | |
|
20% | |
| |
|
| |
|
| |
|
| |
|
Payment rates
|
|
|
15.28 |
% |
|
$ |
(803 |
) |
|
$ |
(1,454 |
) |
|
Expected credit losses
|
|
|
3.70 |
% |
|
$ |
(702 |
) |
|
$ |
(1,403 |
) |
|
Discount rate
|
|
|
10.03 |
% |
|
$ |
(387 |
) |
|
$ |
(767 |
) |
|
Weighted average interest paid to investors
|
|
|
3.39 |
% |
|
$ |
(297 |
) |
|
$ |
(584 |
) |
The sensitivity analysis is hypothetical and is as of a specific
point in time. As a result, these scenarios should be used with
caution. As the table indicates, changes in fair value based on
10 percent variation in assumptions generally cannot be
extrapolated because the relationship of the change in
assumption to the change in fair value may not be linear. Also,
in this table, the effect of a variation in a particular
assumption on the fair values of interest-only strips are
calculated without changing any other assumption; in reality,
changes in one factor may result in changes in another which
might magnify or counteract the sensitivities.
|
|
|
Cash Flows from Securitizations: |
Cash flows received from the securitization trust during 2004,
2003 and 2002 were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Proceeds from new securitizations, net
|
|
$ |
169,000 |
|
|
$ |
206,000 |
|
|
$ |
165,000 |
|
|
Collections used by the trust to purchase new balances in
recovering credit card securitizations
|
|
$ |
4,597,365 |
|
|
$ |
3,634,964 |
|
|
$ |
2,728,191 |
|
|
Servicing fees received
|
|
$ |
16,452 |
|
|
$ |
12,523 |
|
|
$ |
9,441 |
|
|
Other cash flows received on retained interests
|
|
$ |
94,277 |
|
|
$ |
73,587 |
|
|
$ |
56,682 |
|
81
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
Other cash flows represent the total cash flows received on
retained interest by the transferor other than servicing fees.
Certain restrictions exist related to securitization
transactions that protect certificate holders against declining
performance of the credit card loans. In the event performance
declines outside stated parameters and waivers are not granted
by certificate holders, note holders and/or credit enhancement
providers, a rapid amortization of the certificates could
potentially occur. At fiscal years ended 2004, 2003 and 2002,
the credit card loans were performing within established
guidelines.
|
|
| 3. |
PROPERTY AND EQUIPMENT |
Property and equipment include the following at each fiscal year
end:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Fiscal Years Ended | |
| |
|
Useful Life | |
|
| |
| |
|
in Years | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
Land and improvements
|
|
|
0 - 20 |
|
|
$ |
50,515 |
|
|
$ |
47,681 |
|
|
Buildings and improvements
|
|
|
40 |
|
|
|
142,767 |
|
|
|
146,516 |
|
|
Assets held under capital lease
|
|
|
30 |
|
|
|
8,728 |
|
|
|
— |
|
|
Leasehold improvements
|
|
|
7 - 40 |
|
|
|
3,591 |
|
|
|
3,607 |
|
|
Furniture, fixtures and equipment
|
|
|
3 - 10 |
|
|
|
135,067 |
|
|
|
121,923 |
|
|
Capitalized software
|
|
|
3 |
|
|
|
14,053 |
|
|
|
11,404 |
|
|
Monuments and animal displays
|
|
|
10 - 15 |
|
|
|
14,738 |
|
|
|
14,896 |
|
|
Construction in progress
|
|
|
|
|
|
|
48,503 |
|
|
|
17,768 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
417,962 |
|
|
|
363,795 |
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
|
|
(123,821 |
) |
|
|
(98,804 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
$ |
294,141 |
|
|
$ |
264,991 |
|
| |
|
|
|
|
|
|
|
|
|
Intangible assets consist of the following at each fiscal year
end:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Fiscal Year Ended 2004 | |
| |
|
Amortization | |
|
| |
| |
|
Period in | |
|
|
|
Accumulated | |
|
|
| |
|
Years | |
|
Cost | |
|
Amortization | |
|
Net | |
| |
|
| |
|
| |
|
| |
|
| |
|
Purchased credit card relationships
|
|
|
4 |
|
|
$ |
4,576 |
|
|
$ |
(4,435 |
) |
|
$ |
141 |
|
|
Deferred financing costs
|
|
|
3 - 17 |
|
|
|
1,378 |
|
|
|
(599 |
) |
|
|
779 |
|
|
Customer name lists
|
|
|
5 |
|
|
|
3,018 |
|
|
|
(1,498 |
) |
|
|
1,520 |
|
|
Non-compete agreement
|
|
|
7 |
|
|
|
1,463 |
|
|
|
(317 |
) |
|
|
1,146 |
|
|
Goodwill
|
|
|
— |
|
|
|
969 |
|
|
|
— |
|
|
|
969 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
$ |
11,404 |
|
|
$ |
(6,849 |
) |
|
$ |
4,555 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
82
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Fiscal Year Ended 2003 | |
| |
|
Amortization | |
|
| |
| |
|
Period in | |
|
|
|
Accumulated | |
|
|
| |
|
Years | |
|
Cost | |
|
Amortization | |
|
Net | |
| |
|
| |
|
| |
|
| |
|
| |
|
Purchased credit card relationships
|
|
|
4 |
|
|
$ |
4,576 |
|
|
$ |
(3,872 |
) |
|
$ |
704 |
|
|
Deferred financing costs
|
|
|
3 - 17 |
|
|
|
1,337 |
|
|
|
(393 |
) |
|
|
944 |
|
|
Customer name lists
|
|
|
5 |
|
|
|
2,509 |
|
|
|
(874 |
) |
|
|
1,635 |
|
|
Goodwill
|
|
|
— |
|
|
|
969 |
|
|
|
— |
|
|
|
969 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
$ |
9,391 |
|
|
$ |
(5,139 |
) |
|
$ |
4,252 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense was $1,458, $1,206 and $2,350 for
the fiscal years ended 2004, 2003 and 2002, respectively.
Estimated amortization expense for the fiscals years shown is as
follows:
| |
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
$ |
983 |
|
|
2006
|
|
|
|
|
|
|
843 |
|
|
2007
|
|
|
|
|
|
|
499 |
|
|
2008
|
|
|
|
|
|
|
263 |
|
|
2009
|
|
|
|
|
|
|
263 |
|
|
Thereafter
|
|
|
|
|
|
|
735 |
|
| |
|
|
|
|
|
|
| |
Total
|
|
|
|
|
|
$ |
3,586 |
|
| |
|
|
|
|
|
|
Marketable securities consist of the following at each
respective year-end:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended 2004 | |
| |
|
| |
| |
|
|
|
Gross | |
|
Gross |
|
|
| |
|
|
|
Unrealized | |
|
Unrealized |
|
Fair | |
| |
|
Cost | |
|
Gains | |
|
Losses |
|
Value | |
| |
|
| |
|
| |
|
|
|
| |
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Economic development bonds
|
|
$ |
128,683 |
|
|
$ |
3,976 |
|
|
$ |
— |
|
|
$ |
132,659 |
|
|
Held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Mortgage backed securities
|
|
|
1,000 |
|
|
|
— |
|
|
|
— |
|
|
|
1,000 |
|
| |
Economic development bonds
|
|
|
11,928 |
|
|
|
— |
|
|
|
— |
|
|
|
11,928 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
141,611 |
|
|
$ |
3,976 |
|
|
$ |
— |
|
|
$ |
145,587 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended 2003 | |
| |
|
| |
| |
|
|
|
Gross | |
|
Gross | |
|
|
| |
|
|
|
Unrealized | |
|
Unrealized | |
|
Fair | |
| |
|
Cost | |
|
Gains | |
|
Losses | |
|
Value | |
| |
|
| |
|
| |
|
| |
|
| |
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Equity securities
|
|
$ |
1,047 |
|
|
$ |
17 |
|
|
$ |
— |
|
|
$ |
1,064 |
|
| |
Economic development bonds
|
|
|
58,333 |
|
|
|
641 |
|
|
|
(104 |
) |
|
|
58,870 |
|
|
Held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Economic development bonds
|
|
|
12,698 |
|
|
|
— |
|
|
|
— |
|
|
|
12,698 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
72,078 |
|
|
$ |
658 |
|
|
$ |
(104 |
) |
|
$ |
72,632 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
83
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
The amortized cost and fair value of economic development bonds
by contractual maturity at fiscal 2004 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Available for Sale | |
|
Held to Maturity | |
| |
|
| |
|
| |
| |
|
Amortized | |
|
Fair | |
|
Amortized | |
|
Fair | |
| |
|
Cost | |
|
Value | |
|
Cost | |
|
Value | |
| |
|
| |
|
| |
|
| |
|
| |
|
2005
|
|
$ |
2,042 |
|
|
$ |
2,406 |
|
|
$ |
820 |
|
|
$ |
820 |
|
|
2006
|
|
|
2,434 |
|
|
|
2,862 |
|
|
|
992 |
|
|
|
992 |
|
|
2007
|
|
|
2,729 |
|
|
|
3,137 |
|
|
|
1,006 |
|
|
|
1,006 |
|
|
2008
|
|
|
2,936 |
|
|
|
3,349 |
|
|
|
1,193 |
|
|
|
1,193 |
|
|
2009
|
|
|
3,149 |
|
|
|
3,570 |
|
|
|
1,123 |
|
|
|
1,123 |
|
|
Thereafter
|
|
|
115,393 |
|
|
|
117,335 |
|
|
|
7,794 |
|
|
|
7,794 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
128,683 |
|
|
$ |
132,659 |
|
|
$ |
12,928 |
|
|
$ |
12,928 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains of $264, $587 and $588 and in 2004, 2003 and
2002, respectively, are included in other income in the
accompanying consolidated statements of income.
WFB accepts time deposits only in amounts of at least one
hundred thousand dollars. All time deposits are interest
bearing. The aggregate amount of time deposits by maturity as of
fiscal year ended 2004 are as follows:
| |
|
|
|
|
|
2005
|
|
$ |
48,953 |
|
|
2006
|
|
|
28,201 |
|
|
2007
|
|
|
10,705 |
|
|
2008
|
|
|
7,200 |
|
|
2009 and thereafter
|
|
|
5,600 |
|
| |
|
|
|
| |
|
|
100,659 |
|
|
Less current maturities
|
|
|
(48,953 |
) |
| |
|
|
|
|
Deposits classified as non-current liabilties
|
|
$ |
51,706 |
|
| |
|
|
|
|
|
| 7. |
REVOLVING CREDIT FACILITIES |
On May 6, 2004 the Company renewed and amended its
unsecured revolving loan agreement with several banks for
$230,000. This revolving facility, which expires on
June 30, 2007, provides for a London Interbank Offered
Rates (“LIBOR”) based rate of interest plus a spread,
which adjusts based upon certain financial ratios achieved by
the Company and ranges from .80% to 1.425%. During the term of
the facility, the Company was also required to pay a facility
fee, which ranges from .125% to .25%. The principal amount was
undrawn as of the end of 2004 and 2003. The average borrowing of
principal amounts outstanding was: $1,667, $2,440 and $36,933
for 2004, 2003 and 2002, respectively.
The loan agreement permits the issuance of up to
$100 million in letters of credit and standby letters of
credit, the notional amount of which are applied against the
overall credit limit available under the revolver. At
January 1, 2005 and January 3, 2004, the Company had
outstanding commercial letters of credit aggregating
approximately $31,088 and $26,145, respectively, for the
purchase of merchandise. In addition, at January 1, 2005
the Company had outstanding standby letters of credit of $6,525.
These
84
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
related to the Company’s self-funded property insurance and
worker’s compensation and to various construction projects.
The agreement contains several provisions, which, among other
things, require the maintenance of certain financial ratios and
net worth, and limit the payment of dividends. The significant
financial ratios and net worth requirements in the loan
agreement are as follows:
|
|
|
| |
• |
A current consolidated assets to current consolidated
liabilities ratio of no less than 1.15 to 1.00 as of the last
day of any fiscal year; |
| |
| |
• |
A fixed charge coverage ratio (the ratio of the sum of
consolidated EBITDA plus certain rental expenses to the sum of
consolidated cash interest expense plus certain rental expenses)
of no less than 2.00 to 1.00 as of the last day of the any
fiscal quarter; and |
| |
| |
• |
A minimum tangible net worth of $300 million plus 50% of
cumulative consolidated net income beginning in 2004. Tangible
net worth is our equity less intangible assets. |
In addition, the note contains cross default provisions to other
outstanding debt. In the event the Company fails to comply with
these covenants and the failure to comply goes beyond
30 days, a default is triggered. In the event of default,
the obligations shall automatically become immediately due and
payable. All outstanding letters of credit and all principal and
outstanding interest would immediately become due and payable.
The Company was in compliance with all covenants as of each
fiscal year end presented.
On October 7, 2004, WFB entered into an unsecured Federal
Funds Sales Agreement with a financial institution. All Federal
Funds transactions will be on a daily origination and return
basis. Daily interest charges are determined based on mutual
agreement by the parties. The maximum amount of funds which can
be borrowed is $25,000 of which no amounts were borrowed during
fiscal year 2004. On October 8, 2004, WFB entered into an
unsecured Federal Funds Line of Credit agreement with a
financial institution. The maximum amount of funds which can be
borrowed is $40,000 of which no amounts were outstanding at
fiscal year end 2004. The interest rate for the line of credit
is based on the current Federal funds rate.
85
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
|
|
| 8. |
LONG-TERM DEBT AND CAPITAL LEASES |
Principal amounts of long-term debt and net carrying amount of
capital leases consists of the following at each fiscal year end:
| |
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Unsecured 4.95% notes payable to various insurance
companies, with principal payable in five annual installments of
$25,000 beginning September 5, 2005. Interest payments are
made semi-annually
|
|
$ |
125,000 |
|
|
$ |
125,000 |
|
|
Unsecured Senior Notes, interest rates from 8.79% to 9.19%,
payable with interest and principal due in monthly installments
of $274 through January 1, 2007. Beginning February 1,
2008 monthly principal of $81 are due through
January 1, 2010
|
|
|
8,123 |
|
|
|
10,563 |
|
|
Capital lease obligation, implicit rate of 4%, payable in
monthly installments of $42 through June 2034
|
|
|
8,639 |
|
|
|
— |
|
|
Various notes payable due April 1, 2004 through
October 15, 2014, interest rates from 4.0% to 8.0%, and
total annual installments of approximately $790
|
|
|
6,390 |
|
|
|
7,088 |
|
| |
|
|
|
|
|
|
| |
Total long-term debt
|
|
|
148,152 |
|
|
|
142,651 |
|
|
Less current maturities
|
|
|
(28,327 |
) |
|
|
(3,013 |
) |
| |
|
|
|
|
|
|
| |
Long-term portion
|
|
$ |
119,825 |
|
|
$ |
139,638 |
|
| |
|
|
|
|
|
|
Certain of the long-term debt agreements contain various
covenants and restrictions such as the maintenance of minimum
debt coverage, net worth and financial ratios. The significant
financial ratios and net worth requirements in the long-term
debt agreements are as follows:
|
|
|
| |
• |
A limitation of funded debt to be less than 60% of consolidated
total capitalization. |
| |
| |
• |
Cash flow fixed charge coverage ratio (the ratio of the sum of
consolidated EBITDA plus certain rental expenses to the sum of
consolidated cash interest expense plus certain rental expenses)
of no less than 2.00 to 1.00 as of the last day of the any
fiscal quarter; and |
| |
| |
• |
A minimum consolidated adjusted net worth of $150 million
plus 25% of cumulative consolidated net income beginning in
2002. Adjusted net worth is consolidated equity less equity in
WFB, plus the LIFO reserve and deferred income taxes. |
In addition, the debt contains cross default provisions to other
outstanding credit facilities. In the event the Company fails to
comply with these covenants and the failure to comply goes
beyond 30 days, the Company will trigger a default. In the
event of default, the obligations shall automatically become
immediately due and payable. All principal and outstanding
interest would immediately become due and payable.
The Company was in compliance with all covenants at each fiscal
year end presented.
The Company entered into a lease agreement for a distribution
facility in Wheeling, West Virginia. The lease term is
30 years, with monthly installments of $42 and contains a
bargain purchase option at the end of the lease term. The
Company is accounting for this lease as a capital lease and has
recorded the leased asset at its present value of the future
minimum lease payments using a 4% implicit rate. The leased
asset was recorded at $8,728 and is being amortized on a
straight-line basis over 30 years.
86
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
Aggregate expected maturities of long-term debt and scheduled
capital lease payments in the future are as follows:
| |
|
|
|
|
|
|
|
|
|
| |
|
Scheduled | |
|
Long Term | |
| |
|
Capital Lease | |
|
Debt | |
| |
|
Payments | |
|
Maturities | |
| |
|
| |
|
| |
|
2005
|
|
$ |
500 |
|
|
$ |
28,183 |
|
|
2006
|
|
|
500 |
|
|
|
28,901 |
|
|
2007
|
|
|
500 |
|
|
|
26,643 |
|
|
2008
|
|
|
500 |
|
|
|
26,583 |
|
|
2009
|
|
|
500 |
|
|
|
26,467 |
|
|
Thereafter
|
|
|
12,000 |
|
|
|
2,736 |
|
| |
|
|
|
|
|
|
| |
|
$ |
14,500 |
|
|
$ |
139,513 |
|
|
Capital lease amount representing interest
|
|
|
(5,861 |
) |
|
|
|
|
| |
|
|
|
|
|
|
|
Present value of net scheduled lease payments
|
|
$ |
8,639 |
|
|
|
8,639 |
|
| |
|
|
|
|
|
|
| |
Total long term debt and capital leases
|
|
|
|
|
|
$ |
148,152 |
|
| |
|
|
|
|
|
|
Other income (expense) consists of:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year Ended | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Interest income earned on economic development bonds
|
|
$ |
7,093 |
|
|
$ |
4,575 |
|
|
$ |
4,258 |
|
|
Gains on sale of investments
|
|
|
2,816 |
|
|
|
1,005 |
|
|
|
243 |
|
|
Equity in undistributed net earnings (losses) of equity method
investees
|
|
|
532 |
|
|
|
(86 |
) |
|
|
(82 |
) |
|
Other
|
|
|
2 |
|
|
|
118 |
|
|
|
289 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
10,443 |
|
|
$ |
5,612 |
|
|
$ |
4,708 |
|
| |
|
|
|
|
|
|
|
|
|
Interest income from economic development bonds consists of
income earned on bonds associated with various economic
development agreements entered into by the Company.
The provision for income taxes consists of the following for
each respective year-end:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
$ |
36,833 |
|
|
$ |
19,395 |
|
|
$ |
25,331 |
|
| |
State
|
|
|
631 |
|
|
|
333 |
|
|
|
362 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
37,464 |
|
|
|
19,728 |
|
|
|
25,693 |
|
| |
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
|
(2,339 |
) |
|
|
8,528 |
|
|
|
122 |
|
| |
State
|
|
|
(40 |
) |
|
|
146 |
|
|
|
2 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
(2,379 |
) |
|
|
8,674 |
|
|
|
124 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
35,085 |
|
|
$ |
28,402 |
|
|
$ |
25,817 |
|
| |
|
|
|
|
|
|
|
|
|
87
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
A reconciliation of the statutory federal income tax rate to the
effective income tax rate is a follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Statutory federal rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
State income taxes, net of federal tax benefit
|
|
|
0.5 |
% |
|
|
0.4 |
% |
|
|
0.3 |
% |
|
Other nondeductible items
|
|
|
0.1 |
% |
|
|
0.2 |
% |
|
|
0.2 |
% |
|
Other
|
|
|
(0.5 |
)% |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
35.1 |
% |
|
|
35.6 |
% |
|
|
35.5 |
% |
| |
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities consist of the following at
each respective year-end:
| |
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| |
Deferred compensation
|
|
$ |
4,132 |
|
|
$ |
3,116 |
|
| |
Deferred revenue
|
|
|
4,135 |
|
|
|
1,778 |
|
| |
Reserve for returns
|
|
|
6,538 |
|
|
|
6,331 |
|
| |
Accrued vacation pay
|
|
|
2,045 |
|
|
|
1,692 |
|
| |
Reserve for health insurance claims
|
|
|
1,484 |
|
|
|
1,145 |
|
| |
Inventory
|
|
|
3,405 |
|
|
|
3,278 |
|
| |
Accrued expenses
|
|
|
681 |
|
|
|
496 |
|
| |
Amortization
|
|
|
1,348 |
|
|
|
1,262 |
|
| |
Allowance for doubtful accounts
|
|
|
742 |
|
|
|
1,373 |
|
| |
Other
|
|
|
1,078 |
|
|
|
30 |
|
| |
|
|
|
|
|
|
| |
|
|
25,588 |
|
|
|
20,501 |
|
| |
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
| |
Prepaid catalog costs
|
|
|
9,603 |
|
|
|
9,735 |
|
| |
Depreciation
|
|
|
22,978 |
|
|
|
19,842 |
|
| |
Capitalized software costs
|
|
|
1,277 |
|
|
|
1,892 |
|
| |
Credit card issuance costs
|
|
|
1,001 |
|
|
|
1,233 |
|
| |
Unrealized gains on available-for-sale securities
|
|
|
1,411 |
|
|
|
197 |
|
| |
Investment in equity method investees
|
|
|
142 |
|
|
|
779 |
|
| |
Retained interest in securitized receivables
|
|
|
3,561 |
|
|
|
2,486 |
|
| |
|
|
|
|
|
|
| |
|
|
39,973 |
|
|
|
36,164 |
|
| |
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$ |
(14,385 |
) |
|
$ |
(15,663 |
) |
| |
|
|
|
|
|
|
Included on the accompanying consolidated balance sheets under
the following captions:
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Deferred income tax (liability) asset — current
|
|
$ |
2,240 |
|
|
$ |
1,122 |
|
|
Deferred income tax liability — noncurrent
|
|
|
(16,625 |
) |
|
|
(16,785 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
(14,385 |
) |
|
$ |
(15,663 |
) |
| |
|
|
|
|
|
|
88
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
The Company is exposed to market risks including changes in
currency exchange rates and interest rates. The Company may
enter into various derivative transactions pursuant to
established Company policies to manage volatility associated
with these exposures.
Foreign Currency Management — The
Company may enter into forward exchange or option contracts for
transactions denominated in a currency other than the applicable
functional currency in order to reduce exposures related to
changes in foreign currency exchange rates. This primarily
relates to hedging against anticipated inventory purchases.
Hedges of anticipated inventory purchases are designated as cash
flow hedges. The gains and losses associated with these hedges
are deferred in accumulated other comprehensive income (loss)
until the anticipated transaction is consummated and are
recognized in the income statement in the same period during
which the hedged transactions affect earnings. Gains and losses
on foreign currency derivatives for which the Company has not
elected hedge accounting are recorded immediately in earnings.
For the fiscal years ended 2004 and 2003, there was no
ineffectiveness associated with the Company’s foreign
currency derivatives designated as cash flow hedges. There were
no discontinued foreign currency derivative cash flow hedges
during the fiscal years ended 2004 and 2003.
Generally, the Company hedges a portion of its anticipated
inventory purchases for periods up to 12 months. As of
fiscal year ended 2004, the Company has hedged certain portions
of its anticipated inventory purchases through January of 2005,
while other portions are hedged through the majority of 2005.
The fair value of foreign currency derivatives assets or
liabilities is recognized within either other current assets or
liabilities. As of fiscal years ended 2004 and 2003, the fair
value of foreign currency derivative assets was $235 and $553,
respectively and, the fair value of foreign currency derivative
liabilities was $0 and $0, respectively.
As of fiscal years ended 2004 and 2003, the net deferred gain
recognized in other comprehensive income/(loss) was $(205) and
$238, net of tax, respectively. The Company anticipates a gain
of $151, net of tax, will be transferred out of accumulated
other comprehensive income and recognized within earnings over
the next 12 months. Gains of $296, $430 and $172, net of
tax, were transferred from accumulated other comprehensive
income into income from operations in fiscal years 2004, 2003
and 2002, respectively.
Interest Rate Management — On
February 4, 2003, in connection with the Series 2003-1
securitization the securitization trust entered into a
$300 million notional swap agreement in order to manage
interest rate exposure. The exposure is related to changes in
cash flows from funding credit card loans which include a high
percentage of accounts with floating rate obligations that do
not incur monthly finance charges. The swap converts the
interest rate on the investor bonds from a floating rate basis
with a spread over a benchmark note to a fixed rate of 3.699%.
Since the trust is not consolidated, the fair value of the swap
is not reflected on the financial statements. The Company
entered into a swap with similar terms with the counter-party
whereby the notional amount is zero unless the notional amount
of trust’s swap falls below $300 million. The Company
has not elected to designate this derivative as a hedge and,
therefore, the derivative is marked to market through the
statement of income. Market is currently determined to be zero.
WFB pays the Company a fee for the credit enhancement provided
by this swap, which was $610 and $552 in 2004 and 2003,
respectively.
89
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
The Company leases various buildings, computer equipment, signs
and storage space under operating leases, which expire on
various dates through 2012. Rent expense on these leases was
$5,360, $4,303 and $3,702 for the fiscal years ended 2004, 2003
and 2002, respectively. The following is a schedule of future
minimum annual rental payments under operating leases at fiscal
year ended 2004:
| |
|
|
|
|
|
2005
|
|
$ |
2,611 |
|
|
2006
|
|
|
2,159 |
|
|
2007
|
|
|
1,123 |
|
|
2008
|
|
|
336 |
|
|
2009
|
|
|
336 |
|
|
Thereafter
|
|
|
869 |
|
| |
|
|
|
| |
|
$ |
7,434 |
|
| |
|
|
|
WFB enters into financial instruments with off balance sheet
risk in the normal course of business through the origination of
unsecured credit card loans. These financial instruments consist
of commitments to extend credit, totaling approximately
$5,952,159 and $4,931,164, in addition to any other balances a
cardholder might have at years end 2004 and 2003, respectively.
These instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the balance
sheet. The principal amounts of these instruments reflect the
maximum exposure WFB has in the instruments. WFB has not
experienced and does not anticipate that all of the customers
will exercise their entire available line of credit at any given
point in time. WFB has the right to reduce or cancel these
available lines of credit at any time.
The Company has started construction projects in various Retail
site locations. Initial economic development bond agreements
have been signed. For agreements that have been signed as of the
end of fiscal 2004, the total anticipated initial capital outlay
in construction and bonds is estimated to be $182.3 million
for 2005 and $96.3 million for 2006. Subsequent to the end
of fiscal 2004, the Company has either entered into agreements
for, or announced it is negotiating, four additional Retail site
locations. The Company expects the total costs of each of these
destination retail stores, including the cost of economic
development bonds, to fall in the estimated range of $40 to
$80 million each. The Company expects to incur costs for
one of these locations in 2005, two in 2006 and one in 2007. The
cost of the location to be opened in 2005 is estimated at
$52.3 million. The remainder of the locations are still
being negotiated and will be subject to ordinary conditions to
closing.
In addition, the Company is obligated to fund $28 million
of future economic development bonds relating to its Wheeling,
West Virginia development agreement. The funds are designated
for use of construction of additional distribution center
facilities within the Company’s development district.
Construction and funding of the bonds will take place throughout
2005 and 2006.
|
|
| 13. |
REGULATORY CAPITAL REQUIREMENTS AND DIVIDEND RESTRICTIONS |
WFB is subject to various regulatory capital requirements
administered by the Federal Deposit Insurance Corporation
(FDIC) and the Nebraska State Department of Banking and
Finance. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, WFB must meet specific
capital guidelines that involve quantitative measures of their
assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. WFB’s
capital amounts and
90
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
classification are also subject to qualitative judgment by the
regulators with respect to components, risk weightings and other
factors.
The quantitative measures established by regulation to ensure
capital adequacy require that WFB maintain minimum amounts and
ratios (set forth in the following table) of total and
Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier 1 capital (as
defined). Management believes, as of fiscal year ends 2004 and
2003, that the WFB met all capital adequacy requirements to
which they are subject.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Ratio Required to | |
| |
|
|
|
Be Considered | |
| |
|
Actual | |
|
“Well-Capitalized” | |
| |
|
| |
|
| |
| |
|
Amount | |
|
Ratio | |
|
Amount | |
|
Ratio | |
| |
|
| |
|
| |
|
| |
|
| |
|
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to Risk-Weighted Assets
|
|
$ |
67,394 |
|
|
|
25.6 |
% |
|
$ |
26,311 |
|
|
|
10.0 |
% |
|
Tier I Capital to Risk-Weighted Assets
|
|
$ |
66,064 |
|
|
|
25.1 |
% |
|
$ |
15,786 |
|
|
|
6.0 |
% |
|
Tier I Capital to Average Assets
|
|
$ |
66,064 |
|
|
|
36.0 |
% |
|
$ |
9,177 |
|
|
|
5.0 |
% |
|
2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to Risk-Weighted Assets
|
|
$ |
49,460 |
|
|
|
26.4 |
% |
|
$ |
18,734 |
|
|
|
10.0 |
% |
|
Tier I Capital to Risk-Weighted Assets
|
|
$ |
48,350 |
|
|
|
25.8 |
% |
|
$ |
11,241 |
|
|
|
6.0 |
% |
|
Tier I Capital to Average Assets
|
|
$ |
48,350 |
|
|
|
31.3 |
% |
|
$ |
7,733 |
|
|
|
5.0 |
% |
|
|
| 14. |
EMPLOYEE BENEFIT PLANS |
The Company has a defined contribution 401(k) savings plan, a
deferred compensation plan, and an employee charge program.
401(k) Savings Plan — All employees are
eligible to defer up to 80% of their wages to the 401(k) savings
plan, subject to certain limitations. The Company has a
mandatory match of up to 50% of the employee deferrals, up to 6%
of eligible wages as defined. All employees who complete one
year of service and attain age 18 are eligible for the
mandatory match. The money purchase plan was merged into the
401(k) on July 15, 2002. In addition, the employee stock
ownership plan (ESOP) was merged into the 401(k) effective
March 1, 2004. Following these mergers, a discretionary
contribution up to 12.5% can be made on eligible wages as
defined. Certain non-exempt and all exempt employees of
Cabela’s and World’s Foremost Bank are eligible for
this discretionary contribution. Total expenses from mandatory
contributions were $4,345, $2,468 and $1,192 in 2004, 2003 and
2002, respectively. Total expenses from discretionary
contributions were $5,385, $5,065 and $4,575 in 2004, 2003 and
2002, respectively.
Deferred Compensation Plan — The Company
has a self-funded, nonqualified deferred compensation plan for
the benefit of certain key employees. The plan was amended on
December 31, 2004, to restrict any further contributions,
and to change the interest rate adjustment period from a monthly
to a semi-annual basis. The Company pays interest compounded
daily at the declared interest rate. The declared rate was prime
plus 1.75% and 8.5% in fiscal 2004 and 2003 respectively. Upon
death, disability, termination or retirement, employees can
receive their balance in a lump sum payment or equal monthly
payments over a five, ten or twelve year period. The charge to
interest expense under the fixed rate portion of the plan was
approximately $595, $2,967 and $2,246 during the fiscal years
ended 2004, 2003 and 2002, respectively. The participants also
could elect an additional investment option where the investment
performance is equal to the increase in the price of the
Company’s stock. The charge to expense under the
“equity” portion of the plan was $0, $1,960 and $726
for the fiscal years ended 2004, 2003 and 2002, respectively.
The equity portion of the plan was terminated in 2003 as
required in connection with the recapitalization
91
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
transaction. In addition, as required by the recapitalization
transaction, the Company paid $40,060 of the deferred
compensation in 2003.
Employee Charge Accounts — The Company
allows employees to charge products at its retail stores. The
amounts included in accounts receivable that were related to
employee charges were $1,449 and $1,356 at fiscal year end 2004
and 2003, respectively. The eligibility and charge limits for
employee charge accounts vary depending on length of employment.
In March 2004, the Company adopted the Cabela’s
Incorporated 2004 Stock Plan. The 2004 Stock Plan provides for
the grant of non-qualified stock options, incentive stock
options, stock appreciation rights, restricted stock, restricted
stock units and other stock-based awards to employees,
directors, and consultants. A maximum of 2,752,500, subject to
adjustment in the event of a stock split, consolidation or stock
dividends of the Company’s common stock, shares of common
stock may be subject to awards under the 2004 Stock Plan. During
any three-year period, no one person will be able to receive
more than 734,000 options and/or stock appreciation rights. For
awards subject to performance requirements no one person will be
able to receive more than 734,000 shares during any
performance period of 36 months, with proportionate
adjustment for shorter or longer periods not to exceed five
years. The options will have a term of no greater than ten years
from the grant date and will become exercisable in accordance
with the vesting schedule determined at the time the awards are
granted. If incentive stock options are granted to a “ten
percent holder,” then the options will have a term of no
greater than five years from the grant date. A “ten percent
holder” is defined as a person who owns stock possessing
more than 10% of the total combined voting power of all classes
of capital stock of the Company. At fiscal year end 2004, there
were 1,341,881 options granted under the 2004 plan and 1,410,619
options available for grant.
On May 1, 2004, the Company granted 550,500 options at
below fair market value. The Company will incur a pre-tax
compensation charge of $3,665, associated with this grant. A
pre-tax compensation charge of $1,674 is included in the fiscal
year ended 2004. The Company will incur future pretax
compensation charges related to the May 1, 2004 grant of
$941, $574, $330 and $147 in fiscal years 2005, 2006, 2007, and
2008, respectively.
In March 2004, the Company adopted an Employee Stock Purchase
Plan, under which shares of common stock are available to be
purchased by the Company’s employees. The maximum number of
shares of common stock available for issuance under the plan is
1,835,000, subject to adjustment in the event of a stock split,
consolidation, or stock dividends of the Company’s common
stock. Employees are eligible to participate in the plan
immediately upon hire. Employees who own more than 5% of the
combined voting power of all classes of our stock or stock of a
subsidiary cannot participate in the plan. The right to purchase
stock under this plan became effective upon the completion of
the initial public offering. At fiscal year end 2004,
22,824 shares had been issued under the Stock Purchase Plan
and 1,812,176 shares were available for issuance.
The Company’s 1997 Stock Option Plan provided for the
granting of incentive stock options and nonqualified stock
options to purchase shares of the Company’s common stock to
officers, directors and key employees responsible for the
direction and management of the Company. These stock options
vest and become exercisable at the rate of 10% on the date of
grant and an additional 10% on each January 1 thereafter. All
unexercised incentive options issued prior to fiscal year ended
2002 expire on the tenth anniversary of the date of the grant.
In 2003, only nonqualified options were granted. Nonqualified
options granted vest and are exercisable at various dates
through July 2008. At fiscal year ended 2003, there were
7,337,615 shares of common stock issued under the 1997 plan
and there were no future options available for grant under the
1997 Plan.
92
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
At certain times during the year, the Company will allow
employees to exercise options prior to vesting in exchange for a
call option, as provided for in the 1997 Plan. The call option
expires at the end of the vesting period and only becomes
exercisable if a termination event occurs that would cause the
stock option to be forfeited. The strike price for the call
option is the lower of the employee’s exercise price or the
fair value of the stock on the day the call is exercised. At the
end of fiscal year 2004, 238,546 shares have been exercised
prior to vesting. There have been no termination events related
to these shares which would cause the call option to be
exercisable. The estimated value of the call option is
approximately $932 at the end of fiscal year 2004. All of these
shares have been included in the tables below.
In addition, in 1997 the Company granted 1,101,000 nonqualified
options to purchase Class A common stock to two employees
of the Company pursuant to separate stock option agreements
between the Company and the applicable employee. These options
were not issued under the 1997 Plan and all of these options
have been exercised in the past three years.
Information relating to stock options at fiscal years ended
2004, 2003 and 2002 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
| |
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
| |
|
Number of | |
|
Exercise | |
|
Number of | |
|
Exercise | |
|
Number of | |
|
Exercise | |
| |
|
Options | |
|
Price | |
|
Options | |
|
Price | |
|
Options | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Outstanding — beginning
|
|
|
4,581,580 |
|
|
$ |
7.06 |
|
|
|
7,042,730 |
|
|
$ |
4.88 |
|
|
|
6,440,850 |
|
|
$ |
4.36 |
|
| |
Granted
|
|
|
1,341,881 |
|
|
|
17.29 |
|
|
|
930,345 |
|
|
|
11.20 |
|
|
|
638,580 |
|
|
|
10.11 |
|
| |
Exercised
|
|
|
(1,785,966 |
) |
|
|
5.49 |
|
|
|
(3,217,170 |
) |
|
|
3.45 |
|
|
|
(12,845 |
) |
|
|
4.94 |
|
| |
Forfeited
|
|
|
— |
|
|
|
— |
|
|
|
(174,325 |
) |
|
|
7.50 |
|
|
|
(23,855 |
) |
|
|
5.10 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding — ending
|
|
|
4,137,495 |
|
|
$ |
11.50 |
|
|
|
4,581,580 |
|
|
$ |
7.07 |
|
|
|
7,042,730 |
|
|
$ |
4.88 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were 989,425, 1,674,944 and 4,030,578 options exercisable
at fiscal years ended 2004, 2003 and 2002, respectively.
Stock options outstanding at fiscal years ended 2004, 2003 and
2002 were comprised of 1,943,424, 3,194,614 and 5,591,223 of
incentive and 2,194,071, 1,386,966 and 1,451,507 nonqualified
stock options, respectively.
The pro forma information regarding net income, required by
SFAS No. 123, Accounting for Stock-Based Compensation,
as amended by SFAS No. 148, Accounting for Stock-Based
Compensation — Transition and Disclosure, is presented
in Note 1 and has been determined as if the Company had
accounted for its employee stock options under the fair value
method by these standards. The weighted average fair value of
options granted during the year was $10.05, $1.18 and $2.72 for
the fiscal years ended 2004, 2003 and 2002, respectively. The
fair value of these options was estimated at the date of grant
using the minimum value approach with the following weighted
average assumptions for the fiscal years ended 2003 and 2002.
The fair value of options in fiscal year ended 2004 was
estimated using the Black Scholes model with the following
weighted average assumptions.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Risk-free interest rate
|
|
|
3.63 |
% |
|
|
2.50 |
% |
|
|
4.00 |
% |
|
Dividend yield
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Expected volatility
|
|
|
50 |
% |
|
|
— |
|
|
|
— |
|
|
Weighted average expected life
|
|
|
4.5 years |
|
|
|
4.5 years |
|
|
|
8 years |
|
93
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
The following summarizes information about stock options
outstanding as of fiscal year ended 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options | |
| Options Outstanding | |
|
Exercisable | |
| | |
|
| |
| |
|
Average | |
|
|
| |
|
Remaining | |
|
|
| Exercise Price | |
|
Number | |
|
Contractual Life | |
|
Number | |
| | |
|
| |
|
| |
|
| |
| |
$ 0.00 to $ 5.00 |
|
|
|
774,363 |
|
|
|
3.0 years |
|
|
|
196,342 |
|
| |
$ 5.01 to $10.00 |
|
|
|
859,697 |
|
|
|
6.3 years |
|
|
|
227,539 |
|
| |
$10.01 to $15.00 |
|
|
|
1,712,054 |
|
|
|
6.38 years |
|
|
|
390,853 |
|
| |
$15.01 to $20.00 |
|
|
|
785,381 |
|
|
|
9.3 years |
|
|
|
174,691 |
|
| |
$20.01 to $25.00 |
|
|
|
2,000 |
|
|
|
10.0 years |
|
|
|
— |
|
| |
$25.01 to $30.00 |
|
|
|
4,000 |
|
|
|
9.6 years |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
| |
$11.06 |
|
|
|
4,137,495 |
|
|
|
|
|
|
|
989,425 |
|
| |
|
|
|
|
|
|
|
|
|
|
Basic earnings per share (“EPS”) is computed by
dividing net income by the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per
share is computed by dividing net income by the sum of the
weighted average number of shares outstanding plus all
additional common shares that would have been outstanding if
potentially dilutive common share equivalents had been issued.
Options exercised prior to vesting have not been considered in
the basic EPS calculation but are considered in the computation
of diluted EPS. There were 6,000 options outstanding that were
considered anti-dilutive for 2004. The following table
reconciles the number of shares utilized in the earnings per
share calculations:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Years Ended | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Common shares — basic
|
|
|
61,277,352 |
|
|
|
52,059,926 |
|
|
|
49,899,203 |
|
| |
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Stock Options
|
|
|
2,000,048 |
|
|
|
3,246,368 |
|
|
|
3,500,343 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Common shares — diluted
|
|
|
63,277,400 |
|
|
|
55,306,294 |
|
|
|
53,399,546 |
|
| |
|
|
|
|
|
|
|
|
|
Class A Voting Common Stock — There
are 245,000,000 shares of Class A common stock
authorized, par value $0.01 per share. At fiscal year ended
2004 there were 56,733,521 shares of Class A common
stock outstanding, including 238,546 shares of unvested
early exercised options. The holders of the Company’s
Class A common stock will be entitled to receive ratably
dividends, if any, the board of directors may declare from time
to time from funds legally available therefore, subject to the
preferential rights of the holders of any shares of the
Company’s preferred stock that the Company may issue in the
future. The holders of the Company’s Class A common
stock will be entitled to one vote per share on any matter to be
voted upon by stockholders.
Upon any voluntary or involuntary liquidation, dissolution or
winding up of the Company’s affairs, the holders of the
Company’s Class A common stock are entitled to share
ratably with the holders of Class B non-voting common stock
in all assets remaining after payment to creditors and subject
to prior distribution rights of any shares of preferred stock
that the Company may issue in the future. All of the
94
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
outstanding shares of Class A common stock are, and the
shares offered by the Company will be, fully paid and
non-assessable.
Class B Non-voting Common Stock —
There are 245,000,000 shares of Class B non-voting
common stock authorized, par value $0.01 per share. At
fiscal year ended 2004 there were 8,073,205 shares of
Class B non-voting common stock outstanding. The holders of
the Company’s Class B non-voting common stock are not
entitled to any voting rights, except that the holders may vote
as a class, with each holder receiving one vote per share of
Class B non-voting common stock, on any amendment, repeal
or modification of any provision of the Company’s amended
and restated certificate of incorporation that adversely affects
the powers, preferences or special rights of holders of
Class B non-voting common stock. Shares of the
Company’s Class B non-voting common stock are
convertible into the same number of shares of Class A
voting common stock at any time. However, no holder of shares of
Class B non-voting common stock is entitled to convert any
of its shares into shares of Class A common stock, to the
extent that, as a result of such conversion, the holder
directly, or indirectly, would own, control or have the power to
vote a greater number of shares of Class A common stock or
other securities of any kind issued by the Company than the
holder is legally permitted to own, control or have the power to
vote. Subject to the prior rights of holders of preferred stock,
if any, holders of Class B non-voting common stock, which
rates equally with the Company’s Class A common stock
in respect of dividends, are entitled to receive ratably
dividends, if any, as may be lawfully declared from time to time
by the Company’s board of directors.
Upon the Company’s liquidation, dissolution or winding up,
whether voluntary or involuntary, holders of Class B
non-voting common stock are entitled to share ratably with the
holders of Class A common stock in all assets remaining
after payment to creditors and subject to prior distribution
rights of any shares of preferred stock that the Company may
issue in the future. All of the outstanding shares of
Class B non-voting common stock are, and the shares offered
by the Company will be, fully paid and non-assessable.
Preferred Stock — Upon completion of the
initial public offering and the filing of the Company’s
Amended and Restated Articles of Incorporation in connection
therewith, the Company authorized 10,000,000 shares of
Preferred Stock, par value $0.01 per share. At fiscal year
ended 2004 there were no shares outstanding. The board of
directors is authorized to issue up to 10,000,000 shares of
preferred stock without stockholder approval in different
classes and series and, with respect to each class or series, to
determine the dividend rate, the redemption provisions,
conversion provisions, liquidation preference and other rights,
privileges and restrictions. The issuance of any preferred stock
could have the effect of diluting the voting power of the
holders of common stock, restricting dividends on the common
stock, impairing the liquidation rights of the common stock or
delaying or preventing a change in control without further
action by the stockholders.
Recapitalization Transaction — On
September 23, 2003, following arms-length negotiations
between the Company, the Company’s chairman of the board, a
board member, McCarthy Group, Inc., and J.P. Morgan
Partners (BHCA), L.P., the Company entered into a
$200 Million recapitalization transaction. As part of this
transaction, the Company entered into a Stock
Redemption Agreement with a board member and an affiliated
party of this board member, the Company’s chairman and his
affiliates pursuant to which the Company purchased an aggregate
amount of 10,922,617 of their shares of Class A common
stock at a negotiated price of $13.73 per share. As part of
this transaction, the Company also sold 1,820,437 shares of
Class B non-voting common stock, 14,680 shares and
3,058,328 shares of Class A common stock to McCarthy
Group, Inc., and Outdoor Investors, L.P., respectively, both of
whom are affiliated parties of one of the Company’s
directors, for a negotiated purchase price of $13.73 per
share. In addition, the Company sold 5,710,836 shares of
Class B non-voting common stock to J.P. Morgan
Partners (BHCA), L.P., one of the Company’s principal
shareholders, and its affiliates, for a negotiated price of
95
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
$13.73 per share. In addition, the Company sold
3,990,274 shares of Class A common stock for a
negotiated price of $13.73 per share to non-affiliated
parties.
Retained Earnings — The most significant
restrictions on the payment of dividends are the covenants
contained in the Company’s revolving credit agreement and
unsecured senior notes purchase agreement, Nebraska banking laws
governing the amount of dividends that WFB can pay (including
the amounts WFB can pay to the Company) and the restrictions
contained in a stockholders agreement which terminated upon the
consummation of an initial public offering of the Company’s
common stock. The Company has unrestricted retained earnings of
$68,750 available for dividends.
Other Comprehensive Income (Loss) — The
components of other comprehensive income (loss) and related tax
effects were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Change in net unrealized holding gain (loss) on marketable
securities, net of tax of $1,186, $(128) and $336 in 2004, 2003
and 2002, respectively
|
|
$ |
2,154 |
|
|
$ |
(206 |
) |
|
$ |
638 |
|
|
Less: adjustment for net gain or (loss) on marketable securities
included in net income, net of tax of $30, $(32) and $(9) in
2004, 2003 and 2002, respectively
|
|
|
53 |
|
|
|
(59 |
) |
|
|
(16 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
2,207 |
|
|
|
(265 |
) |
|
|
622 |
|
| |
|
|
|
|
|
|
|
|
|
|
Change in net unrealized holding gain (loss) on derivatives, net
of tax of $49, $356 and $71 in 2004, 2003 and 2002, respectively
|
|
|
91 |
|
|
|
668 |
|
|
|
126 |
|
|
Less: adjustment for reclassification of derivative included in
net income, net of tax of $(162), $(230) and $(98) in 2004, 2003
and 2002, respectively
|
|
|
(296 |
) |
|
|
(430 |
) |
|
|
(172 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
(205 |
) |
|
|
238 |
|
|
|
(46 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
2,002 |
|
|
$ |
(27 |
) |
|
$ |
576 |
|
| |
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income, net of
tax, were as follows:
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Accumulated net unrealized holding gain on available for sale
securities
|
|
$ |
2,565 |
|
|
$ |
357 |
|
|
Accumulated net unrealized holding gain on derivatives
|
|
|
151 |
|
|
|
357 |
|
| |
|
|
|
|
|
|
|
Total accumulated other comprehensive income
|
|
$ |
2,716 |
|
|
$ |
714 |
|
| |
|
|
|
|
|
|
|
|
| 18. |
RELATED PARTY TRANSACTIONS |
During 2003 and 2002 the Company leased land and buildings from
an entity controlled by the majority stockholders. The lease
cost was $70 per month. Rent expense on this lease was $844
for fiscal years 2003 and 2002. At the end of fiscal 2003 the
Company purchased these buildings for $5.0 million. These
buildings were located in Sidney, Nebraska and are used for
warehouse, distribution and corporate storage.
The Company had engaged McCarthy & Co., an affiliated
party of one of the Company’s directors, to provide
financial and business consulting services on a fee-for-services
basis. The fees paid to McCarthy & Co. totaled $58 and
$50 in fiscal 2003 and 2002, respectively. In addition, pursuant
to an engagement letter entered into by the Company with
McCarthy & Co., McCarthy & Co. was paid a fee
of $222 in fiscal 2003 in connection with the closing of the
recapitalization transactions described in Note 17 above.
96
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
A prior member of the Company’s board of directors is an
attorney with a firm which the Company utilizes in the course of
its legal needs throughout the year. All activity is at
arms-length rates and reviewed and approved by a Vice President
prior to payment. Fees paid to this board member’s firm
totaled $757 and $580 in fiscal 2003 and 2002, respectively.
Fees paid to this former board member’s firm totaled $126
through March 2, 2004 when this director resigned from the
board effective March 2, 2004.
Another member of the Company’s board of directors is an
attorney with a firm which the Company utilizes in the course of
its legal needs throughout the year. All activity is at
arms-length rates and reviewed and approved by a Vice President
prior to payment. Fees paid to this board member’s firm
totaled $56, $74 and $25 in fiscal 2004, 2003 and 2002,
respectively.
A prior member of the Company’s board of directors was the
Chairman of an insurance company which administers the
Company’s health insurance (self-funded) plan, as well as
handles the Company’s stop-loss policy. This director
resigned from the board at the end of fiscal 2003, and is now
deceased. Total fees paid for these services were $1,413 during
2003.
The Company entered into an employee and office space lease
agreement with the Company’s Chairman, dated effective
January 1, 2004, pursuant to which he leases the services
of certain Company employees and associated office space. The
amount of the lease payments paid under such agreement in 2004
was $221.
The Company was previously a party to a split dollar insurance
agreement dated January 29, 1999 with an affiliate of the
Company’s Chairman. Under the agreement, the Company was
guaranteed repayment the lesser of net premiums paid or cash
surrender value of the policy upon death or termination. This
agreement was terminated in September of 2003, and the Company
was reimbursed all net premiums previously paid into the plan.
Pursuant to the agreement, the Company paid $111 and $174, net
of reimbursements, in fiscal 2003 and 2002, respectively.
Litigation — The Company is engaged in
various legal actions arising in the ordinary course of
business. After taking into consideration legal counsel’s
evaluation of such actions, management is of the opinion that
the ultimate outcome will not have a material adverse effect on
the Company’s financial position, results of operations or
liquidity.
Self-Insurance — The Company is
self-insured for health claims up to $300 per individual. A
liability of $4,168 and $3,651 has been estimated and recorded
at year end for fiscal 2004 and 2003, respectively, for those
claims incurred prior to year end but not yet reported.
The Company is also self-insured for workers compensation claims
up to $500 per individual in fiscal years 2004 and 2003,
respectively. A liability of $1,913 and $1,301 has been
estimated and recorded at year end for fiscal 2004 and 2003,
respectively, for those claims incurred prior to year end but
not yet reported.
The Company’s liabilities for health and workers
compensation claims incurred but not reported are based upon
internally developed calculations. These estimates are regularly
evaluated for adequacy based on the most current information
available, including historical claim payments, expected trends
and industry factors.
The Company has three reportable segments: Direct, Retail and
Financial Services. The Direct segment sells products through
direct-mail catalogs and an e-commerce website (Cabelas.com);
the Retail
97
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
segment consists of ten destination retail stores in various
size and formats; Financial Services issues co-branded credit
cards. The reconciling amount is primarily made up of corporate
overhead and shared services. The Company’s executive
management, being its chief operating decision makers, assesses
the performance of each operating segment based on an operating
income measure, which is net revenue less merchandise
acquisition costs and certain directly identifiable and
allocable operating costs as described below. For the Direct
segment, these operating costs primarily consist of catalog
development, production and circulation costs, e-commerce
advertising costs and order processing costs. For the Retail
segment, these operating costs primarily consist of store and
selling and occupancy costs. For the Financial Services segment,
operating costs primarily consist of advertising and promotion,
contract labor, salaries and wages and other general and
administrative costs. Corporate and other expenses consist of
unallocated shared-service costs, general and administrative
expenses, various small companies such as travel and lodging
which are not aggregated with the other segments and
eliminations. Unallocated shared-service costs include
receiving, distribution and storage costs, merchandising and
quality assurance costs as well as corporate occupancy costs.
General and administrative expenses include costs associated
with general corporate management and shared departmental
services (e.g., finance, accounting, data processing and human
resources).
Segment assets are those directly used in or clearly allocable
to an operating segment’s operations. For the Direct
segment, these assets primarily include prepaid and deferred
catalog costs, fixed assets and goodwill. Goodwill makes up $970
of assets in the Direct segment. For the Retail segment, these
assets primarily include inventory in the stores, land,
buildings, fixtures, leasehold improvements. For the Financial
Services segment these assets primarily include cash, credit
card loans receivable, other, buildings and fixtures. Corporate
and other assets include corporate headquarters, merchandise
distribution inventory, and shared technology infrastructure as
well as corporate cash and cash equivalents, prepaid expenses
and $830 of investment in equity method investees. Non-cash
capital expenditures were $8,728 in the other segment for a
capital lease on a distribution center. Segment depreciation and
amortization and capital expenditures are correspondingly
allocated to each segment. Corporate and other depreciation and
amortization and capital expenditures are related to corporate
headquarters, merchandise distribution and technology
infrastructure. Unallocated assets include corporate cash and
equivalents, inventory that could be shipped for sales to the
Retail or Direct segment entities, the net book value of
corporate facilities and related information systems, deferred
income taxes and other corporate long-lived assets. The
accounting policies of the segments, where applicable, are the
same as those described in the summary of significant accounting
policies. Intercompany revenues between the segments have been
eliminated in the consolidations.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Corporate | |
|
|
| |
|
|
|
|
|
Financial | |
|
Overhead | |
|
|
| 2004 |
|
Direct | |
|
Retail | |
|
Services | |
|
and Other | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Dollars in thousands |
|
|
|
|
|
|
|
|
|
|
|
Revenue from external
|
|
$ |
968,889 |
|
|
$ |
497,027 |
|
|
$ |
78,714 |
|
|
$ |
11,344 |
|
|
$ |
1,555,974 |
|
|
Revenue from internal
|
|
|
1,757 |
|
|
|
2,047 |
|
|
|
(610 |
) |
|
|
(3,194 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total revenue
|
|
|
970,646 |
|
|
|
499,074 |
|
|
|
78,104 |
|
|
|
8,150 |
|
|
|
1,555,974 |
|
| |
|
Operating income (loss)
|
|
|
146,765 |
|
|
|
72,136 |
|
|
|
31,099 |
|
|
|
(152,785 |
) |
|
|
97,215 |
|
| |
As a % of revenue
|
|
|
15.1 |
% |
|
|
14.5 |
% |
|
|
39.8 |
% |
|
|
N/A |
|
|
|
6.2 |
% |
| |
|
Depreciation and amortization
|
|
|
5,350 |
|
|
|
10,200 |
|
|
|
1,386 |
|
|
|
12,907 |
|
|
|
29,843 |
|
|
Assets
|
|
|
309,089 |
|
|
|
266,840 |
|
|
|
199,861 |
|
|
|
452,441 |
|
|
|
1,228,231 |
|
|
Capital expenditures
|
|
|
6,752 |
|
|
|
24,915 |
|
|
|
857 |
|
|
|
20,044 |
|
|
|
52,568 |
|
98
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollar Amounts in Thousands Except Share and Per Share
Amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Corporate | |
|
|
| |
|
|
|
|
|
Financial | |
|
Overhead | |
|
|
| 2003 |
|
Direct | |
|
Retail | |
|
Services | |
|
and Other | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Dollars in thousands |
|
|
|
|
|
|
|
|
|
|
|
Revenue from external
|
|
$ |
923,195 |
|
|
$ |
405,308 |
|
|
$ |
57,531 |
|
|
$ |
6,389 |
|
|
$ |
1,392,423 |
|
|
Revenue from internal
|
|
|
1,101 |
|
|
|
1,930 |
|
|
|
747 |
|
|
|
(3,778 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total revenue
|
|
|
924,296 |
|
|
|
407,238 |
|
|
|
58,278 |
|
|
|
2,611 |
|
|
|
1,392,423 |
|
| |
|
Operating income (loss)
|
|
|
143,996 |
|
|
|
56,193 |
|
|
|
19,271 |
|
|
|
(134,529 |
) |
|
|
84,931 |
|
| |
As a % of revenue
|
|
|
15.6 |
% |
|
|
13.8 |
% |
|
|
33.1 |
% |
|
|
N/A |
|
|
|
6.1 |
% |
| |
|
Depreciation and amortization
|
|
|
5,141 |
|
|
|
8,846 |
|
|
|
1,318 |
|
|
|
11,410 |
|
|
|
26,715 |
|
|
Assets
|
|
|
235,382 |
|
|
|
245,301 |
|
|
|
171,560 |
|
|
|
311,310 |
|
|
|
963,553 |
|
|
Capital expenditures
|
|
|
3,786 |
|
|
|
50,036 |
|
|
|
752 |
|
|
|
18,398 |
|
|
|
72,972 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Corporate | |
|
|
| |
|
|
|
|
|
Financial | |
|
Overhead | |
|
|
| 2002 |
|
Direct | |
|
Retail | |
|
Services | |
|
and Other | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Dollars in thousands |
|
|
|
|
|
|
|
|
|
|
|
Revenue from external
|
|
$ |
866,343 |
|
|
$ |
303,541 |
|
|
$ |
46,387 |
|
|
$ |
8,310 |
|
|
$ |
1,224,581 |
|
|
Revenue from internal
|
|
|
1,456 |
|
|
|
2,250 |
|
|
|
— |
|
|
|
(3,706 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total revenue
|
|
|
867,799 |
|
|
|
305,791 |
|
|
|
46,387 |
|
|
|
4,604 |
|
|
|
1,224,581 |
|
| |
|
Operating income (loss)
|
|
|
134,011 |
|
|
|
41,428 |
|
|
|
12,949 |
|
|
|
(112,387 |
) |
|
|
76,001 |
|
| |
As a % of revenue
|
|
|
15.4 |
% |
|
|
13.5 |
% |
|
|
27.9 |
% |
|
|
N/A |
|
|
|
6.2 |
% |
| |
|
Depreciation and amortization
|
|
|
4,735 |
|
|
|
6,505 |
|
|
|
2,610 |
|
|
|
9,689 |
|
|
|
23,539 |
|
|
Assets
|
|
|
230,527 |
|
|
|
201,963 |
|
|
|
128,189 |
|
|
|
274,289 |
|
|
|
834,968 |
|
|
Capital expenditures
|
|
|
3,242 |
|
|
|
28,245 |
|
|
|
6,290 |
|
|
|
15,610 |
|
|
|
53,387 |
|
The components and amounts of net revenues for our financial
services business for 2004, 2003 and 2002 were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
INTEREST AND FEE INCOME
|
|
$ |
12,735 |
|
|
$ |
7,858 |
|
|
$ |
5,284 |
|
|
INTEREST EXPENSE
|
|
|
(3,063 |
) |
|
|
(3,226 |
) |
|
|
(3,474 |
) |
| |
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME
|
|
|
9,672 |
|
|
|
4,632 |
|
|
|
1,810 |
|
|
NON-INTEREST INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Securitization income
|
|
|
96,466 |
|
|
|
74,472 |
|
|
|
60,727 |
|
| |
Other non-interest income
|
|
|
24,905 |
|
|
|
19,050 |
|
|
|
14,979 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total non-interest income
|
|
|
121,371 |
|
|
|
93,522 |
|
|
|
75,706 |
|
| |
Less: Customer rewards costs
|
|
|
(52,939 |
) |
|
|
(39,876 |
) |
|
|
(31,129 |
) |
| |
|
|
|
|
|
|
|
|
|
|
FINANCIAL SERVICES REVENUE
|
|
$ |
78,104 |
|
|
$ |
58,278 |
|
|
$ |
46,387 |
|
| |
|
|
|
|
|
|
|
|
|
The Company’s products are principally marketed to
individuals within the United States. Net sales realized from
other geographic markets, primarily Canada, have collectively
been less than 1% of consolidated net sales in each reported
period. No single customer accounted for ten percent or more of
consolidated net sales. No single product or service accounts
for a significant percentage of the Company’s consolidated
revenue.
99
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Cabela’s Incorporated and Subsidiaries
Sidney, Nebraska
We have audited the consolidated financial statements of
Cabela’s Incorporated and Subsidiaries (the
“Company”) as of January 1, 2005 and
January 3, 2004, and for each of the three years in the
period ended January 1, 2005, and have issued our report
thereon dated March 18, 2005; such report is included
elsewhere in this Form 10-K. Our audits also included the
financial statement schedule of the Company listed in
Item 15. This financial statement schedule is the
responsibility of the Company’s management. Our
responsibility is to express an opinion based on our audits. In
our opinion, this financial statement schedule, when considered
in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set
forth therein.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 18, 2005
100
CABELA’S INCORPORATED AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Beginning | |
|
Charged to | |
|
Charged to | |
|
Net | |
|
End of | |
| |
|
of Year | |
|
Costs and | |
|
Other | |
|
Charge- | |
|
Year | |
| |
|
Balance | |
|
Expenses | |
|
Accounts | |
|
Offs | |
|
Balance | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
YEAR ENDED JANUARY 1, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for doubtful accounts
|
|
$ |
1,894 |
|
|
$ |
(404 |
) |
|
$ |
(7 |
) |
|
$ |
(411 |
) |
|
$ |
1,483 |
|
| |
Allowance for credit card receivable loan losses
|
|
$ |
— |
|
|
$ |
65 |
|
|
$ |
— |
|
|
$ |
65 |
|
|
$ |
65 |
|
|
YEAR ENDED JANUARY 3, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for doubtful accounts
|
|
$ |
693 |
|
|
$ |
1,374 |
|
|
$ |
(173 |
) |
|
$ |
1,201 |
|
|
$ |
1,894 |
|
|
YEAR ENDED DECEMBER 28, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for doubtful accounts
|
|
$ |
468 |
|
|
$ |
153 |
|
|
$ |
72 |
|
|
$ |
225 |
|
|
$ |
693 |
|
101
|
|
| ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE |
None.
|
|
| ITEM 9A. |
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures and Related
CEO and CFO Certifications
We conducted an evaluation of the effectiveness of the design
and operation of our “disclosure controls and
procedures” (“Disclosure Controls”) as of the end
of the period covered by this Form 10-K (the
“Evaluation”). The Evaluation was conducted under the
supervision and with the participation of management, including
our President and Chief Executive Officer (“CEO”) and
Chief Financial Officer (“CFO”). Based on the
Evaluation, our CEO and CFO concluded that our Disclosure
Controls are effective in timely alerting them to material
information required to be included in our periodic SEC reports.
Attached as exhibits to this Form 10-K are certifications
of the CEO and the CFO, which are required in accordance with
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). This “Controls and
Procedures” section includes the information concerning the
Evaluation referred to in the certifications, and it should be
read in conjunction with the certifications for a more complete
understanding of the topics presented.
Changes in Internal Controls
There has not been any change in our internal control over
financial reporting that occurred during the quarter ended
January 1, 2005 that has materially affected, or is
reasonably likely to materially affect, those controls.
|
|
| ITEM 9B. |
OTHER INFORMATION |
None.
PART III
|
|
| ITEM 10. |
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
The information under the headings
“Proposal One — Election of Directors,”
“Executive Officers of the Company,” “Corporate
Governance — Committees of the Board of
Directors — Audit Committee,” and
“Section 16 (a) Beneficial Ownership Reporting
Compliance,” in our Proxy Statement relating to our 2005
Annual Meeting of Stockholders (our “Proxy Statement”)
is incorporated herein by reference. With the exception of the
foregoing information and other information specifically
incorporated by reference into this Form 10-K Report, our
Proxy Statement is not being filed as a part hereof.
We have adopted a Code of Ethics that applies to our senior
officers, including specifically our Chief Executive Officer,
our Chief Financial Officer, and our Director of Accounting. We
have also adopted a general business code of conduct and ethics
that applies to all of our directors, officers and employees.
These codes are both posted on our website, which is located at
www.cabelas.com. Stockholders may request a free copy of either
of such items in print form by writing to Secretary,
Cabela’s, One Cabela Drive, Sidney, NE 69160. We intend to
satisfy the disclosure requirement under Item 5.05 of
Form 8-K regarding any amendment to, or waiver from, a
provision of the Code of Ethics by posting such information on
our website at the address specified above. Similarly, we expect
to disclose to stockholders any waiver of the business code of
conduct and ethics for executive officers or directors by
posting such information on our website at the address specified
above. Information contained on our website, whether currently
posted or posted in the future, is not part of this document or
the documents incorporated by reference in this document.
102
|
|
| ITEM 11. |
EXECUTIVE COMPENSATION |
The information under the heading “Executive
Compensation” and “Corporate Governance —
Director Compensation” in our Proxy Statement is
incorporated herein by reference; provided however, that the
information under the heading “Executive
Compensation — Compensation Committee Report on
Executive Compensation” in our Proxy Statement is not
incorporated herein by reference.
|
|
| ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT |
The information under the headings “Security Ownership of
Certain Beneficial Owners and Management” and
“Executive Compensation — Equity Compensation
Plan Information as of Fiscal Year End” in our Proxy
Statement is incorporated herein by reference.
|
|
| ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
The information under the headings “Certain Relationships
and Related Transactions” in our Proxy Statement is
incorporated herein by reference.
|
|
| ITEM 14. |
PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information under the heading
“Proposal Two — Ratification of Independent
Public Accountants,” in our Proxy Statement is incorporated
herein by reference.
PART IV
|
|
| ITEM 15. |
EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
(a) The following documents are filed as part of this
report:
1. Financial Statements:
|
|
| |
Consolidated Statements of Income — Years ended
January 1, 2005, January 3, 2004, December 28,
2002 |
| |
| |
Consolidated Balance Sheets — January 1, 2005 and
January 3, 2004 |
| |
| |
Consolidated Statements of Cash Flows — Years ended
January 1, 2005, January 3, 2004, December 28,
2002 |
| |
| |
Consolidated Statements of Stockholders’ Equity —
Years ended January 1, 2005, January 3, 2004,
December 28, 2002 |
| |
| |
Notes to Consolidated Financial Statements. |
| |
| |
Report of Independent Registered Public Accounting Firm |
2. Financial Statement Schedules:
|
|
| |
Schedule II — Valuation and Qualifying Accounts. |
All other schedules for which provision is made in the
applicable accounting regulations of the SEC are not required
under the related instructions or are inapplicable and,
therefore, have been omitted.
103
3. Exhibits: See Item 15(b) below.
(b) Exhibits
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Exhibit Description |
| |
|
|
| |
3 |
.1 |
|
Amended and Restated Certificate of Incorporation of
Cabela’s Incorporated (incorporated by reference from
Exhibit 3.1 to our Quarterly Report on Form 10-Q for the
quarterly period ended July 3, 2004) |
| |
| |
3 |
.2 |
|
Amended and Restated Bylaws of Cabela’s Incorporated
(incorporated by reference from Exhibit 3.2 to our
Quarterly Report on Form 10-Q for the quarterly period ended
July 3, 2004) |
| |
| |
4 |
.1 |
|
Specimen Stock Certificate (incorporated by reference from
Exhibit 4.1 of our Registration Statement on Form S-1,
filed on March 23, 2004, Registration No. 333-113835) |
| |
| |
4 |
.2 |
|
Registration Rights Agreement, dated as of September 23,
2003, among Cabela’s Incorporated and the security holders
named therein (incorporated by reference from Exhibit 4.2
of our Registration Statement on Form S-1, filed on
March 23, 2004, Registration No. 333-113835) |
| |
| |
4 |
.3 |
|
Form of 4.95% Senior Note Due September 2009
(incorporated by reference from Exhibit 4.3 of our
Registration Statement on Form S-1, filed on March 23,
2004, Registration No. 333-113835) |
| |
| |
4 |
.4 |
|
Form of 8.79% Senior Note, Series A, Due January 2007
(incorporated by reference from Exhibit 4.4 of our
Registration Statement on Form S-1, filed on March 23,
2004, Registration No. 333-113835) |
| |
| |
4 |
.5 |
|
Form of 9.01% Senior Note, Series B, Due January 2007
(incorporated by reference from Exhibit 4.5 of our
Registration Statement on Form S-1, filed on March 23,
2004, Registration No. 333-113835) |
| |
| |
4 |
.6 |
|
Form of 9.19% Senior Note, Series C, Due January 2010
(incorporated by reference from Exhibit 4.6 of our
Registration Statement on Form S-1, filed on March 23,
2004, Registration No. 333-113835) |
| |
| |
4 |
.7 |
|
Note Purchase Agreement dated as of September 5, 2002,
among Cabela’s Incorporated and various purchasers party
thereto (incorporated by reference from Exhibit 4.7 of our
Registration Statement on Form S-1, filed on March 23,
2004, Registration No. 333-113835) |
| |
| |
4 |
.8 |
|
Note Purchase Agreement, dated as of January 1, 1995, among
Cabela’s Incorporated and various purchasers party thereto
(incorporated by reference from Exhibit 4.8 of our
Registration Statement on Form S-1, filed on March 23,
2004, Registration No. 333-113835) |
| |
| |
4 |
.9 |
|
Amendment No. 1 to Note Agreements dated as of
January 1, 1995, among Cabela’s Incorporated and
various purchasers party thereto (incorporated by reference from
Exhibit 4.9 of our Registration Statement on Form S-1,
filed on March 23, 2004, Registration No. 333-113835) |
| |
| |
4 |
.10 |
|
Amendment No. 2 to Note Agreements dated as of
January 1, 1995, among Cabela’s Incorporated and
various purchasers party thereto (incorporated by reference from
Exhibit 4.10 of our Registration Statement on
Form S-1, filed on March 23, 2004, Registration
No. 333-113835) |
| |
| |
4 |
.11 |
|
Amendment No. 3 to Note Agreements dated as of
January 1, 1995, among Cabela’s Incorporated and
various purchasers party thereto (incorporated by reference from
Exhibit 4.11 of our Registration Statement on
Form S-1, filed on March 23, 2004, Registration
No. 333-113835) |
| |
| |
4 |
.12 |
|
Amendment No. 4 to Note Agreements dated as of
January 1, 1995, among Cabela’s Incorporated and
various purchasers party thereto (incorporated by reference from
Exhibit 4.12 of our Registration Statement on
Form S-1, filed on March 23, 2004, Registration
No. 333-113835) |
| |
| |
4 |
.13 |
|
Amendment No. 5 to Note Agreements dated as of
January 1, 1995, among Cabela’s Incorporated and
various purchasers party thereto (incorporated by reference from
Exhibit 4.13 of our Registration Statement on
Form S-1, filed on March 23, 2004, Registration
No. 333-113835) |
| |
| |
10 |
.1 |
|
Executive Employment Agreement, dated as of January 4,
2004, among Cabela’s Incorporated and Richard N. Cabela
(incorporated by reference from Exhibit 10.1 of our
Registration Statement on Form S-1, filed on March 23,
2004, Registration No. 333-113835)* |
| |
| |
10 |
.2 |
|
Executive Employment Agreement, dated as of January 4,
2004, among Cabela’s Incorporated and James W. Cabela
(incorporated by reference from Exhibit 10.2 of our
Registration Statement on Form S-1, filed on March 23,
2004, Registration No. 333-113835)* |
104
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Exhibit Description |
| | |
|
|
| |
| |
10 |
.3 |
|
Employee and Office Space Lease Agreement, dated as of
January 1, 2004, among Cabela’s Incorporated and
Richard N. Cabela (incorporated by reference from
Exhibit 10.3 of our Registration Statement on
Form S-1, filed on March 23, 2004, Registration
No. 333-113835) |
| |
| |
10 |
.4 |
|
Stock Redemption Agreement, dated as of September 23, 2003,
among Cabela’s Incorporated and James W. Cabela and an
affiliated party and Richard N. Cabela and his affiliates
(incorporated by reference from Exhibit 10.4 of our
Registration Statement on Form S-1, filed on March 23,
2004, Registration No. 333-113835) |
| |
| |
10 |
.5 |
|
Stock Purchase Agreement, dated as of September 23, 2003,
among Cabela’s Incorporated and the security holders named
therein (incorporated by reference from Exhibit 10.5 of our
Registration Statement on Form S-1, filed on March 23,
2004, Registration No. 333-113835) |
| |
| |
10 |
.6 |
|
1997 Stock Option Plan (incorporated by reference from
Exhibit 10.6 of our Registration Statement on
Form S-1, filed on March 23, 2004, Registration
No. 333-113835)* |
| |
| |
10 |
.7 |
|
First Amendment to 1997 Stock Option Plan (incorporated by
reference from Exhibit 10.7 of our Registration Statement
on Form S-1, filed on March 23, 2004, Registration
No. 333-113835)* |
| |
| |
10 |
.8 |
|
Second Amendment to 1997 Stock Option Plan (incorporated by
reference from Exhibit 10.8 of our Registration Statement
on Form S-1, filed on March 23, 2004, Registration
No. 333-113835)* |
| |
| |
10 |
.9 |
|
Third Amendment to 1997 Stock Option Plan (incorporated by
reference from Exhibit 10.9 of our Registration Statement
on Form S-1, filed on March 23, 2004, Registration
No. 333-113835)* |
| |
| |
10 |
.10 |
|
Fourth Amendment to 1997 Stock Option Plan (incorporated by
reference from Exhibit 10.9.1 of our Registration Statement
on Form S-1, filed on March 23, 2004, Registration
No. 333-113835)* |
| |
| |
10 |
.11 |
|
Form of 1997 Employee Stock Option Agreement (incorporated by
reference from Exhibit 10.10 of our Registration Statement
on Form S-1, filed on March 23, 2004, Registration
No. 333-113835)* |
| |
| |
10 |
.12 |
|
Form of Employee Stock Purchase Agreement (incorporated by
reference from Exhibit 10.11 of our Registration Statement
on Form S-1, filed on March 23, 2004, Registration
No. 333-113835)* |
| |
| |
10 |
.13 |
|
2004 Stock Plan (incorporated by reference from
Exhibit 10.12 of our Registration Statement on
Form S-1, filed on March 23, 2004, Registration
No. 333-113835)* |
| |
| |
10 |
.14 |
|
Form of 2004 Employee Stock Option Agreement (incorporated by
reference from Exhibit 10.13 of our Registration Statement
on Form S-1, filed on March 23, 2004, Registration
No. 333-113835)* |
| |
| |
10 |
.15 |
|
2004 Employee Stock Purchase Plan (incorporated by reference
from Exhibit 10.14 of our Registration Statement on
Form S-1, filed on March 23, 2004, Registration
No. 333-113835)* |
| |
| |
10 |
.16 |
|
Amended and Restated Credit Agreement, dated as of May 6,
2004, among Cabela’s Incorporated, various lenders party
thereto, and U.S. Bank National Association as Agent
(incorporated by reference from Exhibit 10.15 of our
Registration Statement on Form S-1, filed on March 23,
2004, Registration No. 333-113835) |
| |
| |
10 |
.17 |
|
Amended and Restated Intercreditor Agreement dated as of
September 5, 2002, among Cabela’s Incorporated,
various lenders party thereto and various note holders party
thereto (incorporated by reference from Exhibit 10.16 of
our Registration Statement on Form S-1, filed on
March 23, 2004, Registration No. 333-113835) |
| |
| |
10 |
.18 |
|
Form of Indemnification Agreement (incorporated by reference
from Exhibit 10.18 of our Registration Statement on
Form S-1, filed on March 23, 2004, Registration
No. 333-113835)* |
| |
| |
10 |
.19 |
|
Form of Management Change of Control Severance Agreement
(incorporated by reference from Exhibit 10.19 of our
Registration Statement on Form S-1, filed on March 23,
2004, Registration No. 333-113835)* |
| |
| |
10 |
.20 |
|
Restated Bonus Plan (incorporated by reference from
Exhibit 10.20 of our Registration Statement on
Form S-1, filed on March 23, 2004, Registration
No. 333-113835)* |
| |
| |
10 |
.21 |
|
Cabela’s Incorporated Third Amended and Restated Deferred
Compensation Plan, as amended (incorporated by reference from
Exhibit 10.1 of our Current Report on Form 8-K, filed on
March 1, 2005 (File No. 001-32227))* |
| |
| |
10 |
.22 |
|
Summary of Non-Employee Director Compensation (incorporated by
reference from Exhibit 10.1 of our Current Report on Form
8-K, filed on December 27, 2004 (File No. 001-32227))* |
105
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Exhibit Description |
| | |
|
|
| |
| |
10 |
.23 |
|
Summary of Compensation to our Named Executive Officers* |
| |
| |
21 |
.1 |
|
Subsidiaries of Cabela’s Incorporated |
| |
| |
23 |
.1 |
|
Consent of Deloitte & Touche LLP |
| |
| |
31 |
.1 |
|
Certification of CEO Pursuant to 13a-14(a) under the Exchange Act |
| |
| |
31 |
.2 |
|
Certification of CFO Pursuant to Rule 13a-14(a) under the
Exchange Act |
| |
| |
32 |
.1 |
|
Certifications Pursuant to 18 U.S.C. Section 1350 |
|
|
| * |
indicates management contract or compensatory plan or
arrangement required to be filed as exhibits pursuant to
Item 15(b) of this report. |
(c) Financial Statement Schedules. See Item 15(a)
above.
106
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
| |
|
|
| |
|
CABELA’S INCORPORATED |
| |
|
Dated: March 18, 2005
|
|
By: /s/ Dennis Highby
Dennis
Highby
President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
| |
|
|
|
|
|
|
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
| |
/s/ Dennis Highby
Dennis
Highby |
|
President, Chief Executive Officer and Director (Principal
Executive Officer) |
|
March 18, 2005 |
| |
/s/ Ralph W. Castner
Ralph
W. Castner |
|
Vice President and Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer) |
|
March 18, 2005 |
| |
/s/ Richard N. Cabela
Richard
N. Cabela |
|
Chairman of the Board and Director |
|
March 18, 2005 |
| |
/s/ James W. Cabela
James
W. Cabela |
|
Vice-Chairman of the Board
and Director |
|
March 18, 2005 |
| |
/s/ Gerald E. Matzke
Gerald
E. Matzke |
|
Director |
|
March 18, 2005 |
| |
/s/ Michael R. McCarthy
Michael
R. McCarthy |
|
Director |
|
March 18, 2005 |
| |
/s/ Reuben Mark
Reuben
Mark |
|
Director |
|
March 18, 2005 |
| |
/s/ John Gottschalk
John
Gottschalk |
|
Director |
|
March 18, 2005 |
| |
/s/ Theodore M. Armstrong
Theodore
M. Armstrong |
|
Director |
|
March 18, 2005 |
107