Print Page  Close Window

SEC Filings

10-K
CABELAS INC filed this Form 10-K on 02/20/2013
Entire Document
 << Previous Page | Next Page >>
CAB-2012.12.29.12-10K



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
Form 10-K
_________________
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 2012
OR

o 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)
 
Delaware
 
20-0486586
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification Number)
 
 
 
One Cabela Drive, Sidney, Nebraska
 
69160
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (308) 254-5505
Securities registered pursuant to Section 12 (b) of the Act:
 
Title of each class
 
Name of each exchange on which registered
Class A Common Stock, par value $0.01 per share
New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x
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 x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x 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. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   x
Accelerated filer  o
Non-accelerated filer    o (Do not check if a smaller reporting company)         
Smaller reporting company   o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The aggregate market value of the voting common equity held by non-affiliates of the registrant was approximately $1,540,238,195 as of June 29, 2012 (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.
 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Common stock, $0.01 par value: 70,056,514 shares as of February 11, 2013.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
     Portions of the registrant’s definitive Proxy Statement for the 2013 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K to the extent stated herein.




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 within the meaning of the Private Securities Litigation Reform Act.  The words “believe,” “may,” “should,” “anticipate,” “estimate,” “expect,” “intend,” “objective,” “seek,” “plan,” and similar statements are intended to identify 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 state of the economy and the level of discretionary consumer spending, including changes in consumer preferences and demographic trends;
adverse changes in the capital and credit markets or the availability of capital and credit;
our ability to successfully execute our omni-channel strategy;
increasing competition in the outdoor sporting goods industry and for credit card products and reward programs;
the cost of our products, including increases in fuel prices;
the availability of our products due to political or financial instability in countries where the goods we sell are manufactured;
supply and delivery shortages or interruptions, and other interruptions or disruptions to our systems, processes, or controls, caused by system changes or other factors;
increased or adverse government regulations, including regulations relating to firearms and ammunition;
our ability to protect our brand, intellectual property, and reputation;
the outcome of litigation, administrative, and/or regulatory matters (including a Commissioner's charge we received from the Chair of the U. S. Equal Employment Opportunity Commission ("EEOC") in January 2011);
our ability to manage credit, liquidity, interest rate, operational, legal, regulatory capital, and compliance risks;
our ability to increase credit card receivables while managing credit quality;
our ability to securitize our credit card receivables at acceptable rates or access the deposits market at acceptable rates;
the impact of legislation, regulation, and supervisory regulatory actions in the financial services industry, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Reform Act"); and
other risks, relevant factors, and uncertainties identified in the "Risk Factors" section of this report.
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.
 



2



CABELA’S INCORPORATED
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 29, 2012
TABLE OF CONTENTS


PART I
Page

 
 
 
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
 
 
 
PART II
 
 
 
 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
 
 
 
PART III
 

Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
 
 
 
PART IV
 

Item 15.
Exhibits, Financial Statement Schedules
 
 
 
SIGNATURES



3



PART I

ITEM 1. BUSINESS
 
Overview
We are a leading specialty retailer, and the world’s largest direct marketer, 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 world. We have long been recognized as the “World’s Foremost Outfitter®.” Through our growing number of retail stores, and our well-established direct business, we believe we offer the widest and most distinctive selection of high-quality outdoor products at competitive prices, while providing superior customer service. We also issue the Cabela’s CLUB® Visa credit card, which serves as our primary customer loyalty rewards program. Refer to Note 24 entitled “Segment Reporting” 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 and Direct businesses, as well as our Financial Services business.
We were initially incorporated as a Nebraska corporation in 1965 and were reincorporated as a Delaware corporation in January 2004. In June 2004, we completed our initial public offering of common stock. Our common stock is listed on the New York Stock Exchange under the symbol “CAB”.
Retail Business
At the end of 2012, we operated 40 retail stores, 37 stores in 24 states and three stores in Canada. During 2012, we opened six retail stores - Wichita, Kansas; Tulalip, Washington; Saskatoon, Saskatchewan, Canada; Charleston, West Virginia; Rogers, Arkansas; and, on October 4, 2012, our first Outpost store in Union Gap, Washington. The opening of these retail stores increased our total retail square footage to 5.1 million square feet at the end of 2012, up 9.8% over 2011. Our Retail segment generated revenue of $1.8 billion in 2012, representing 66.5% of total revenue combined from our Retail and Direct businesses. 
Customer Relations. In order to better serve our customers, we continue to advance our efforts to offer customers integrated opportunities to access and use our retail store, Internet channels, and catalog. Customer service venues include in-store pick-up for Internet website orders, in-store Internet kiosks, and catalog order desks. Our in-store kiosks provide our customers access to our entire inventory assortment, allowing customers to place orders for items that may be out of stock in our retail stores or to purchase items only available on our Internet site. Our in-store pick-up program allows customers to order products through our catalogs and Internet site and have them delivered to the retail store of their choice without incurring shipping costs, increasing foot traffic in our stores. Conversely, our retail stores introduce customers to our Internet and catalog channels. Our omni-channel model employs the same merchandising team, distribution centers, customer database, and infrastructure, which we intend to further leverage by building on the strengths of each channel.
Retail Store Formats. Our retail store concept is designed to appeal to customers from a broad geographic and demographic range. Our retail stores range in size from 40,000 to 246,000 square feet. Our large-format retail stores ("legacy" stores) are 150,000 square feet or larger and provide a tourist-type setting, often attracting the construction and development of hotels, restaurants, and other retail establishments in areas adjacent to these stores.    
Our next-generation store format, with more standardized store sizes, expedites store development time and allows us to pursue the best retail locations, is adaptable to more markets, improves time to market, and allows us to be more efficient in our operations by reducing our capital investment requirements and increasing sales per square foot. Our next-generation stores range in size from approximately 70,000 to 100,000 square feet. Our next-generation store format improves our return on invested capital and better serves our customers by providing shopper-friendly layouts with regionalized product mixes, concept shops, and new product displays and fixtures with enhanced features. The exterior of our next-generation stores reflects our traditional store model.
We have also developed a new "Outpost" store format due to the success of our next-generation stores. Our new Outpost store format will be approximately 40,000 square feet in size and have a "core-flex" merchandise strategy (selected core assortment of products and flexible seasonal merchandise). Our Outpost store format will allow us to effectively serve smaller markets with a large concentration of Cabela's customers and is in addition to our next-generation format. We opened our first Outpost store on October 4, 2012, in Union Gap, Washington, with results exceeding our expectations.

4



Retail Store Expansion Strategy. Enhancing our retail store efficiencies and taking the necessary steps to improve our financial performance are high priorities in our strategic planning. We focus new-store growth where we are strongest with new stores strategically sized to match their markets. We continually review our previously announced stores to reconfirm our expectations based on what we have learned over the past year. The next-generation stores generate more profit per square foot compared to the legacy store base and allow us to enter additional markets. We opened six retail stores during 2012, compared to three in 2011, bringing our total retail store square footage to 5.1 million square feet, an increase of 9.8% compared to the end of 2011.
We have also announced plans to open additional retail stores as follows:
in 2013, seven next-generation stores located in Columbus, Ohio; Grandville, Michigan; Louisville, Kentucky; Green Bay, Wisconsin; Thornton, Colorado; Lone Tree, Colorado; and Regina, Saskatchewan, Canada; as well as two Outpost stores located in Saginaw, Michigan; and Waco, Texas; and     
in 2014, five next-generation stores located in Christiana, Delaware; Greenville, South Carolina; Anchorage, Alaska; Woodbury, Minnesota; and Bristol, Virginia.
We will be relocating our existing 44,000 square foot Winnipeg, Manitoba, store in the second quarter of 2013 to a more desirable location and increasing the size to 70,000 square feet. We have also announced plans to open an Outpost store in Kalispell, Montana, at a date yet to be determined. Looking to 2013, we expect to increase retail square footage up to 13% over 2012, as well as generate an increase in profit per square foot compared to the legacy store base, with the planned openings of these next-generation and Outpost stores.
Store Locations and Ownership. Of our 40 retail stores, we own 31, with two stores subject to ground leases. 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. Refer to Item 2 – “Properties” for additional information on our stores.
Direct Business
The Direct segment sells products through our e-commerce websites (Cabelas.com and Cabelas.ca) and direct mail catalogs. Our Direct segment generated revenue of $931 million in 2012, representing 33.5% of total revenue combined from our Retail and Direct businesses.
Direct Business Marketing. We market our products through our website and print catalog distributions. We recognize that the catalog business is mature and that mobile marketing and social networking are having an increasingly important focus for us. With new technologies, we believe mobile marketing and social networking will build our brand, build our customer databases, and enhance the management of contacts with our customers. Our website is a cost-effective medium designed to offer a convenient, highly visual, user-friendly, and secure online shopping option for new and existing customers. In addition to the ability to order the same products available in our catalogs, our website gives customers the ability to review product information, purchase gift certificates, research general information on the outdoor lifestyle and outdoor activities, purchase rare and highly specialized merchandise, and choose from other services we provide.
Our digital transformation continues with efforts around enhancing our Internet website to support the Direct business.  Cabelas.com continues to be the most visited website in the sporting goods industry according to Hitwise, Inc., an online measurement company.  The amount of traffic now coming through mobile devices is growing significantly.  As a result, we continue to utilize best-in-class technology to improve our customers' digital shopping experience and build on the advances we have made to capitalize on the variety of ways customers are shopping at Cabela's today.  We have seen early successes in our social marketing initiatives and now have over 2.2 million fans on Facebook.  Our omni-channel marketing efforts are resulting in increased customer engagement across multiple channels and a more consistent experience across all channels. Our goal is to create a digital presence that mirrors our customers' in-store shopping experience. Also in January 2013, we opened an office in Westminster, Colorado, to attract high quality talent to improve our website, social media, and mobile applications.
We use our customer database to ensure that customers receive catalogs matching their merchandise preferences, to identify new customers, and to cross-sell merchandise to existing customers. Many of our customers read and browse our catalogs, but purchase merchandise and services through our website and retail stores. We use the catalogs to prompt customers to go to retail stores and the Internet or to our call centers to place orders directly. We also utilize our marketing knowledge base to determine optimal circulation strategies to control our catalog costs while continuing to grow our merchandising business.

5



Catalog Distributions. We have been marketing our products through our print catalog distributions to our customers and potential customers for over 50 years. We believe that our catalog distributions have been one of the primary drivers of the growth of our brand over the years and serve as an important marketing tool for our Retail business. In 2012, we mailed more than 132 million catalogs to all 50 states and to more than 175 countries and territories. Our master catalogs offer a broad range of products while our specialty and micro-season catalogs offer products focused on one outdoor activity, such as fly fishing, archery, or waterfowl, or one product category, such as women’s clothing.
 
Our direct marketing processes have been heavily driven via the catalog production cycle and most of our current marketing efforts are event based and heavily focused towards print media. Changing to a more customer centric focus will allow us to better exploit on-line engagement opportunities, embrace new marketing strategies, and bring synergies to the Internet channel which inherently has quick-to-market attributes that we have not fully capitalized on. Our goal is to continue to fine tune our catalogs, as well as the number of pages and product mix in each, in order to improve the profitability of each title. We want to create steady, profitable growth in our direct channels, while reducing marketing expenses and significantly increasing the percentage of market share we capture through the Internet.

Financial Services Business
  
Through our wholly-owned bank subsidiary, World’s Foremost Bank ("WFB," "Financial Services segment," or "Cabela's CLUB"), we issue and manage the Cabela’s CLUB Visa credit card, a rewards based credit card program. We believe the Cabela’s CLUB Visa credit card loyalty rewards program is an effective vehicle for strengthening our relationships with our customers, enhancing our brand name, and increasing our merchandise revenue. Our rewards program is a simple loyalty program that allows customers to earn points whenever and wherever they use their Cabela’s CLUB Visa credit card and then redeem earned points for products and services at our retail stores or through our Direct business. Our rewards program is integrated into our store point-of-sale system. Our customers are informed of their number of accumulated points when making purchases at our stores or ordering through our Direct business. The percentage of our merchandise sold to customers using the Cabela’s CLUB Visa credit card, including the redemption of points, approximated 29% for 2012. The primary purpose of our Financial Services segment is to provide customers with a rewards program that will enhance revenue, profitability, and customer loyalty in our Retail and Direct businesses.

Our bank subsidiary is a Federal Deposit Insurance Corporation ("FDIC") insured, special purpose, Nebraska state-chartered bank. Our bank’s charter limits us to issuing consumer credit cards and certificates of deposit of one hundred thousand dollars or more. Our bank does not accept demand deposits or make non-credit card loans. During 2012, we had an average of 1,537,209 active credit card accounts with an average balance of $2,014 compared to an average of 1,416,887 active credit card accounts with an average balance of $1,937 during 2011.
 
Cabela's CLUB Marketing. We have a low cost, efficient, and tailored credit card marketing program that leverages the Cabela’s brand name. We market the Cabela’s CLUB Visa credit card through a number of channels, including retail stores, inbound telemarketing, catalogs, and the Internet. Our customers can apply for the Cabela's CLUB Visa credit card at our retail stores and website through our instant credit process and, if approved, receive reward points available for use on merchandise purchases the same day. When a customer’s application is approved through the retail store instant credit process, the customer’s new credit card is produced and given to the customer immediately thereafter. Maintaining the growth of our credit card program, while continuing to underwrite high-quality customers, actively manage our credit card delinquencies and charge-offs, and provide exclusive experiences is key to the successful performance of our Financial Services segment. The growth of Cabela's CLUB program is dependent, in part, on the success of our Retail and Direct businesses to generate additional sales and to attract additional Financial Services customers.
 
Underwriting and Credit Criteria. We underwrite high-quality credit customers and have historically maintained attractive credit statistics compared to industry averages. The scores of Fair Isaac Corporation (“FICO”) are a widely-used tool for assessing a person’s credit rating. During the second quarter of 2012, the Financial Services segment incorporated a newer version of FICO that utilizes the same factors as the previous scoring model, but is more sensitive to utilization of available credit, delinquencies considered serious and frequent, and maintenance of various types of credit. Management of the Financial Services segment believes the newer version will enable us to improve our risk management decisions. The newer version FICO score resulted in a slightly higher median score of our credit cardholders, which was 793 at the end of 2012 compared to 788 at the end of 2011. We believe the median FICO scores of our cardholders are well above the industry average. Our charge-offs as a percentage of total outstanding balances were 1.87% in 2012, which we believe is well below the 2012 industry average.
 

6



The table below presents data on the performance of our credit card portfolio comparing the last three years and illustrates the high credit quality of our credit card portfolio. The following table shows delinquencies, including any delinquent non-accrual and restructured credit card loans, and charge-offs, including any accrued interest and fees, as a percentage of our average credit card loans:
 
 
2012
 
2011
 
2010
 
 
 
 
 
 
 
Delinquencies greater than 30 days
 
0.72
%
 
0.87
%
 
1.13
%
Gross charge-offs
 
2.46

 
3.03

 
4.88

Charge-offs, net of recoveries
 
1.87

 
2.35

 
4.23

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 assortment includes merchandise and equipment for hunting, fishing, marine use, and camping, along with casual and outdoor apparel and footwear, optics, vehicle accessories, and gifts and home furnishings with an outdoor theme.

The following table sets forth the percentage of our merchandise revenue contributed by major product categories for our Retail and Direct segments and in total for the last three years.
 
 
 
Retail
 
Direct
 
Total
 
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
Product Category:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hunting Equipment
 
49.5
%
 
45.7
%
 
44.5
%
 
37.1
%
 
33.4
%
 
33.7
%
 
45.3
%
 
41.1
%
 
40.2
%
General Outdoors
 
28.7

 
30.7

 
31.5

 
32.0

 
32.7

 
32.9

 
29.8

 
31.5

 
32.1

Clothing and Footwear
 
21.8

 
23.6

 
24.0

 
30.9

 
33.9

 
33.4

 
24.9

 
27.4

 
27.7

Total
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
Hunting Equipment. The hunting equipment merchandise category includes a wide variety of firearms, ammunition, optics, archery products, and related accessories and supplies. We provide equipment, accessories, and consumable supplies for almost every type of hunting and sport shooting. Our hunting equipment products are supported by in-house services such as gun bore sighting, scope mounting, and bow tuning to serve the complete needs of our customers.

General Outdoors. The general outdoors merchandise category includes a full range of equipment and accessories supporting all outdoor activities, including all types of fishing and tackle products, boats and marine equipment, camping gear and equipment, food preparation and outdoor cooking products, all-terrain vehicles and accessories for automobiles and all-terrain vehicles, and gifts and home furnishings. We provide products for fresh water fishing, fly-fishing, salt water fishing, and ice-fishing. In addition, we feature a wide selection of electronics, boats and accessories, canoes, kayaks, and other flotation accessories. We provide a diverse selection of camping gear and equipment for various experience levels of outdoor enthusiasts and offer a full range of equipment and accessories supporting other outdoor activities, including food preparation, outdoor cooking, travel, and outdoor living. Our gifts merchandise includes games, food assortments, books, jewelry, and art with outdoor themes. Home furnishings merchandise includes furnishings and accents with outdoor themes for the home and cabin.
 Clothing and Footwear. The clothing and footwear merchandise category includes fieldwear apparel and footwear, sportswear apparel and footwear including technical gear for the active outdoor enthusiast, apparel and footwear for the casual customer, and workwear products.


7



Cabela’s Branded Products. In addition to national brands, we offer our exclusive Cabela’s branded merchandise. We have a significant penetration of Cabela’s branded 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 Cabela’s branded products by applying for trademark or patent protection for these products. Our Cabela’s branded products typically generate higher gross profit margins compared to our other branded products. In 2012, our Cabela’s branded merchandise accounted for approximately 30% of our merchandise revenue. By having an appropriate mix of Cabela’s branded and other branded merchandise, we strive to meet the expectations and needs of our customers and expand the recognition of the Cabela’s brand.

Marketing     
We seek to increase the amount each customer spends on our merchandise through enhanced customer targeting, expanded use of digital marketing channels in mobile marketing and social networking and other technology-based approaches, continued introduction of new catalog titles, and the development and marketing of new products. We have taken advantage of web-based technologies such as targeted promotional e-mails, on-line shopping engines, and Internet affiliate programs to renew efforts in local markets and to increase sales. We also have improved our customer relationship management system, which we expect will allow us to better manage our customer relationships and more effectively tailor our marketing programs. We will continue to use our expanding Retail business to capture additional customer purchase history and information.
Our digital transformation continues with efforts around enhancing our Internet website to support the Direct business.  Cabelas.com continues to be the most visited website in the sporting goods industry according to Hitwise, Inc., an online measurement company.  The amount of traffic now coming through mobile devices is growing significantly.  As a result, we continue to utilize best-in-class technology to improve our customers' digital shopping experience and build on the advances we have made to capitalize on the variety of ways customers are shopping Cabela's today.  We have seen early successes in our social marketing initiatives and now have over 2.2 million fans on Facebook.  Our omni-channel marketing efforts are resulting in increased customer engagement across multiple channels and a more consistent experience across all channels.
In addition to the use of our catalogs and our website, we use a combination of promotional events, traditional advertising, and media programs as marketing tools. We engage in certain promotional activities by sponsoring sportsmen and women advocacy groups and wildlife conservation organizations, including U.S. Sportsmen’s Alliance, National Rifle Association, National Wild Turkey Federation, Women in the Outdoors, Rocky Mountain Elk Foundation, Whitetails Unlimited, Pheasants Forever, Quail Forever, Ducks Unlimited, Delta Waterfowl, Trout Unlimited, and Safari Club International, as well as regional and local events and organizations. We also provide sponsorship of fishing tournaments and other related habitat and wildlife conservation activities.
We have historically received extensive local publicity from the unique Cabela’s shopping experience when we open a store. As we enter into metropolitan markets, where the opening of a Cabela’s store may not be major news, we will supplement any publicity with additional advertising to increase consumer awareness of new store openings.
Competition     

We compete in a number of large and highly competitive markets, including the outdoor recreation, and casual apparel and footwear markets. The outdoor recreation market is comprised of several categories, including hunting, fishing, camping, 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 and department stores, small specialty retailers, and catalog and Internet-based retailers.
 
We believe that we compete effectively with our competitors on the basis of our wide and distinctive merchandise selection, our strong credit card loyalty rewards program for our customers, the superior customer service we offer our customers, and the quality 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 and inspiring store environment. We also believe that our omni-channel model enhances our ability to compete by allowing our customers to choose the most convenient medium to interact and transact with us. This model also allows us to reach a broader audience in existing and new markets and to continue to build on our internationally recognized Cabela’s brand.



8



Customer Service     
 
Since our founding in 1961, we have been deeply committed to serving our customers by selling high-quality products through sales associates and outfitters who 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 with our Legendary Guarantee and Cabela’s Xtreme Protection plans. We continue to advance our efforts for offering customers a seamless, integrated experience whether they shop with us in our retail stores, on the Internet, or on the telephone. Our customers can always access well-trained, friendly, and knowledgeable associates and outfitters to answer product use and merchandise selection questions. We believe 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, product information, and service operations.

Distribution and Fulfillment
  
We operate distribution centers located in Sidney, Nebraska; Prairie du Chien, Wisconsin; Wheeling, West Virginia; and Winnipeg, Manitoba, Canada. These distribution centers comprise over 3 million square feet of warehouse space for our retail store replenishment and Direct business activities. We ship merchandise to our Direct business customers via United Parcel Service, Canada Post, and the United States Postal Service. We use common carriers and typically deliver inventory two to three times per week for replenishment of our retail stores. We also operate a small merchandise return center in Oshkosh, Nebraska.

Information Technology Systems     
    
Our information technology and operational systems manage our Retail, Direct, 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 supply chain, including our design, sourcing, merchandise planning, forecasting and purchase order, inventory, distribution, transportation, and price management systems. We continue to make modifications to our technology that will involve updating or replacing certain systems with successor systems, including improvements to our systems for omni-channel merchandise and financial planning, e-commerce, and customer relationship management.

Employees
  
At the end of 2012, we employed 15,200 employees - 6,900 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 party 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 revenue and operating results. Due to buying patterns around the holidays and the opening of hunting seasons, our merchandise revenue is traditionally higher in the third and fourth quarters than in the first and second quarters, and we typically earn a disproportionate share of our operating income in the fourth quarter. Because of our retail store expansion, and fixed costs associated with retail stores, our quarterly operating income may be further impacted by these seasonal fluctuations. We anticipate our sales will continue to be seasonal in nature. Refer to Note 26 to our consolidated financial statements for financial information by quarter for 2012 and 2011.


9



Government Regulation
 
Regulation of World's Foremost Bank. WFB, our wholly-owned bank subsidiary, is a Nebraska state-chartered bank with deposits insured by the Bank Insurance Fund of the FDIC. WFB is subject to comprehensive regulation and periodic examination by the Nebraska Department of Banking and Finance and the FDIC. WFB does not qualify as a “bank” under the Bank Holding Company Act of 1956, as amended, (“BHCA”), because it is in compliance with a credit card bank exception from the BHCA. On July 21, 2010, the Reform Act was signed into law. The Reform Act has made extensive changes to the laws regulating financial services firms and credit rating agencies and requires significant rule-making. In addition, the legislation mandates multiple studies which could result in additional legislative or regulatory action. The Reform Act does not eliminate the exception from the definition of “bank” under the BHCA for credit card banks, such as WFB. However, as directed by the Reform Act, the United States Government Accountability Office released a report on January 20, 2012, that examines the potential implications of eliminating certain exceptions under the BHCA, including the exception for credit card banks. It is unclear whether this report will lead to any additional legislative or regulatory action. If the credit card bank exception were eliminated or modified, we may be required to divest our ownership of WFB unless we were willing and able to become a bank holding company under the BHCA. Any such forced divestiture may materially adversely affect our business and results of operations. In addition, the Reform Act established a new independent Consumer Financial Protection Bureau (the “Bureau”) which has broad rulemaking, supervisory, and enforcement authority over consumer products, including credit cards. The Reform Act will also affect a number of significant changes relating to asset-backed securities, including additional oversight and regulation of credit rating agencies and additional reporting and disclosure requirements. See “Risk Factors - The Dodd-Frank Wall Street Reform and Consumer Protection Act may impact the practices of our Financial Services segment and could have a material adverse effect on our results of operations” and “Management's Discussion and Analysis of Financial Condition and Results of Operations - Developments in Legislation and Regulation.”

There are various federal and Nebraska laws and 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 2012, WFB met the requirements for a "well-capitalized" institution, the highest of the Federal Deposit Insurance Corporation Improvement Act's 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 WFB. In addition, at the end of 2012, the most recent notification from the FDIC categorized WFB as "well-capitalized" under the regulatory framework for prompt corrective action. We may be required to invest additional capital in WFB for WFB to remain "well-capitalized." See “Risk Factors - We may have to reallocate capital from our Retail and Direct businesses to meet the capital needs of our Financial Services segment, which could alter our retail store expansion program.”
The consumer lending activities of WFB are subject to regulation under various federal and state laws. 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 also in compliance with these laws. Depending on the underlying issue and applicable law, regulators are authorized to impose penalties for violations of these statutes and, in some cases, to order WFB to compensate borrowers. In 2012, the Bureau, acting in conjunction with the FDIC and other agencies, announced its first high-profile enforcement actions against credit card issuers for deceptive marketing and other illegal practices related to the advertising of ancillary products, collection practices and other matters.  By these recent public enforcement actions, the Bureau and the FDIC have signaled a heightened scrutiny of credit card issuers.  We anticipate increased activity by regulators in pursuing consumer protection claims going forward. 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.
Several rules and regulations have recently been proposed or adopted by the Securities and Exchange Commission ("SEC") that may substantially affect issuers of asset-backed securities. It remains to be seen whether and to what extent any final rules adopted by the SEC will impact our bank subsidiary and its ability and willingness to continue to rely on the securitization market for funding. See “Risks Factors - We may experience limited availability of financing or variation in funding costs for our Financial Services segment, which could limit growth of the business and decrease our profitability," “Risks Factors - The Dodd-Frank Wall Street Reform and Consumer Protection Act may impact the practices of our Financial Services segment and could have a material adverse effect on our results of operations” and “Management's Discussion and Analysis of Financial Condition and Results of Operations - Developments in Legislation and Regulation.”

Taxation Applicable to Us. We pay applicable corporate income, franchise, sales, and other taxes to states in which our retail stores are physically located. As we open more retail stores, we will be subject to tax in an increasing number of state and local taxing jurisdictions.     


10



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 also are subject to a variety of state laws and regulations relating to, among other things, advertising, pricing, product safety, and product restrictions. Some of these laws prohibit or limit the sale, in certain states and locations, of certain items we offer, such as firearms, 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 Mail or Telephone Order Merchandise Rule and related regulations promulgated by the Federal Trade Commission (“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.

Intellectual Property
 
Cabela’s®, Cabela’s CLUB®, Cabelas.com®, World’s Foremost Outfitter®, World’s Foremost Bank®, and Bargain Cave® 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 certain 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 material 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. We make available on our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, proxy statements and annual reports to shareholders, and, from time to time, other documents, free of charge, 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. Additionally, the public may read and copy any of the materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers, such as Cabela's, that file electronically with the SEC. The address of the SEC's website is www.sec.gov.

11



ITEM 1A. RISK FACTORS
 
Risk Factors
 
Risks Related to Our Merchandising Business    

A decline in discretionary consumer spending could reduce our revenue.
 
Our revenue depends on discretionary consumer spending, which may decrease due to a variety of factors beyond our control, including:

unfavorable general business conditions;
increases in interest rates;
increases in inflation;
wars, fears of war, and terrorist attacks and organizing activities;
increases in consumer debt levels and decreases in the availability of consumer credit;
adverse or unseasonal weather conditions or events;
increases in gasoline prices reducing the willingness to travel to our retail stores;
adverse changes in applicable laws and regulations;
adverse legislation relating to sales of firearms and ammunition;
increases in taxation;
adverse fluctuations of foreign currencies;
adverse unemployment trends;
adverse conditions in the mortgage and housing markets; and
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 revenue would decline. 
Difficult conditions in the economy generally may materially adversely affect our business and results of operations.
 
Our results of operations are materially affected by conditions in the economy generally. Factors such as consumer spending, oil prices, unemployment rates, the availability of credit, and the volatility and strength of the capital markets all affect the business and macroeconomic environment and, ultimately, the revenue and profitability of our business.  In an economic environment characterized by higher unemployment, lower family income, and lower consumer spending, the demand for our products could be adversely affected.  This may materially affect our business and results of operations.
Competition in the outdoor recreation and casual apparel and footwear markets could reduce our revenue and profitability.

 The outdoor recreation and casual apparel and footwear markets are highly fragmented and competitive. We compete directly or indirectly with the following types of companies:

other specialty retailers that compete with us across a significant portion of our merchandising categories through retail store or direct businesses, such as Bass Pro Shops, Gander Mountain, Orvis, The Sportsman's Guide, and Sportsman's Warehouse;
large-format sporting goods stores and chains, such as The Sports Authority, Dick's Sporting Goods, and Big 5 Sporting Goods;
retailers that currently compete with us through retail businesses that may enter the direct business;
mass merchandisers, warehouse clubs, discount stores, and department stores, such as Wal-Mart, Target, and Amazon; and
casual outdoor apparel and footwear retailers, such as L.L. Bean, Lands' End, and REI.


12



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 aggressively built 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 revenue could be reduced or our costs could be increased, resulting in reduced profitability.
We may not be able to raise additional capital or obtain additional financing if needed.     
 
We regularly review and evaluate our liquidity and capital needs. We currently believe that our available cash, cash equivalents, and cash flow from operations will be sufficient to finance our operations and expected capital requirements for at least the next 12 months. However, we might experience periods during which we encounter additional cash needs and we might need additional external funding to support our operations. Although we were able to enter into a $415 million revolving credit facility during fiscal 2011 on acceptable terms, in the event we require additional liquidity, we cannot be certain that additional funds will be available if needed and to the extent required or, if available, on acceptable terms. If we cannot raise necessary additional funds on acceptable terms, there could be a material adverse impact on our business and results of operations. We also may not be able to fund expansion, take advantage of future opportunities, meet our existing debt obligations, or respond to competitive pressures or unanticipated requirements.
Our comparable store sales will fluctuate and may not be a meaningful indicator of future performance.
 
Changes in our comparable store sales results could affect the price of our common stock. A number of factors have historically affected, and will continue to affect, our comparable store sales results, including:
competition;
new store openings;
general regional and national economic conditions;
actions taken by our competitors;
consumer trends and preferences;
new product introductions and changes in our product mix;
timing and effectiveness of promotional events; and
weather conditions.

Our comparable store sales may vary from quarter to quarter, and an unanticipated decline in revenues or comparable store sales may cause the price of our common stock to fluctuate significantly.
If we fail to maintain the strength and value of our brand, our revenue is likely to decline.
 
Our success depends on the value and strength of the Cabela's brand. The Cabela's name is integral to our business as well as to the implementation of our strategies for expanding our business. Maintaining, promoting, and positioning our brand will depend largely on the success of our marketing and merchandising efforts and our ability to provide high quality merchandise and a consistent, high quality customer experience. Our brand could be adversely affected if we fail to achieve these objectives or if our public image or reputation were to be tarnished by negative publicity. Any of these events could result in decreases in revenue.
Disruptions in our information technology systems could have a material adverse impact on our operating results.
Our Retail, Direct, and Financial Services businesses are dependent upon the integrity, security, and consistent operations of our information technology systems. We rely heavily on our information technology systems to manage and replenish inventory, to take customer orders, to deliver products to our customers in an efficient manner, to collect payments from our customers, and to provide accurate financial data and reporting for our business. Any disruption to or failure of our information technology systems may have a material adverse effect on our business or results of operations. We also expect to continue to make significant technology investments in the coming years, which are key to our business. There are inherent risks associated with these system changes, and we may be unable to successfully implement these system changes. Our failure to successfully implement these system changes could have a material adverse effect on our business or results of operations. Additionally, there is no assurance that successful implementation of these system changes will deliver value to us.

13



We are subject to security breaches and cybersecurity risks which could damage our reputation and increase our costs in an effort to protect against such breaches and cybersecurity risks.
Our business necessarily depends upon the operation and security of our website. Additionally, the nature of our business requires that we collect and maintain personal information about our customers. We use third-party systems, software, and tools in order to protect the customer data we obtain through the course of our business, which data includes financial and credit card information about our customers. Although we maintain security measures to protect such customer information, security breaches, computer viruses, cyber attacks, acts of vandalism, human error, or other similar events may result in the unauthorized disclosure of confidential customer information. Such a security breach could damage our reputation with our customers, expose us to the risk of litigation, and increase costs in order to combat and prevent such breaches.
If we cannot successfully implement our retail store expansion strategy, our growth and profitability would be adversely impacted.
 
We continue to seek additional locations to open new retail stores. Our ability to open new 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 favorable lease agreements;
our ability to properly assess the profitability of potential new retail store locations;
the availability of financing on favorable terms;
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 retail stores are built;
our ability to supply new retail stores with inventory in a timely manner;
our ability to properly assess operational and regulatory challenges involved in opening and successfully operating retail stores in Canada;
our competitors building or leasing stores near our retail stores or in locations we have identified as targets for a new retail store; and
general economic and business conditions affecting consumer confidence and spending and the overall strength of our business.

We may not be able to sustain the growth in the number of our retail stores, the revenue growth historically achieved by our 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 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 retail store expansion strategy requires may result in disruption to our existing business operations which may decrease our profitability.
Retail store expansion could adversely affect the operating results of our Retail business and reduce the revenue of our Direct business.
 
As the number of our 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 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 retail stores and as our competitors open stores with similar formats, our 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 materially adversely affected. The growth in the number of our retail stores may also draw customers away from our Direct business, which could materially adversely affect our Direct business revenue.

14



Our failure to successfully manage our Direct business could have a material adverse effect on our operating results and cash flows.
 
During 2012, our Direct business accounted for 33.5% of the total revenue in our Retail and Direct businesses. Our Direct business is subject to a number of risks and uncertainties, some of which are beyond our control, including:
our inability to properly adjust the fixed costs of a catalog mailing to reflect subsequent sales of the products marketed in the catalog;
lower and less predictable response rates for catalogs sent to prospective customers;
increases in United States Postal Service rates, paper costs, and printing costs resulting in higher catalog production costs and lower profits for our Direct business;
failures to properly design, print, and mail our catalogs in a timely manner;
failures to introduce new catalog titles;
failures to timely fill customer orders;
changes in consumer preferences, willingness to purchase goods through catalogs or the Internet, weak economic conditions and economic uncertainty, and unseasonal weather in key geographic markets;
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;
supply and delivery shortages or interruptions, including reduced service levels from the United States Postal Service;
changes in applicable federal and state regulation;
breaches of Internet security; and
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 revenue 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 revenue, any performance shortcomings experienced by our Direct business could have a material adverse effect on our operating results and cash flows.
Any disruption of the supply of products and services from our vendors could have an adverse impact on our revenue and profitability.
 
Our vendors and the products and services they provide include the following:    
vendors to supply our merchandise in sufficient quantities at competitive prices in a timely manner;
outside printers and catalog production vendors to print and mail our catalogs and to convert our catalogs to digital format for website posting;
shipping companies, such as United Parcel Service, the United States 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 retail stores;
telephone companies to provide telephone service to our in-house customer care centers;
communications providers to provide our Internet users with access to our website and a website hosting service provider to host and manage our website;
software providers to provide software and related services to run our operating systems for our Retail and Direct businesses; and
third-party card processors, such as First Data Resources, to provide processing for Cabela's CLUB Visa transactions.

We cannot predict when, or the extent to which, we will experience any disruption in the supply of products and services from our vendors. Any such disruption could have an adverse impact on our revenue and profitability.

15



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 trade vendors collectively represented approximately 17% of our total merchandise purchases in 2012. 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 also are subject to risks, such as the price and availability of raw materials and fabrics, 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 a material adverse impact on our revenue and profitability. We also rely on our vendors to comply with our social responsibility program, and the failure of a vendor to comply with our social responsibility program could harm our brand or cause us to terminate a vendor prior to securing an alternative source for the terminated vendor's products or services. In addition, if the cost of fuel rises, the cost to deliver merchandise to the customers of our Direct business and from our distribution centers to our retail stores may rise which could have a material adverse impact on our profitability.
Political and economic uncertainty and unrest in foreign countries where our merchandise vendors are located and trade restrictions upon imports from these foreign countries could adversely affect our ability to source merchandise and operating results.
 
In 2012, over 60% of our private label merchandise was imported directly from vendors located in foreign countries, with a substantial portion of the imported merchandise being obtained directly from vendors located in China, Mexico, and various Far East, Asian, and European countries. 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:
increased import duties, tariffs, trade restrictions, and quotas;
work stoppages;
economic uncertainties;
adverse foreign government regulations;
wars, fears of war, and terrorist attacks and organizing activities;
adverse fluctuations of foreign currencies; and
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 Cabela's branded merchandise were adversely affected as our margins are higher on our Cabela's branded merchandise.
In addition, trade restrictions, including increased tariffs or quotas, embargoes, safeguards, and customs restrictions against apparel items, as well as United States or foreign labor strikes, work stoppages, or boycotts could increase the cost or reduce the supply of merchandise available to us or may require us to modify our current business practices, any of which could hurt our profitability.
Due to the seasonality of our business, our annual operating results would be adversely affected if our revenue during the fourth quarter was substantially below expectations.
 
We experience seasonal fluctuations in our revenue and operating results. Historically, we have realized a significant portion of our revenue and earnings for the year in the fourth quarter. In 2012 and 2011, respectively, we generated 36.0% and 35.0% of our revenue, and 39.2% and 49.0% of our net income, in the fourth quarter. We incur significant additional expenses in the fourth quarter due to higher customer purchase volumes and increased staffing. If we miscalculate the demand for our products generally or for our product mix during the fourth quarter, our revenue could decline, which would harm our financial performance. In addition, abnormally warm weather conditions during the fourth quarter 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 revenue. Because a substantial portion of our operating income is derived from our fourth quarter revenue, a shortfall in expected fourth quarter revenue would cause our annual operating results to suffer significantly.

16



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 our senior executive management and merchandising teams. With the exception of our Chairman, Richard N. Cabela, and our Vice Chairmen, James W. Cabela and Dennis Highby, none of our senior management has 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.
Our business depends on our ability to meet our labor needs, and if we are unable to do so, our 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 retail stores and customer care centers. Our corporate headquarters, distribution centers, return center, and some of our retail stores are located in sparsely populated rural areas. It may be difficult to attract and retain qualified personnel, especially management 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 retail store expansion strategy may be delayed and our revenue growth may suffer.
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 retail stores.
 
We currently rely on distribution centers in Sidney, Nebraska; Prairie du Chien, Wisconsin; Wheeling, West Virginia; and Winnipeg, Manitoba, Canada, to handle our distribution needs. We operate a return center in Oshkosh, Nebraska; and our Wheeling, West Virginia, distribution center also processes returns. Any natural disaster or other serious disruption to these centers due to fire, tornado, or any other calamity could damage a significant portion of our inventory and materially impair our ability to adequately stock our retail stores, deliver merchandise to customers, and process returns to vendors and could result in lost revenue, increased costs, and reduced profits.    
We do not collect sales taxes in some jurisdictions, which could result in substantial tax liabilities and cause our future Direct business sales to decrease.
An increasing number of states have considered or adopted laws that attempt to impose tax collection obligations on out-of-state retailers. We believe that these initiatives are inconsistent with the United States Supreme Court's holding that states, absent congressional legislation, may not impose tax collection obligations on out-of-state direct marketers unless the out-of-state direct marketer has nexus with the state. A successful assertion by one or more states requiring us to collect taxes where we do not do so could result in substantial tax liabilities, including for past sales, as well as penalties and interest. The imposition by state governments of sales tax collection obligations on out-of-state direct marketers who participate in Internet commerce could also create additional administrative burdens for us, put us at a competitive disadvantage if they do not impose similar obligations on our competitors, and decrease our future Direct sales, which could have a material adverse impact on our business and results of operations.
 

17



We must successfully order and manage our inventory to reflect customer demand and anticipate changing consumer preferences and buying trends or our revenue 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 revenue 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 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 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 retail stores in a timely manner, which could have a material adverse effect on the revenue and cash flows of our Retail business.
We may incur costs from litigation relating to products that we sell, particularly tree stands, firearms, and ammunition, which could adversely affect our revenue and profitability.
We may incur damages due to lawsuits relating to products we sell, including lawsuits relating to tree stands, firearms, and ammunition. 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, thereby reducing revenue. 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 materially 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.
Legal proceedings may increase our costs and have a material adverse effect on our results of operations.

We are involved, from time to time, in legal proceedings that are incidental to our business. For example, on January 6, 2011, we received a Commissioner's charge from the Chair of the EEOC alleging that we have discriminated against non-Whites on the basis of their race and national origin in recruitment and hiring. We are disputing these allegations, and the EEOC currently is in the early stages of its investigation. At the present time, we are unable to form a judgment regarding a favorable or unfavorable outcome regarding this matter or the potential range of loss in the event of an unfavorable outcome. The defense and resolution of lawsuits and other proceedings may involve significant expense, divert management's attention and resources from other matters, and have a material adverse effect on our results of operations.

Current and future government regulation may negatively impact the 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:
FTC regulations governing the manner in which orders may be solicited and prescribing other obligations in fulfilling orders and consummating sales;
state or federal laws and regulations or executive orders that prohibit or limit the sale of certain items we offer such as firearms, black powder firearms, ammunition, bows, knives, and similar products;
the Bureau of Alcohol, Tobacco, Firearms and Explosives governing the manner in which we sell firearms and ammunition;
laws and regulations governing hunting and fishing;
laws and regulations relating to the collecting and sharing of non-public customer information; and
United States 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 retail stores.

18



Changes in these laws and regulations or additional regulation, particularly new laws or increased regulations regarding sales and ownership of firearms and ammunition, could cause the demand for and sales of our products to decrease and could materially adversely impact our revenue and profitability. Moreover, complying with increased or changed regulations could cause our operating expenses to increase.
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 revenue. 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 a material adverse effect on our operating results.
Risks Related to Our Financial Services Business

We may experience limited availability of financing or variation in funding costs for our Financial Services segment, which could limit growth of the business and decrease our profitability.
 
Our Financial Services segment 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, changes within our organization, disruptions in the capital markets, increased competition in the deposit markets, our corporate and regulatory structure, interest rate fluctuations, general economic conditions, possible negative credit ratings affecting our asset-backed securities, and accounting and regulatory changes and relations could make such financing more difficult or impossible to obtain or more expensive. In addition, several rules and regulations have recently been proposed by the SEC that may substantially affect issuers of asset-backed securities. We have been and will continue to be particularly reliant on funding from securitization transactions for our Financial Services segment. Securitization funding sources include both variable funding facilities and fixed and floating rate term securitizations. A failure to renew these facilities, to resecuritize the term securitizations as they mature, or to add additional term securitizations and variable funding facilities on favorable terms as it becomes necessary could increase our financing costs and potentially limit our ability to grow our Financial Services segment. In addition, the ability of our Financial Services segment to engage in securitization transactions on favorable terms or at all could be adversely affected by disruptions in the capital markets or other events, which could adversely affect our business and cause our Financial Services segment to lose an important source of capital.
Furthermore, even if we are able to securitize our credit card loans consistent with past practice, poor performance of our securitized loans, 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” or “early redemption” 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.
Our current funding strategy also includes a continued reliance on certificates of deposit to help fund growth and maturing securitizations. If there is an increase in other financial institutions relying on the certificates of deposit market for liquidity and funding, competition in the deposits market may increase. In addition, FDIC deposit insurance coverage may be reduced. Either of these events could result in less funds available or funds at unattractive rates. In addition to the non-brokered certificates of deposit market to fund growth and maturing securitizations, we have access to the brokered certificates of deposit market through multiple financial institutions for liquidity and funding purposes. Our ability to issue certificates of deposit is reliant on our current regulatory capital levels. If WFB were to be classified as an "adequately-capitalized" bank, we would be required to obtain a waiver from the FDIC in order to continue to issue certificates of deposit and would be limited to what interest rate we can pay on deposits. At the end of 2012, WFB met the requirements for a "well-capitalized" institution, the highest of the Federal Deposit Insurance Corporation Improvement Act's five capital ratio levels.



19



We may have to reallocate capital from our Retail and Direct businesses to meet the capital needs of our Financial Services segment, which could alter our retail store expansion program.

WFB must satisfy the capital maintenance requirements of government regulators and its agreement with Visa U.S.A., Inc. ("Visa"). Although WFB satisfied the requirements for the "well-capitalized" classification under the regulatory framework for prompt corrective action at the end of 2012, no assurances can be given that WFB will continue to satisfy such requirements. A variety of factors could cause the capital requirements of WFB 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. On June 7, 2012, the FDIC and the other federal banking agencies announced they are seeking comment on proposed rules that would revise and replace the agencies' current capital rules. Among other things, the proposed rules would revise the agencies' prompt corrective action framework by introducing a common equity tier 1 capital requirement and a higher minimum tier 1 capital requirement. In addition, the proposed rules include a supplementary leverage ratio for depository institutions subject to the advanced approaches capital rules. Also, we have significant potential obligations in the form of the unused credit lines of our cardholders. At the end of 2012, these unfunded amounts totaled approximately $21 billion. Draws on these lines of credit could materially exceed predicted line usage. If WFB ceases to qualify as well-capitalized or if a new common equity tier 1 capital requirement and a higher minimum tier 1 capital requirement are adopted, WFB would become subject to regulatory restrictions that could materially adversely affect its liquidity, cost of funds, and ability to conduct normal operations. If WFB's capital requirements were to increase, we may have to contribute capital to WFB, which may require us to raise additional debt or equity capital and/or divert capital from our Retail and Direct businesses, which in turn could significantly alter our retail store expansion strategy.
It may be difficult to sustain the historical growth and profitability of our Financial Services segment, 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 segment 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;
inability of cardholders to make payments to us due to economic conditions and limited access to other credit sources;
inability to manage credit risk and keep credit models up to date with current consumer credit trends;
lack of growth of potential new customers generated by our Retail and Direct 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;
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; and
the credit card industry is highly competitive with increased use of advertising, target marketing, reward programs, mobile payment solutions, and pricing competition in interest rates and cardholder fees as both traditional and new credit card issuers seek to expand or to enter the market and compete for customers.
Economic downturns and social and other factors could cause our credit card charge-offs and delinquencies to increase, or credit card balances to decrease, which would decrease our profitability.

The general economic environment may worsen, unemployment may continue to remain high, the housing market may continue to be depressed, and consumer credit availability may decrease. The ability and willingness of cardholders to pay could be adversely affected, which would increase delinquencies and charge-offs. In addition, if economic conditions deteriorate, the number of transactions and average purchase amount of transactions on the credit card accounts may be reduced, which would reduce the revenue of our Financial Services segment. 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. Our underwriting criteria and portfolio management, product design, and collection operations may be insufficient to protect the growth and profitability of our Financial Services segment 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.    

20



The performance of our Financial Services segment may be negatively affected by the performance of our merchandising businesses.
 
Negative developments in our Retail and Direct businesses could affect our ability to grow or maintain our Financial Services segment. 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 the ability of Cabela's CLUB to grow its account base.
Our Financial Services segment faces the risk of a complex and changing regulatory and legal environment.
Our Financial Services segment operates in a heavily regulated industry and is therefore subject to a wide array of banking and consumer lending laws and regulations. Failure to comply with banking and consumer lending laws and regulations could result in financial, structural, and operational penalties being imposed. In addition, as a Visa member bank, WFB must comply with rules and regulations imposed by Visa. For example, WFB and Cabela's could be fined by Visa for failing to comply with Visa's data security standards.
The Dodd-Frank Wall Street Reform and Consumer Protection Act may impact the practices of our Financial Services segment and could have a material adverse effect on our results of operations.    
 In July 2010, the Reform Act was signed into law.  The Reform Act, as well as other legislative and regulatory changes, could have a significant impact on us by, for example, requiring the Financial Services segment to change its business practices, imposing additional costs on the Financial Services segment, limiting fees the Financial Services segment can charge for services, impacting the value of the Financial Services segment and its assets, or otherwise adversely affecting the Financial Services segment's business.  A description of the Reform Act and other legislative and regulatory developments is contained in “Management's Discussion and Analysis of Financial Condition and Results of Operations - Developments in Legislation and Regulation.”
As directed by the Reform Act, the United States Government Accountability Office released a report on January 20, 2012, that examines the potential implications of eliminating certain exceptions under the BHCA, including the exception for credit card banks. It is unclear whether this report will lead to any additional legislative or regulatory action. If the credit card bank exception were eliminated or modified, we may be required to divest our ownership of WFB unless we were willing and able to become a bank holding company under the BHCA. Any such forced divestiture may materially adversely affect our business and results of operations.
 The Reform Act will also affect a number of significant changes relating to asset-backed securities, including additional oversight and regulation of credit rating agencies and additional reporting and disclosure requirements.  In addition, the Reform Act will prohibit issuers and payment card networks from placing restrictions on vendors relating to credit card transactions, which could affect consumer behavior and the use of credit cards as a form of payment.
The Reform Act will also likely result in increased scrutiny and oversight of consumer financial services and products, including credit cards, primarily through the establishment of the Consumer Financial Protection Bureau (the "Bureau") within the Federal Reserve.  The Bureau has broad rulemaking and enforcement authority over providers of credit, savings, and payment services and products.  The Bureau also has rulemaking and interpretive authority under existing and future consumer financial services laws and supervisory, examination, and enforcement authority over institutions subject to its jurisdiction.  In 2012, the Bureau, acting in conjunction with the FDIC and other agencies, announced its first high-profile enforcement actions against credit card issuers for deceptive marketing and other illegal practices related to the advertising of ancillary products, collection practices and other matters.  By these recent public enforcement actions, the Bureau and the FDIC have signaled a heightened scrutiny of credit card issuers.  We anticipate increased activity by regulators in pursuing consumer protection claims going forward. State officials are authorized to enforce consumer protection rules issued by the Bureau.
Many provisions of the Reform Act require the adoption of rules to implement.  In addition, the Reform Act mandates multiple studies, which could result in additional legislative or regulatory action.  The effect of the Reform Act and its implementing regulations on the Financial Services segment's business and operations could be significant.  In addition, we may be required to invest significant management time and resources to address the various provisions of the Reform Act and the numerous regulations that are required to be issued under it. The Reform Act, any related legislation, and any implementing regulations could have a material adverse effect on our business, results of operations, and financial condition.

21



Changes in interest rates could have a negative impact on our earnings.
 
In connection with our Financial Services segment, we borrow money from institutions and accept funds by issuing brokered and non-brokered certificates of deposit and secured borrowings, which we then lend to cardholders. We earn interest on the cardholders' account balances, and pay interest on the certificates of deposit and borrowings we use to fund those loans. Changes in these two interest rates affect the value of the assets and liabilities of our Financial Services segment. If the rate of interest we pay on borrowings increases more (or more rapidly) than the rate of interest we earn on loans, our net interest income, and therefore our earnings, could fall. Our earnings could also be materially adversely affected if the rates on our credit card account balances fall more quickly than those on our borrowings. In the event interest rates rise, the spread between the interest rate we pay on our borrowings and the fees we earn from these accounts may change and our profitability may be materially adversely affected. In addition, approximately 33% of our cardholders did not have a balance on their credit card accounts at the end of 2012. No interest is earned if the account is paid in full within 25 days of the billing cycle, but we do earn other fees from these accounts such as Visa interchange fees.
Credit card industry litigation and regulation could adversely impact the amount of revenue our Financial Services segment generates from interchange fees.
Our Financial Services segment faces possible risk from the outcomes of certain credit card industry litigation and potential regulation of interchange fees. For example, a number of entities, each purporting to represent a class of retail merchants, have sued Visa and several member banks, and other credit card associations, alleging, among other things, that Visa and its member banks have violated United States antitrust laws by conspiring to fix the level of interchange fees. On July 13, 2012, the parties to this litigation announced that they had entered into a memorandum of understanding, which subject to certain conditions, including court approval, obligates the parties to enter into a settlement agreement to resolve the claims brought by the class members. On November 9, 2012, the settlement received preliminary court approval. The settlement agreement requires, among other things, (i) the distribution to class merchants of an amount equal to 10 basis points of default interchange across all credit rate categories for a period of eight consecutive months, which otherwise would have been paid to issuers like WFB, (ii) Visa to change its rules to allow merchants to charge a surcharge on credit card transactions subject to a cap, and (iii) Visa to meet with merchant buying groups that seek to negotiate interchange rates collectively. We have recorded a liability of $12.5 million as of December 29, 2012, related to the proposed settlement as a reduction of interchange income in the Financial Services segment. To date, we have not been named as a defendant in any credit card industry lawsuits. Moreover, the amount of interchange fees that are charged to merchants could be capped or limited by credit card industry regulation. If the interchange fees that are charged to merchants are reduced as a result of the interchange lawsuits or regulation, the financial condition and results of operations of our Financial Services segment may be negatively impacted.

ITEM 1B. UNRESOLVED STAFF COMMENTS
 
None.


22



ITEM 2. PROPERTIES
 
At the end of 2012, in addition to our retail stores, we also operated our corporate headquarters, administrative offices, four distribution centers, a merchandise return center, and five customer care centers. All of these properties are owned except as noted in the following table, which also provides information regarding the general location, use, and approximate size of our principal non-retail properties:
Property
 
Location
 
Total Square Footage
 
Segment That Uses Property
 
 
 
 
 
 
 
 
 
 
Distribution Center
 
Sidney, Nebraska
 
761,000

 
Other
Distribution Center
 
Prairie du Chien, Wisconsin
 
1,055,000

 
Other
Distribution Center (1)
 
Wheeling, West Virginia
 
1,165,000

 
Other
Distribution Center (1)
 
Winnipeg, Manitoba
 
150,000

 
Other
Total for Distribution Centers
 
 
 
3,131,000

 
 
 
 
 
 
 
 
 
Corporate Headquarters
 
Sidney, Nebraska
 
294,000

 
Retail, Direct and Other
Customer Care Center and Administrative Offices
 
Sidney, Nebraska
 
94,000

 
Retail, Direct and Other
Customer Care Center and Administrative Offices
 
Kearney, Nebraska
 
151,000

 
Retail and Direct
Customer Care Center and Administrative Offices
 
Winnipeg, Manitoba
 
96,000

 
Retail and Direct
Customer Care Center (1)
 
Grand Island, Nebraska
 
12,000

 
Direct
Customer Care Center
 
North Platte, Nebraska
 
12,000

 
Direct
Merchandise Return Center
 
Oshkosh, Nebraska
 
52,000

 
Other
Retail Store Concept Center (1)
 
Sidney, Nebraska
 
37,000

 
Retail
Customer Care Center, Bank Operations, and Administrative Offices
 
Lincoln, Nebraska
 
116,000

 
Direct, Financial Services and Other
Data Information Center (1)
 
Papillion, Nebraska
 
16,000

 
Retail, Direct, Financial Services and Other
Marketing and Information Technology Center (2)
 
Westminster, Colorado
 
12,000

 
Retail, Direct and Other
(1)
Leased property.
(2)
Leased property. We occupied this facility in the first quarter of 2013.
 



23



All of our retail stores are owned except as noted in the following table, which shows our stores located in the United States and Canada, and the approximate retail total square footage of each retail store by type of format used in our Retail segment:
 
 
 
 
Number of Stores and Total Square Footage by Store Format (1)
 
 
 
 
Legacy
 
Next-Generation
 
Outpost
 
 
Location
 
Total No. of Stores
 
No.
 
Sq. Footage
 
No.
 
Sq. Footage
 
No.
 
Sq. Footage
 
Total Sq. Footage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States (24 states) (2)
 
37

 
27

 
4,155,000
 
9

 
783,000

 
1

 
40,000

 
4,978,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Canada (3 provinces) (3)
 
3

 
1

 
44,000
 
2

 
120,000

 

 

 
164,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Totals
 
40

 
28

 
4,199,000
 
11

 
903,000

 
1

 
40,000

 
5,142,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Legacy stores refer to our older stores opened in May 2008 or earlier or our large-format traditional retail stores that typically are 150,000 square feet or larger. Our next-generation store format ranges in size from approximately 70,000 to 100,000 square feet. The exterior of our next-generation stores reflects our traditional store model. Our Outpost store format is approximately 40,000 square feet and has a "core-flex" merchandise strategy (selected core assortment of products and flexible seasonal merchandise).
(2)
Leased stores are located in Boise, Idaho; Grand Junction, Colorado; Hazelwood, Missouri; Scarborough, Maine; Springfield, Oregon; and Tulalip, Washington; and we have ground leases for our stores in East Hartford, Connecticut, and Union Gap, Washington.
(3)
Leased stores are located in Edmonton, Alberta, Winnipeg, Manitoba, and Saskatoon, Saskatchewan.
Also, 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. At December 29, 2012, the total net book value of our property and equipment was $1.0 billion and we believe that our properties and equipment were suitable for their intended use.    


ITEM 3. LEGAL PROCEEDINGS
            
We are party to various legal proceedings arising in the ordinary course of business. These actions include commercial, intellectual property, employment (including the Commissioner's charge referenced in "Risk Factors - Legal proceedings may increase our costs and have a material adverse effect on our results of operations"), regulatory, and product liability claims. Some of these actions involve complex factual and legal issues and are subject to uncertainties. The activities of WFB are subject to complex federal and state laws and regulations. WFB's regulators are authorized to impose penalties for violations of these laws and regulations and, in some cases, to order WFB to pay restitution. We cannot predict with assurance the outcome of the actions brought against us. Accordingly, adverse developments, settlements, or resolutions may occur and have a material effect on our results of operations for the period in which such development, settlement, or resolution occurs. However, we do not believe that the outcome of any current legal proceeding would have a material effect on our results of operations, cash flows, or financial position taken as a whole.


ITEM 4. MINE SAFETY DISCLOSURES
 
Not applicable.


24



PART II
 
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Price Range of Common Stock    
 
Our common stock began trading on June 25, 2004, on the New York Stock Exchange under the symbol “CAB”. Prior to that date, there was no public market for our common stock. As of February 11, 2013, there were 862 holders of record of our 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 fiscal quarters indicated, the high and low sales prices per share of our common stock as reported on the New York Stock Exchange:
 
2012
 
2011
 
High
 
Low
 
High
 
Low
 
 
 
 
 
 
 
 
First Quarter
$
39.80

 
$
23.65

 
$
31.19

 
$
21.59

Second Quarter
41.61

 
33.10

 
28.91

 
22.26

Third Quarter
55.65

 
37.06

 
28.70

 
19.95

Fourth Quarter
56.78

 
38.44

 
26.73

 
19.66

Issuer Purchases of Equity Securities    
    
On August 23, 2011, our Board of Directors authorized a share repurchase program that provides for share repurchases on an ongoing basis to offset dilution resulting from equity awards under our current or future equity compensation plans. These shares are to be repurchased from time to time in open market transactions or privately negotiated transactions at our discretion, subject to market conditions, customary blackout periods, and other factors. As a result, we announced on February 16, 2012, that we would repurchase up to 800,000 shares of our common stock in open market transactions through February 2013. This repurchase plan for 800,000 shares was completed in the second quarter of 2012. We did not engage in any stock repurchase activity in any of the three fiscal months in the fourth fiscal quarter ended December 29, 2012.

We announced on February 14, 2013, that we intend to repurchase up to 750,000 shares of our outstanding common stock in open market transactions through February 2014 pursuant to this share repurchase program. The share repurchase program does not obligate us to repurchase any outstanding shares of our common stock, and the program may be limited or terminated at any time.







25



Stock Performance Graph
 
The following stock performance graph and table show Cabela’s cumulative total shareholder return on a semi-annual basis for the five fiscal years ended December 29, 2012. The graph and table also show the cumulative total returns of the Standard and Poor’s (“S&P”) 500 Retailing Index and the S&P 500 Index. The graph and table assume that $100 was invested on December 28, 2007.

 
 
Dec 28,
2007
 
Jun 28,
2008
 
Dec 27,
2008
 
Jun 27,
2009
 
Jan 2,
2010
 
Jul 3,
2010
 
Jan 1,
2011
 
Jul 1,
2011
 
Dec 30,
2011
 
Jun 29,
2012
 
Dec 28,
2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cabela’s Inc.
 
$
100

 
$
75

 
$
44

 
$
82

 
$
96

 
$
91

 
$
147

 
$
188

 
$
172

 
$
255

 
$
275

S&P Retailing Index
 
100

 
88

 
66

 
94

 
100

 
94

 
124

 
132

 
128

 
150

 
156

S&P 500
 
100

 
86

 
59

 
69

 
75

 
69

 
85

 
91

 
85

 
92

 
95

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 limit our ability to pay dividends to our stockholders.
 
Equity Compensation Plans    
 
For information on securities authorized for issuance under our equity compensation plans, see “Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”


26



ITEM 6. SELECTED FINANCIAL DATA
 
Fiscal Year (1)
 
2012
 
2011
 
2010
 
2009
 
2008
Operations Data:
(In Thousands Except Earnings per Share)
Revenue:
 
 
 
 
 
 
 
 
 
Merchandise sales
$
2,778,903

 
$
2,505,733

 
$
2,412,486

 
$
2,447,635

 
$
2,380,655

Financial Services revenue
319,399

 
291,746

 
227,675

 
171,414

 
158,971

Other revenue
14,380

 
13,687

 
23,081

 
13,191

 
13,095

Total revenue
3,112,682

 
2,811,166

 
2,663,242

 
2,632,240

 
2,552,721

Total cost of revenue
1,769,798

 
1,613,249

 
1,575,449

 
1,602,621

 
1,540,214

Selling, distribution, and administrative expenses
1,046,861

 
954,125

 
895,405

 
870,147

 
865,684

Impairment and restructuring charges
20,324

 
12,244

 
5,626

 
66,794

 
5,784

Operating income
275,699

 
231,548

 
186,762

 
92,678

 
141,039

Interest expense, net
(20,123
)
 
(24,427
)
 
(27,442
)
 
(23,109
)
 
(29,658
)
Other non-operating income, net
6,138

 
7,346

 
7,360

 
6,955

 
6,854

Income before provision for income taxes
261,714

 
214,467

 
166,680

 
76,524

 
118,235

Provision for income taxes
88,201

 
71,847

 
54,521

 
26,907

 
41,831

Net income
$
173,513

 
$
142,620

 
$
112,159

 
$
49,617

 
$
76,404

 
 
 
 
 
 
 
 
 
 
Earnings per basic share
$
2.48

 
$
2.06

 
$
1.65

 
$
0.74

 
$
1.15

Earnings per diluted share
$
2.42

 
$
2.00

 
$
1.62

 
$
0.74

 
$
1.14

 
 
 
 
 
 
 
 
 
 
Selected Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents (2)
$
288,750

 
$
304,679

 
$
136,419

 
$
582,185

 
$
410,104

Working capital (2) (3)
3,159,678

 
2,491,591

 
1,747,124

 
619,354

 
573,410

Total assets (3)
5,748,163

 
5,133,771

 
4,531,179

 
2,491,885

 
2,396,066

Total debt excluding Financial Services segment
336,535

 
344,922

 
345,152

 
348,279

 
380,031

Total debt of Financial Services segment (3) (4)
3,200,518

 
2,844,813

 
2,496,651

 
476,664

 
486,199

Total stockholders’ equity
1,375,979

 
1,181,316

 
1,024,548

 
984,421

 
913,705

 
 
 
 
 
 
 
 
 
 
Other Data:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
$
79,269

 
$
71,343

 
$
69,872

 
$
70,566

 
$
64,673

Property and equipment additions
$
230,009

 
$
120,739

 
$
79,720

 
$
49,817

 
$
54,934

Retail square footage
5,142

 
4,682

 
4,409

 
4,333

 
4,253

(1)
Fiscal years are based on the 52-53 week period ending on the Saturday closest to December 31. Fiscal 2012, 2011, 2010, and 2008 each consisted of 52 weeks and fiscal 2009 consisted of 53 weeks.
(2)
Includes amounts for the Financial Services segment totaling $91 million, $117 million, $82 million, $371 million, and $402 million at years ended 2012, 2011, 2010, 2009, and 2008, respectively. Our ability to use this cash for non-banking operations, including its use as working capital for our Retail or Direct businesses, or for retail store expansion, is limited by regulatory restrictions.
(3)
Amounts for 2012, 2011, and 2010 include assets and liabilities resulting from the consolidation of the Cabela's Master Credit Card Trust and related entities (collectively referred to as the “Trust”) related to a change in accounting principle. Accordingly, effective January 3, 2010, total assets and liabilities increased $2.15 billion and $2.25 billion, respectively, and retained earnings and other comprehensive income decreased $93 million, after tax. Prior to this change in accounting principle, the securitizations issued by the Trust qualified for sales treatment under generally accepted accounting principles and, therefore, the Trust was excluded from the Company's consolidated financial statements. 
(4)
Amounts include time deposits and short-term borrowings of the Financial Services segment, and for 2012, 2011, and 2010, amounts also include the secured variable funding obligations and secured long-term obligations of the Trust.

27



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 report.
 
Forward Looking Statements - Our discussion contains forward-looking statements with respect to our plans and strategies for our businesses and the business environment that are impacted by risks and uncertainties. Refer to “Special Note Regarding Forward-Looking Statements” preceding PART I, ITEM 1, and to ITEM 1A “Risk Factors” for information regarding certain of the risks and uncertainties that affect our business and the industries in which we operate. Please note that our actual results may differ materially from those we may estimate or project in any of these forward-looking statements.
Cabela’s®
We are a leading specialty retailer, and the world’s largest direct marketer, of hunting, fishing, camping, and related outdoor merchandise. We provide a quality service to our customers who enjoy an outdoor lifestyle by supplying outdoor products through our omni-channel retail business consisting of our Retail and Direct segments. As of the end of 2012, our Retail business segment consisted of 40 stores, including the six stores that we opened during 2012 in:
Wichita, Kansas, on March 14, 2012,
Tulalip, Washington, on April 19, 2012,
Saskatoon, Saskatchewan, Canada, on May 10, 2012,
Charleston, West Virginia, on August 9, 2012,
Rogers, Arkansas, on August 30, 2012, and
our first Outpost store in Union Gap, Washington, on October 4, 2012.

We have 37 stores located in the United States and three in Canada with total retail square footage of 5.1 million square feet at the end of 2012. Our Direct business segment is comprised of our highly acclaimed Internet website and supplemented by our catalog distributions as a selling and marketing tool.

World's Foremost Bank ("WFB", "Financial Services segment", or "Cabela's CLUB") also plays an integral role in supporting our merchandising business.  The Financial Services segment is comprised of our credit card services which reinforces our strong brand and strengthens our customer loyalty through our credit card loyalty programs.

Fiscal 2012 Executive Overview
 
 
 
 
 
Increase (Decrease)
 
% Change
 
2012
 
2011
 
 
 
(Dollars in Thousands Except Earnings Per Diluted Share)
Revenue:
 
 
 
 
 
 
 
Retail
$
1,849,582

 
$
1,550,442

 
$
299,140

 
19.3
 %
Direct
930,943

 
956,834

 
(25,891
)
 
(2.7
)
Total
2,780,525

 
2,507,276

 
273,249

 
10.9

Financial Services
319,399

 
291,746

 
27,653

 
9.5

Other revenue
12,758

 
12,144

 
614

 
5.1

Total revenue
$
3,112,682

 
$
2,811,166

 
$
301,516

 
10.7

 
 
 
 
 
 
 
 
Operating income
$
275,699

 
$
231,548

 
$
44,151

 
19.1

 
 
 
 
 
 
 
 
Net income
$
173,513

 
$
142,620

 
$
30,893

 
21.7

 
 
 
 
 
 
 
 
Earnings per diluted share
$
2.42

 
$
2.00

 
$
0.42

 
21.0



28



Revenues for 2012 totaled $3.1 billion, an increase of $302 million, or 10.7%, over 2011. Total merchandise sales increased $273 million, or 10.9%, in 2012 compared to 2011. The net increase in total merchandise sales comparing 2012 to 2011 was primarily due to:
a net increase of $195 million in revenue from new retail stores, and
an increase of $102 million, or 6.9%, in comparable store sales, led by an increase in sales in the hunting equipment product category.
These increases were partially offset by a decrease of $26 million in Direct revenue, primarily due to a decrease in the clothing and footwear product category.
Financial Services revenue increased $28 million, or 9.5%, in 2012 compared to 2011 due to lower interest expense and increases in interest income and interchange income, partially offset by higher customer reward costs due to an increase in credit card purchases. Interchange income in 2012 was reduced by $12.5 million pursuant to the proposed settlement regarding the Visa litigation.
Operating income for 2012 increased $44 million, or 19.1%, compared to 2011, and operating income as a percentage of revenue increased 70 basis points to 8.9% in 2012 compared to 8.2% in 2011.  These increases in total operating income and total operating income as a percentage of total revenue were primarily due to increases in revenue from our Retail and Financial Services segments as well as an increase in our merchandise gross profit. These increases were partially offset by lower revenue from our Direct business segment, higher consolidated operating expenses, and higher impairment losses primarily related to land held for sale. Selling, distribution, and administrative expenses were higher due to increases in comparable and new store costs and related support areas.

Cabela's 2012 Vision

During 2012, we assessed our progress on our 2012 Vision. Looking at our current strategic initiatives, we evaluated what was successful, what we could have done better, and what lessons we have learned in the past three years. Throughout 2012, management confirmed that these strategic initiatives are the key areas to maintain our focus for improvement, and we have therefore continued to emphasize these key financial metrics: merchandise gross margin, Retail segment operating margin, total revenue growth, retail expansion, and growth of our Cabela's CLUB Visa loyalty program. Improvements in these metrics have led to an increase in our return on invested capital, an important measure of how effectively we have deployed capital in our operations in generating cash flows. Increases in our return on invested capital, on an after-tax basis, indicate improvements in our use of capital, thereby creating value in our Company.

Achievements on our 2012 Vision follow:

Focus on Core Customers: Improve customer experiences – every customer, every interaction, every day. Use the product expertise we have developed over the years, along with a focused understanding of our core customers, to improve customer loyalty, enhance brand awareness, and offer the best possible assortment of products in every merchandise category.        

As we focus on our core customers, we are targeting marketing efforts that are directed to different customer interests by improving our modeling methodologies.  We are also using historic sales information to select and size markets while focusing on areas with large concentrations of core customers.

We offer our customers integrated opportunities to access and use our retail store, Internet, and catalog channels. Our in-store pick-up program allows customers to order products through our catalogs, Internet site, and store kiosks and have them delivered to the retail store of their choice without incurring shipping costs, thereby helping to increase foot traffic in our stores. Conversely, our expanding retail stores introduce customers to our Internet and catalog channels. We are capitalizing on our omni-channel model by building on the strengths of each channel, primarily through improvements in our merchandise planning system. This system, along with our replenishment system, allows us to identify the correct product mix in each of our retail stores, and also helps maintain the proper inventory levels to satisfy customer demand in both our Retail and Direct business channels, and to improve our distribution efficiencies. In addition, free shipping offered to our Cabela's CLUB Visa customers, which started in the last half of June 2012 and continued through the last six months of 2012, resulted in increased merchandise sales, greater order frequency, and increases in the number of new Visa cardholder accounts. We intend to concentrate more resources behind these efforts to help drive improvements to the customer shopping experience even more quickly.


29



Improve Merchandise Performance: Improve margins and minimize unproductive inventory by focusing on vendor performance, assortment planning, and inventory management. Optimizing merchandise performance allows us to maximize margins, which requires detailed preseason planning, as well as in-season monitoring of sales and management of inventory.     

Our efforts continue in detailed pre-season planning, in-season monitoring of sales, and management of inventory to focus product assortment on our core customer base. We also continue to work with vendors to negotiate the best prices on products and to manage inventory levels, as well as to ensure vendors deliver all products and services as expected. As a result, our merchandise gross margin as a percentage of merchandise revenue increased 70 basis points to 36.3% in 2012 compared to 35.6% in 2011. This increase was primarily attributable to improved in-season and pre-season merchandise inventory planning, improvements in vendor collaboration, an ongoing focus of private label products, and improvements in price optimization to ensure we are pricing correctly in the marketplace. The increase in our merchandise gross profit as a percentage of merchandise sales was partially offset by an adverse product mix shift due to increased sales of firearms and ammunition, which carry a lower margin.

Retail Profitability: Improve retail profitability by concentrating on sales, advertising, and costs while providing excellent customer experiences. Identify the best practices that produce the best results and apply those findings to all of our retail stores. We have to execute on the balance that allows us to deliver the best possible selection of products and expected level of customer service in each store while managing labor, advertising, and other store costs.

We have improved our retail store merchandising processes, information technology systems, and distribution and logistics capabilities.  We have also improved our visual merchandising within the stores and coordinated merchandise at our stores by adding more regional product assortments.  To enhance customer service at our retail stores, we have increased our staff of outfitters and have continued our management training and mentoring programs for our retail store managers.
Comparing Retail segment results for 2012 to 2011:
operating income increased $82 million, or 31.2%,
operating income as a percentage of Retail segment revenue increased 170 basis points to 18.7%, and
comparable store sales increased 6.9%.
Retail Expansion: Capitalize on our brand strength by developing a profitable retail expansion strategy focused on site locations and appropriate sized stores in our top markets. Increase our retail presence across the United States and Canada by developing a profitable retail expansion strategy that considers site location and the strategic size for each store in its given market.

We opened five retail stores during 2012 in the next-generation store format. We also opened our first Outpost store in Union Gap, Washington, on October 4, 2012, with store results exceeding our expectations. Our total retail store square footage at the end of 2012 was 5.1 million square feet, an increase of 9.8% compared to the end of 2011. Our next-generation store format improves our return on invested capital and better serves our customers by providing shopper-friendly layouts with regionalized product mixes, concept shops, and new product displays and fixtures with enhanced features. Our new Outpost store format will be approximately 40,000 square feet in size and have a "core-flex" merchandise strategy (selected core assortment of products and flexible seasonal merchandise) that will allow us to effectively serve smaller markets with a large concentration of Cabela's customers and is in addition to our next-generation format. The new store formats are more productive and generate higher returns which will help to increase our return on invested capital.

We have also announced plans to open additional retail stores as follows:
in 2013, seven next-generation stores located in Columbus, Ohio; Grandville, Michigan; Louisville, Kentucky; Green Bay, Wisconsin; Thornton, Colorado; Lone Tree, Colorado; and Regina, Saskatchewan, Canada; as well as two Outpost stores located in Saginaw, Michigan; and Waco, Texas; and     
in 2014, five next-generation stores located in Christiana, Delaware; Greenville, South Carolina; Anchorage, Alaska; Woodbury, Minnesota; and Bristol, Virginia.


30



We will be relocating our existing 44,000 square foot Winnipeg, Manitoba, store in the second quarter of 2013 to a more desirable location and increasing the size to 70,000 square feet. We have also announced plans to open an Outpost store in Kalispell, Montana, at a date yet to be determined. Looking to 2013, we expect to increase retail square footage up to 13% over 2012, as well as generate an increased profit per square foot compared to the legacy store base, with the planned openings of these next-generation and Outpost stores.
Direct Business Initiatives: Grow our Direct business by capitalizing on quick-to-market Internet and electronic marketing opportunities and expanding international business. Continue to fine tune our catalogs, as well as the number of pages and product mix in each, in order to improve the profitability of each title. Create steady, profitable growth in our Direct channels, while reducing marketing expenses and significantly increasing the percentage of market share we capture through the Internet.

We are adapting our marketing activities to capitalize on the changes in the way our customers want to shop. As such, we are focusing on improving our customers' digital shopping experiences on Cabelas.com and via mobile devices. Our marketing focus will continue to be on developing a seamless omni-channel experience for our customers regardless of their transaction channel. Our digital transformation continues with efforts around enhancing our Internet website to support the Direct business.  Cabelas.com continues to be the most visited website in the sporting goods industry according to Hitwise, Inc., an online measurement company.  The amount of traffic now coming through mobile devices is growing significantly.  As a result, we continue to utilize best-in-class technology to improve our customers' digital shopping experience and build on the advances we have made to capitalize on the variety of ways customers are shopping at Cabela's today.  We have seen early successes in our social marketing initiatives and now have over 2.2 million fans on Facebook.  Our omni-channel marketing efforts are resulting in increases in new customers, as well as customer engagement across multiple channels with a consistent experience across all channels.

In 2012, we realized improvements in Internet traffic, growth in multi-channel customers, and very early progress in our print to digital transformation. We have developed a multi-year approach to reverse the down trend in our Direct segment and transform our 51 year old legacy catalog business into an omni-channel enterprise supporting transformation to digital, e-commerce, and mobile while optimizing the customer experience with our growing retail footprint. We are in the very early stages of this effort. Near term efforts have been focusing on our print-to-digital transformation and testing targeted shipping offers.

Comparing Direct segment results for 2012 to 2011:
revenue decreased $26 million, or 2.7%,
operating income decreased $17 million to $155 million, and
operating income as a percentage of Direct segment revenue decreased 130 basis points to 16.7%.
The free shipping offer to our Cabela's CLUB Visa customers, which started in the last half of June 2012 and continued through the last six months of 2012, resulted in increased merchandise sales. However, the decrease in sales in clothing and footwear, and a decrease in revenue from our catalog and call centers, offset the sales increase from our Cabela's CLUB Visa free shipping promotion.    

Growth of Cabela's CLUB: Our goal is to continue to attract new cardholders through our Retail and Direct businesses. We want to increase the amount of merchandise or services customers purchase with their CLUB Visa cards while maintaining the profitability of Cabela's CLUB and preserving customer loyalty by providing exclusive experiences, and offering vendor promotions and partnership programs to best serve our customers' needs and give us brand exposure.

Cabela's CLUB continues to manage credit card delinquencies and charge-offs below industry average by adhering to our conservative underwriting criteria and active account management. Our number of average active accounts increased 8.5% to 1.5 million compared to 2011. Financial Services revenue increased $28 million, or 9.5%, in 2012 compared to 2011. In 2012, the Financial Services segment issued $156 million in certificates of deposit, renewed its $225 million variable funding facility for an additional year, and completed two $500 million term securitizations that will mature in February and June of 2017.


31



Our New Vision

Over our history, we have established name recognition and a quality brand that is renowned and respected in the outdoor industry. Two vital components of our corporate strategy are our core purpose and our core values. Our core purpose states, "We passionately serve people who enjoy the outdoor lifestyle by delivering innovation, quality, and value in our products and services." Our core values - "superior customer service," "quality products and services," "integrity and honesty," "respect for individuals," and "excellence in performance" - are our foundation for how we operate our business on a daily basis. Our core purpose and core values have served us well and these core statements will not change.

After evaluating the progress on our 2012 Vision, management put into place Cabela's future strategic plan. We decided that our new vision will not be time bound. We wanted a vision statement that can relate to our outfitters today and something that we can continue to strive towards. Our new vision is below.

"Our Vision is to be the best omni-channel retail company in the world by creating intense customer loyalty for our outdoor brand. This loyalty will be created through two pillars of excellence: highly engaged outfitters and shareholders who support our short and long term goals."

We will focus on these areas to achieve our new vision:
Intensify Customer Loyalty. We will deepen our customer relationships, aggressively serve current and developing market segments, and increase our innovation in Cabela's products and services.
Grow Profitably and Sustainably. Through sustaining and adapting our culture, we will continuously seek ways to improve profitability and increase revenue in all business segments.
Enhance Technology Capability. We will implement a strategic technology road map, streamline our systems, and accelerate customer-facing technologies.
Simplify Our Business. As we focus on our priorities, we will align our goals to foster collaboration and streamline cross-functional processes.
Improve Marketing Effectiveness. We will optimize all marketing channels and expand our digital and e-commerce capabilities while continuing to strengthen the Cabela's brand.

Current Business Environment
 
Worldwide Credit Markets and Macroeconomic Environment – We believe that general improvements in the United States economy helped lead to a lower level of delinquencies and a decrease in charge-offs comparing 2012 to 2011.  We expect our charge-off and delinquency levels to remain below industry standards. The Financial Services segment continues to monitor developments in the securitization and certificates of deposit markets to ensure adequate access to liquidity. On November 2, 2011, we entered into a new five-year credit agreement providing for a $415 million revolving credit facility that replaced our $350 million credit facility set to expire June 30, 2012. Advances under the credit facility will be used for the Company’s general business purposes, including working capital support.

Developments in Legislation and Regulation – In late 2012 and into 2013, there has been significant discussion regarding potential gun control legislation, primarily aimed at modern sporting rifles, certain semiautomatic pistols, and high capacity magazines. For example, in January 2013, the State of New York enacted legislation that expanded the state's existing prohibition on the sale of certain firearms and prohibited the sale of magazines that hold more than seven rounds. In January 2013, legislation was introduced in the United States Senate that would, if enacted, prohibit the sale of certain modern sporting rifles, certain semiautomatic pistols, and magazines that hold more than 10 rounds. We do not expect the recently enacted New York legislation to have a significant impact on our business. Any new federal legislation that prohibits the sale of certain modern sporting rifles, semiautomatic pistols, or ammunition could negatively impact our hunting equipment sales. Our mix of modern sporting rifles, semiautomatic pistols, and ammunition, most likely to be impacted by any legislative changes, is a small percentage of our total hunting equipment sales. We expect demand for firearms, ammunition, and accessories to remain strong as gun control continues to be a legislative focus.


32



On June 7, 2012, the FDIC and the other federal banking agencies announced they are seeking comment on proposed rules that would revise and replace the agencies' current capital rules. Among other things, the proposed rules would revise the agencies' prompt corrective action framework by introducing a common equity tier 1 capital requirement and a higher minimum tier 1 capital requirement. In addition, the proposed rules include a supplementary leverage ratio for depository institutions subject to the advanced approaches capital rules. It is not clear how the final rules will differ from the proposed rules, if at all, or the impact of the final rules on WFB and its ability to comply with a new common equity tier 1 capital requirement and a higher minimum tier 1 capital requirement.    

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Reform Act") was signed into law in July 2010 and has made extensive changes to the laws regulating financial services firms and credit rating agencies and requires significant rule-making. In addition, the Reform Act along with the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the "CARD Act") mandated multiple studies which could result in additional legislative or regulatory action.

The Reform Act imposes a moratorium on the approval of applications for Federal Deposit Insurance Corporation ("FDIC") insurance for an industrial bank, credit card bank, or trust bank that is owned by a commercial firm. Furthermore, the FDIC must, under most circumstances, disapprove any change in control that would result in direct or indirect control by a commercial firm of a credit card bank, such as WFB. For purposes of this provision, a company is a “commercial firm” if its consolidated annual gross revenues from activities that are financial in nature and, if applicable, from the ownership or control of one or more insured depository institutions, in the aggregate, represent less than 15% of its consolidated annual gross revenues. The Reform Act does not, however, eliminate the exception from the definition of “bank” under the Bank Holding Company Act of 1956, as amended (the “BHCA”) for credit card banks, such as WFB. As directed by the Reform Act, the United States Government Accountability Office released a report on January 20, 2012, that examines the potential implications of eliminating certain exceptions under the BHCA, including the exception for credit card banks. It is unclear whether this report will lead to any additional legislative or regulatory action. If the credit card bank exception were eliminated or modified, we may be required to divest our ownership of WFB unless we were willing and able to become a bank holding company under the BHCA. Any such required divestiture may materially adversely affect our business and results of operations.
The Reform Act established the new independent Consumer Financial Protection Bureau (the “Bureau”) which has broad rulemaking, supervisory, and enforcement authority over consumer products, including credit cards. The Bureau has extensive rulemaking authority and enforcement authority, and WFB is subject to the Bureau's regulation. While the Bureau will not examine WFB, it will receive information from WFB's primary federal regulator. The Bureau is specifically authorized to issue rules identifying as unlawful acts or practices it defines as “unfair, deceptive or abusive acts” in connection with any transaction with a consumer or in connection with a consumer financial product or service. It is uncertain what rules will be adopted by the Bureau, how such rules will be enforced and whether or not such rules will require WFB to modify existing practices or procedures.
In 2012, the Bureau, acting in conjunction with the FDIC and other agencies, announced its first high-profile enforcement actions against credit card issuers for deceptive marketing and other illegal practices related to the advertising of ancillary products, collection practices and other matters.  By these recent public enforcement actions, the Bureau and the FDIC have signaled a heightened scrutiny of credit card issuers.  We anticipate increased activity by regulators in pursuing consumer protection claims going forward.
The Reform Act will also affect a number of significant changes relating to asset-backed securities, including additional oversight and regulation of credit rating agencies and additional reporting and disclosure requirements. The changes resulting from the Reform Act or any rules or regulations adopted by the Bureau may impact our profitability, require changes to certain of the Financial Services segment's business practices, impose upon the Financial Services segment more stringent capital, liquidity, and leverage ratio requirements, increase FDIC deposit insurance premiums, or otherwise adversely affect the Financial Services segment's business. These changes may also require the Financial Services segment to invest significant management attention and resources to evaluate and make necessary changes.

Several rules and regulations have recently been proposed or adopted that may substantially affect issuers of asset-backed securities.

33



The Jumpstart Our Business Startups Act (the “JOBS Act”) was signed into law on April 5, 2012, and will implement extensive changes to the laws regulating private offerings of securities, including Rule 144A private offerings such as the private offerings of asset-backed securities of the Cabela's Master Credit Card Trust and related entities (collectively referred to as the “Trust”) that WFB sponsors. On August 29, 2012, the SEC issued proposed regulations to amend Rule 144A to provide that securities may be offered pursuant to Rule 144A by means of general solicitation or general advertising, including to persons other than qualified institutional buyers, so long as the issuer reasonably believes that each ultimate purchaser is a qualified institutional buyer. The impact that the JOBS Act will have on the securitization market and the Financial Services segment is unclear at this time.

On October 11, 2011, the Federal Reserve, the Office of the Comptroller of Currency, the FDIC, and the Securities and Exchange Commission ("SEC") issued proposed regulations implementing certain provisions under the Reform Act limiting proprietary trading and sponsorship or investment in hedge funds and private equity funds (the "Volcker Rule"). The proposed regulations are complex and have been the subject of extensive comment. As proposed, these regulations may apply to us and could limit our ability to engage in the types of transactions covered by the Volcker Rule and may impose potentially burdensome compliance, monitoring, and reporting obligations. There remains considerable uncertainty regarding whether the final regulations implementing the Volcker Rule will differ from the proposed regulations, and the effect of any final regulations on our Retail and Direct businesses and the business of the Financial Services segment, and its ability and willingness to sponsor securitization transactions in the future.

The Trust is structured to qualify for the exemption from the Investment Company Act of 1940, as amended (the “Investment Company Act”) provided by Investment Company Act Rule 3a-7. On August 31, 2011, the SEC issued an advance notice of proposed rulemaking regarding possible amendments to Investment Company Act Rule 3a-7. At this time, it is uncertain what form the related proposed and final rules will take, whether the Trust would continue to be eligible to rely on the exemption provided by Investment Company Act Rule 3a-7, and whether the Trust would qualify for any other Investment Company Act exemption.
On July 26, 2011, the SEC re-proposed certain rules for asset-backed securities offerings (“SEC Regulation AB II”) which were originally proposed by the SEC on April 7, 2010. If adopted, SEC Regulation AB II would substantially change the disclosure, reporting, and offering process for private offerings of asset-backed securities that rely on the Rule 144A safe harbor, including the Trust's private offerings of asset-backed securities. As currently proposed, SEC Regulation AB II would, among other things, alter the safe harbor standards for private placements of asset-backed securities imposing informational requirements similar to those applicable to registered public offerings. The final form that SEC Regulation AB II may take is uncertain at this time, but it may impact the Financial Services segment's ability and/or desire to sponsor securitization transactions in the future.
On March 29, 2011, pursuant to the provisions of the Reform Act, the SEC, the Federal Reserve, the FDIC, and certain other federal agencies issued proposed regulations requiring securitization sponsors to retain an economic interest in assets that they securitize. Subject to certain exceptions, the proposed regulations would generally require the sponsor of a securitization transaction to retain at least 5% of the credit risk of the securitized assets and would provide securitization sponsors with a number of options for satisfying this requirement. Each of these options would require the sponsor to provide certain disclosures to investors a reasonable time prior to sale and upon request to the SEC and the sponsor's applicable federal banking regulator. In addition, the sponsor would be subject to certain prohibitions on hedging, transferring, or financing the retained credit risk. If adopted, the proposed regulations will likely affect most types of private securitization transactions, including those sponsored by the Financial Services segment. It is not clear how the final regulations will differ from the proposed regulations, if at all, or the impact of the final regulations on the Financial Services segment and its ability and willingness to continue to rely on the securitization market for funding.
On January 20, 2011, under provisions of the Reform Act, the SEC adopted rules that require issuers of asset-backed securities to disclose demand, repurchase, and replacement information through the periodic filing of a new form with the SEC. One of these rules, Rule 17g-7 under the Securities Exchange Act of 1934, as amended, requires rating agencies to disclose in any report accompanying a credit rating for an asset-backed security the representations, warranties, and enforcement mechanisms available to investors and how they differ from those in similar securities. Also pursuant to the provisions of the Reform Act, on January 20, 2011, the SEC issued rules that require issuers of asset-backed securities to make publicly available the findings and conclusions of any third-party due diligence report obtained by the issuer.

34



On September 19, 2011, the SEC proposed a new rule under the Securities Act of 1933, as amended, to implement certain provisions of the Reform Act. Under the proposed rule, an underwriter, placement agent, initial purchaser, or sponsor of an asset-backed security, or any affiliate of any such person, shall not at any time within one year after the first closing of the sale of the asset-backed security, engage in any transaction that would involve or result in any material conflict of interest with respect to any investor in a transaction arising out of such activity. The proposed rule would exempt certain risk mitigating hedging activities, liquidity commitments, and bona fide market-making activity. It is not clear how the final rule will differ from the proposed rule, if at all. The final rule's impact on the securitization market and the Financial Services segment is also unclear at this time.    

Proposed Settlement of Visa Litigation – In June 2005, a number of entities, each purporting to represent a class of retail merchants, sued Visa and several member banks, and other credit card associations, alleging, among other things, that Visa and its member banks have violated United States antitrust laws by conspiring to fix the level of interchange fees. On July 13, 2012, the parties to this litigation announced that they had entered into a memorandum of understanding, which subject to certain conditions, including court approval, obligates the parties to enter into a settlement agreement to resolve the claims brought by the class members. On November 9, 2012, the settlement received preliminary court approval. The settlement agreement requires, among other things, (i) the distribution to class merchants of an amount equal to 10 basis points of default interchange across all credit rate categories for a period of eight consecutive months, which otherwise would have been paid to issuers like WFB, (ii) Visa to change its rules to allow merchants to charge a surcharge on credit card transactions subject to a cap, and (iii) Visa to meet with merchant buying groups that seek to negotiate interchange rates collectively. To date, WFB has not been named as a defendant in any credit card industry lawsuits. Management believes that the 10 basis point reduction of default interchange across all credit rate categories for a period of eight consecutive months would result in a reduction of interchange income of approximately $12.5 million in the Financial Services segment. Accordingly, the Company has recorded a liability of $12.5 million as of December 29, 2012, to accrue for such proposed settlement as a reduction of interchange income in the Financial Services segment.

Impact of Change in Accounting Principles in 2010 - The accounting guidance on consolidations and accounting for transfers of financial assets and the criteria for determining whether to consolidate a variable interest entity resulted in the consolidation of the Trust effective January 3, 2010, which resulted in an increase in total assets and liabilities of $2.15 billion and $2.25 billion, respectively, and a decrease in retained earnings and other comprehensive income of $93 million, after tax. In 2010, we began reporting the results of operations of our Financial Services segment in a manner similar to our historical managed presentation for financial performance of the total managed portfolio of credit card loans, excluding income derived from the changes in the valuation of our interest-only strip, cash reserve accounts, and cash accounts associated with the securitized loans. 

Operations Review
 
Our operating results expressed as a percentage of revenue were as follows for the years ended:
 
2012
 
2011
 
2010
 
 
 
 
 
 
Revenue
100.00
 %
 
100.00
 %
 
100.00
 %
Cost of revenue
56.86

 
57.39

 
59.16

    Gross profit (exclusive of depreciation and amortization)
43.14

 
42.61

 
40.84

Selling, distribution, and administrative expenses
33.63

 
33.94

 
33.62

Impairment and restructuring charges
0.65

 
0.43

 
0.21

Operating income
8.86

 
8.24

 
7.01

Other income (expense):
 

 
 
 
 
    Interest expense, net
(0.65
)
 
(0.87
)
 
(1.03
)
    Other income, net
0.20

 
0.26

 
0.28

Total other income (expense), net
(0.45
)
 
(0.61
)
 
(0.75
)
Income before provision for income taxes
8.41

 
7.63

 
6.26

Provision for income taxes
2.83

 
2.56

 
2.05

Net income
5.58
 %
 
5.07
 %
 
4.21
 %

35



Results of Operations - 2012 Compared to 2011

Revenues

Retail revenue includes sales realized and customer services performed at our retail stores, sales from orders placed through our retail store Internet kiosks, and sales from customers utilizing our in-store pick-up program. Direct revenue includes Internet and call center (catalog) sales from orders placed through our website, over the phone, and by mail where the merchandise is shipped to non-retail store locations. Financial Services revenue is comprised of interest and fee income, interchange income, other non-interest income, interest expense, provision for loan losses, and customer rewards costs from our credit card operations. Other revenue sources include fees for our hunting and fishing outfitter services, fees for our full-service travel agency business, real estate rental income and land sales, and other complementary business services.
Comparisons and analysis of our revenues are presented below for the years ended:
 
 
 
 
 
 
 
 
 
Increase (Decrease)
 
% Change
 
2012
 
%
 
2011
 
%
 
 
 
(Dollars in Thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Retail
$
1,849,582

 
59.4
%
 
$
1,550,442

 
55.2
%
 
$
299,140

 
19.3
 %
Direct
930,943

 
29.9

 
956,834

 
34.0

 
(25,891
)
 
(2.7
)
Financial Services
319,399

 
10.3

 
291,746

 
10.4

 
27,653

 
9.5

Other
12,758

 
0.4

 
12,144

 
0.4

 
614

 
5.1

 
$
3,112,682

 
100.0
%
 
$
2,811,166

 
100.0
%
 
$
301,516

 
10.7

Product Sales Mix – The following table sets forth the percentage of our merchandise revenue contributed by major product categories for our Retail and Direct segments and in total for the years ended:
 
 
Retail
 
Direct
 
Total
 
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
Product Category:
 
 
 
 
 
 
 
 
 
 
 
 
Hunting Equipment
 
49.5
%
 
45.7
%
 
37.1
%
 
33.4
%
 
45.3
%
 
41.1
%
General Outdoors
 
28.7

 
30.7

 
32.0

 
32.7

 
29.8

 
31.5

Clothing and Footwear
 
21.8

 
23.6

 
30.9

 
33.9

 
24.9

 
27.4

Total
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
The hunting equipment merchandise category includes a wide variety of firearms, ammunition, optics, archery products, and related accessories and supplies. The general outdoors merchandise category includes a full range of equipment and accessories supporting all outdoor activities, including all types of fishing and tackle products, boats and marine equipment, camping gear and equipment, food preparation and outdoor cooking products, all-terrain vehicles and accessories for automobiles and all-terrain vehicles, and gifts and home furnishings. The clothing and footwear merchandise category includes fieldwear apparel and footwear, sportswear, casual clothing and footwear, and workwear products.
Retail Revenue – Retail revenue increased $299 million, or 19.3%, in 2012 primarily due to an increase of $195 million in revenue from new retail stores comparing year over year and an increase in comparable store sales of $102 million. Retail revenue growth, including the increase in comparable store sales, was led by increases in the hunting equipment product category in large part due to increased sales of firearms and ammunition.
We recognize revenue as gift certificates, gift cards, and e-certificates (“gift instruments”) are redeemed for merchandise or services. We record gift instrument breakage as Retail revenue when the probability of redemption is remote. Gift instrument breakage recognized was $8 million, $7 million, and $5 million for 2012, 2011, and 2010, respectively. Our gift instrument liability at the end of 2012 and 2011 was $135 million and $118 million, respectively.    

36



Comparable store sales and analysis are presented below for the years ended:
 
 
 
 
 
Increase (Decrease)
 
2012
 
2011
 
 
(Dollars in Thousands)
 
 
 
 
 
 
Comparable stores sales
$
1,573,824

 
$
1,472,032

 
$
101,792

Comparable stores sales growth percentage
6.9
%
 
2.8
%
 
 
Comparable store sales increased $102 million, or 6.9%, in 2012 principally because of the strength in our hunting equipment category. A store is included in our comparable store sales base on the first day of the month following the fifteen month anniversary of 1) its opening or acquisition, or 2) any changes to retail store space greater than 25% of total square footage of the store.

Average sales per square foot for stores that were open during the entire year were $362 for 2012 compared to $328 for 2011. The increase in average sales per square foot resulted from the increase in comparable store sales. In addition, our next-generation stores are performing better on a sales per square foot basis than our legacy stores.
Direct Revenue – Direct revenue decreased $26 million, or 2.7%, in 2012 compared to 2011. The decrease in Direct revenue compared to 2011 was primarily due to a decrease in the clothing and footwear product category and a decrease in revenue from our catalog and call centers. These decreases in Direct revenue were partially offset by increased sales attributable to the CLUB Visa free shipping offer and advertising promotions in digital marketing. The free shipping offer to our Cabela's CLUB Visa customers resulted in increased merchandise sales, greater order frequency, and increases in the number of new Visa cardholder accounts.
Internet sales increased in 2012 compared to 2011. The number of web site visitors increased 18.3% during 2012 as we continued to focus our efforts on utilizing Direct marketing programs to increase traffic to our website and social media networks. Our hunting equipment and clothing and footwear categories were the largest dollar volume contributor to our Direct revenue for 2012. The number of active Direct customers, which we define as those customers who have purchased merchandise from us in the last twelve months, remained even compared to 2011.

We continue to focus on smaller, more specialized catalogs, and we have reduced the number of pages mailed and decreased total circulation, leading to continued reductions in catalog related costs. Mostly offsetting the reductions in catalog related costs were increases in Internet related expenses due to our expanded use of digital marketing channels and enhancements to our website.
 
 
 
 
 
Increase (Decrease)
 
% Change
 
2012
 
2011
 
 
 
 
 
 
 
 
 
 
Percentage increase year over year in Internet website visitors
18.3
%
 
4.5
%
 
 
 
 
Pages of paper circulation (in millions)
17,433

 
22,218

 
(4,785
)
 
(21.5
)%
Number of separate titles circulated
108

 
102

 
6

 
 


37



Financial Services Revenue – The following table sets forth the components of our Financial Services revenue for the years ended:
 
 
 
 
 
Increase (Decrease)
 
% Change
 
2012
 
2011
 
 
 
(Dollars in Thousands)
 
 
 
 
 
 
 
 
Interest and fee income
$
301,699

 
$
277,242

 
$
24,457

 
8.8
 %
Interest expense
(54,092
)
 
(70,303
)
 
(16,211
)
 
(23.1
)
Provision for loan losses
(42,760
)
 
(39,287
)
 
3,473

 
8.8

    Net interest income, net of provision for loan losses
204,847

 
167,652

 
37,195

 
22.2

Non-interest income:
 
 
 
 
 
 

    Interchange income
292,151

 
267,106

 
25,045

 
9.4

    Other non-interest income
12,364

 
13,620

 
(1,256
)
 
(9.2
)
       Total non-interest income
304,515

 
280,726

 
23,789

 
8.5

Less: Customer rewards costs
(189,963
)
 
(156,632
)
 
33,331

 
21.3

Financial Services revenue
$
319,399

 
$
291,746

 
$
27,653

 
9.5

Financial Services revenue increased $28 million, or 9.5%, in 2012 compared to 2011. The increase in interest and fee income of $24 million was due to an increase in credit card loans, partially offset by changes in the mix of credit card loan balances at each interest rate. Interest expense decreased $16 million due to decreases in interest rates. The provision for loan losses increased $3 million in 2012 compared to 2011 due to growth in our credit card loan balances, even though our net charge-off rates and allowance for loan losses have decreased. The increase in interchange income of $25 million was due to an increase in credit card purchases, partially offset by $12.5 million pursuant to the proposed settlement regarding the Visa litigation. Customer rewards costs increased $33 million due to an increase in credit card purchases.
The following table sets forth the components of our Financial Services revenue as a percentage of average credit card loans, including any accrued interest and fees, for the years ended:
 
2012
 
2011
 
 
 
 
 
 
Interest and fee income
9.7
 %
 
10.1
 %
 
Interest expense
(1.7
)
 
(2.6
)
 
Provision for loan losses
(1.4
)
 
(1.4
)
 
Interchange income
9.4

 
9.7

 
Other non-interest income
0.4

 
0.5

 
Customer rewards costs
(6.1
)
 
(5.7
)
 
Financial Services revenue
10.3
 %
 
10.6
 %
 
Excluding the affect of the $12.5 million adjustment reducing interchange income from the proposed Visa settlement, interchange income and Financial Services revenue as a percentage of average credit card loans, including any accrued interest and fees, would have been 9.8% and 10.7%, respectively.

Our Cabela’s CLUB Visa credit card loyalty program allows customers to earn points whenever and wherever they use their credit card, and then redeem earned points for products and services at our retail stores or through our Direct business. The percentage of our merchandise sold to customers using the Cabela’s CLUB Visa credit card approximated 29% for 2012. The dollar amounts related to points are accrued as earned by the cardholder and recorded as a reduction in Financial Services revenue. The dollar amount of unredeemed credit card points and loyalty points was $128 million at the end of 2012 compared to $109 million at the end of 2011.



38



Key statistics reflecting the performance of Cabela's CLUB are shown in the following chart for the years ended:    
 
 
 
 
 
Increase (Decrease)
 
% Change
 
2012
 
2011
 
 
 
(Dollars in Thousands Except Average Balance per Account)
 
 
 
 
 
 
 
 
Average balance of credit card loans (1)
$
3,095,781

 
$
2,745,118

 
$
350,663

 
12.8
 %
Average number of active credit card accounts
1,537,209

 
1,416,887

 
120,322

 
8.5

Average balance per active credit card account (1)
$
2,014

 
$
1,937

 
$
77

 
4.0

Net charge-offs on credit card loans (1)
$
57,803

 
$
64,520

 
$
(6,717
)
 
(10.4
)
Net charge-offs as a percentage of average credit card loans (1)
1.87
%
 
2.35
%
 
(0.48
)%
 
 
(1)
Includes accrued interest and fees.
The average balance of credit card loans increased to $3.1 billion, or 12.8%, for 2012 compared to 2011 due to an increase in the number of active accounts and the average balance per account.  The average number of active accounts increased to 1.5 million, or 8.5%, compared to 2011 due to our successful marketing efforts in new account acquisitions. Net charge-offs as a percentage of average credit card loans decreased to 1.87% for 2012, down 48 basis points compared to 2011, due to improvements in delinquencies and delinquency roll-rates. See “Asset Quality of Cabela's CLUB” in this report for additional information on trends in delinquencies and non-accrual loans and analysis of our allowance for loan losses.

Other Revenue
Other revenue increased $1 million in 2012 to $13 million compared to 2011 primarily due to an increase of $1 million in real estate sales revenue in 2012 compared to 2011.
Merchandise Gross Profit
 
Merchandise gross profit is defined as merchandise sales less the costs of related merchandise sold and shipping costs. Comparisons of gross profit and gross profit as a percentage of revenue for our operations, year over year, and to the retail industry in general, are impacted by:
shifts in customer preferences;
retail store, distribution, and warehousing costs (including depreciation and amortization), which we exclude from our cost of revenue;
royalty fees we include in merchandise sales for which there are no costs of revenue;
Financial Services revenue we include in revenue for which there are no costs of revenue;
real estate land sales we include in revenue for which costs vary by transaction;
customer service related revenue we include in revenue for which there are no costs of revenue; and
customer shipping charges in revenue.
Comparisons and analysis of our gross profit on merchandising revenue are presented below for the years ended:        
 
 
 
 
 
Increase (Decrease)
 
% Change
 
2012
 
2011
 
 
 
(Dollars in Thousands)
 
 
 
 
 
 
 
 
Merchandise sales
$
2,778,903

 
$
2,505,733

 
$
273,170

 
10.9
%
Merchandise gross profit
1,009,742

 
892,492

 
117,250

 
13.1

Merchandise gross profit as a percentage of merchandise sales
36.3
%
 
35.6
%
 
0.7
%
 
 

39



Merchandise Gross Profit – Our merchandise gross profit increased $117 million, or 13.1% to $1 billion in 2012 compared to 2011. The increase in our merchandise gross profit was primarily due to better inventory management, which reduced the need to mark down product, continued improvements in vendor collaboration, an ongoing focus on private label products, and further improvements in price optimization.
Our merchandise gross profit as a percentage of merchandise sales increased to 36.3% in 2012 from 35.6% in 2011.   The increase in the merchandise gross profit in 2012 compared to 2011 was primarily due to continued improvements in pre-season and in-season inventory management and vendor collaboration, which allowed us to avoid significant end of season markdowns as we transitioned from fall to spring merchandise. The increase in our merchandise gross profit as a percentage of merchandise sales was partially offset by an adverse product mix shift due to increased sales of firearms, ammunition, and power sports products, which carry a lower margin.    
Selling, Distribution, and Administrative Expenses
Selling, distribution, and administrative expenses include all operating expenses related to our retail stores, Internet website, distribution centers, product procurement, Cabela's CLUB credit card operations, and overhead costs, including: advertising and marketing, catalog costs, employee compensation and benefits, occupancy costs, information systems processing, and depreciation and amortization.
Comparisons and analysis of our selling, distribution, and administrative expenses are presented below for the years ended:    
 
 
 
 
 
Increase (Decrease)
 
% Change
 
2012
 
2011
 
 
 
(Dollars in Thousands)
 
 
 
 
 
 
 
 
Selling, distribution, and administrative expenses
$
1,046,861

 
$
954,125

 
$
92,736

 
9.7
%
SD&A expenses as a percentage of total revenue
33.6
%
 
33.9
%
 
(0.3
)%
 
 
Retail store pre-opening costs
$
12,523

 
$
9,700

 
$
2,823

 
29.1

Selling, distribution, and administrative expenses increased $93 million, or 9.7%, in 2012 compared to 2011. However, expressed as a percentage of total revenue, selling, distribution, and administrative expenses decreased 30 basis points to 33.6% in 2012 compared to 33.9% in 2011. The most significant factors contributing to the changes in selling, distribution, and administrative expenses in 2012 compared to 2011 included:    
an increase of $59 million in employee compensation, benefits, and contract labor primarily due to the opening of new retail stores and increases in staff for other retail stores, merchandising support areas, distribution centers, credit card growth support, and general corporate overhead support;
an increase of $15 million in building costs and depreciation primarily related to the operations and maintenance of our new and existing retail stores as well as corporate offices;
an increase of $11 million in advertising and direct marketing costs, in advertising and promotional costs to support customer relationships, for new store openings, and from an increase in account origination costs in our Financial Services segment; and
an increase of $3 million in equipment and software expense primarily to support operational growth.
Significant changes in our selling, distribution, and administrative expenses related to specific business segments included the following:
 
Retail Segment:
An increase of $29 million in employee compensation, benefits, and contract labor primarily due to the opening of new retail stores and increases in staff for other retail stores and merchandising teams.
An increase of $12 million in building costs primarily related to the operations and maintenance of our new and existing retail stores.
An increase of $15 million in advertising and promotional costs related to new and existing retail stores.

40



Direct Segment:
A net increase of $3 million in advertising and direct marketing costs primarily due to increases in Internet related expenses due to our expanded use of digital marketing channels and enhancements to our website, partially offset by reduced catalog related costs.
An increase of $1 million in building costs and depreciation primarily related to improvements to our distribution centers.
A decrease of $2 million in employee compensation, benefits, and contract labor.
Financial Services Segment:
An increase of $8 million in employee compensation, benefits, and contract labor principally for positions added to support the growth of credit card operations.
A decrease of $7 million in advertising and promotional costs primarily due to the classification of new account origination costs.
An increase of $2 million in losses from fraudulent transactions on Cabela's CLUB Visa cards.
Corporate Overhead, Distribution Centers, and Other:
An increase of $24 million in employee compensation, benefits, and contract labor in general corporate and the distribution centers to support operational growth.
An increase of $4 million in equipment and software expense primarily related to new equipment and updates to support operational growth.
An increase of $2 million in building costs primarily related to the maintenance and expansion of our administrative buildings.

Impairment and Restructuring Charges    
 
Impairment and restructuring charges consisted of the following for the years ended:
 
2012
 
2011
Impairment losses relating to:
 
 
 
Land held for sale
$
17,694

 
$
4,617

Property, equipment, and other assets
1,321

 
154

Accumulated amortization of deferred grant income
1,309

 
6,538

 
20,324

 
11,309

Restructuring charges for severance and related benefits

 
935

Total
$
20,324

 
$
12,244

Long-lived assets of the Company are evaluated for possible impairment (i) whenever changes in circumstances may indicate that the carrying value of an asset may not be recoverable and (ii) at least annually for recurring fair value measurements and for those assets not subject to amortization. In 2012, 2011, and 2010, we evaluated the recoverability of land held for sale, economic development bonds, property (including existing store locations and future retail store sites), equipment, goodwill, and other intangible assets.

In December 2012, we received an appraisal report that updated the value from a previous appraisal on one property held for sale. Results from the 2012 appraisal report concluded that the carrying value was higher than the estimated fair value, resulting in an impairment loss. This 2012 appraisal was based on the sales comparison approach to estimate the “as-is” fee simple market value of the subject property. This approach involved a process in which a market value estimate was derived from analyzing the market for similar properties that have sold or that are available for sale (Level 2 inputs). In the fourth quarter of 2012, we also impaired a second property held for sale based on an arms-length sales contract of adjoining land anticipated to close in mid-2013 (Level 2 inputs). In 2011, we wrote down the carrying value of certain land held for sale properties based on signed agreements for their sale. We recognized impairment losses on land held for sale of $18 million and $5 million in 2012 and 2011, respectively.

41



In the fourth quarter of 2012, we received information on one project that the development will be delayed thus reducing the amount expected to be received and delaying the timing of projected cash flows. Therefore, the fair value of this economic development bond was determined to be below carrying value, with the decline in fair value deemed to be other than temporary. In the fourth quarter of 2011, we received information on three projects that development was either delayed or that actual tax revenues were lower than estimated, thus reducing the amount expected to be received and delaying the timing of projected cash flows. Therefore, the discounted cash flows indicated that the fair value of these three economic development bonds was below carrying value, with the decline in fair value deemed to be other than temporary. These fair value adjustments totaling $5 million and $24 million in 2012 and 2011, respectively, reduced the carrying value of the economic development bond portfolio at the end of 2012 and 2011 and resulted in corresponding reductions in deferred grant income. These reductions in deferred grant income resulted in increases in depreciation expense of $1 million and $7 million in 2012 and 2011, respectively, which have been included in impairment and restructuring charges in the consolidated statements of income. The discounted cash flow models for our other bonds did not result in other-than-temporary impairments. In 2010, none of the bonds with a fair value below carrying value were deemed to have other than a temporary impairment. At the end of 2012 and 2011, the total amount of impairment adjustments that were made to deferred grant income, which has been recorded as a reduction of property and equipment, was $39 million and $34 million, respectively. These impairment adjustments made to deferred grant income resulted from events or changes in circumstances that indicated the amount of deferred grant income may not be recovered or realized in cash through collection, sales, or other proceeds from the economic development bonds.

In 2011, we incurred charges totaling $1 million for severance and related benefits primarily from outplacement costs and a voluntary retirement plan. All impairment and restructuring charges were recorded to the Corporate Overhead and Other segment.

Operating Income
 
Operating income is revenue less cost of revenue, selling, distribution, and administrative expenses, and impairment and restructuring charges. Operating income for our merchandise business segments excludes costs associated with operating expenses of distribution centers, procurement activities, and other corporate overhead costs.
Comparisons and analysis of operating income are presented below for the years ended:
 
 
 
 
 
Increase (Decrease)
 
% Change
 
2012
 
2011
 
 
 
(Dollars in Thousands)
 
 
 
 
 
 
 
 
Total operating income
$
275,699

 
$
231,548

 
$
44,151

 
19.1
 %
Total operating income as a percentage of total revenue
8.9
%
 
8.2
%
 
0.7
 %
 
 
 
 
 
 
 
 
 
 
Operating income by business segment:
 
 
 
 
 
 
 
Retail
$
345,040

 
$
263,010

 
$
82,030

 
31.2

Direct
155,237

 
172,163

 
(16,926
)
 
(9.8
)
Financial Services
74,182

 
59,032

 
15,150

 
25.7

 
 
 
 
 
 
 
 
Operating income as a percentage of segment revenue:
 
 
 
 
 
 
 
Retail
18.7
%
 
17.0
%
 
1.7
 %
 
 
Direct
16.7

 
18.0

 
(1.3
)
 
 
Financial Services
23.2

 
20.2

 
3.0

 
 
Operating income increased $44 million, or 19.1%, in 2012 compared to 2011, and operating income as a percentage of revenue increased 70 basis points to 8.9% for 2012. The increases in total operating income and total operating income as a percentage of total revenue were primarily due to increases in revenue from our Retail and Financial Services segments as well as an increase in our merchandise gross profit. These increases were partially offset by lower revenue from our Direct business, higher consolidated operating expenses, and higher impairment losses primarily related to land held for sale. In addition, interchange income in 2012 in our Financial Services segment was reduced by $12.5 million pursuant to the proposed settlement regarding the Visa litigation. Selling, distribution, and administrative expenses increased in 2012 compared to 2011 primarily due to increases in comparable and new store costs and related support areas.        

42



Prior to January 1, 2012, under an Intercompany Agreement, the Financial Services segment had incurred a marketing fee that was paid to the Retail and Direct segments. Effective January 1, 2012, this Intercompany Agreement was amended with the marketing fee component eliminated and replaced with a fixed license fee equal to 70 basis points on all originated charge volume of the Cabela's CLUB Visa credit card portfolio. In addition, among other changes, the agreement requires the Financial Services segment to reimburse the Retail and Direct segments for certain operating and promotional costs. Reported operating income by segment, and the components of operating income for each segment, were not materially impacted for 2012 compared to prior years by the amendments to the Intercompany Agreement. Fees paid under the Intercompany Agreement by the Financial Services segment to these two segments increased $14 million in 2012 compared to 2011; an $16 million increase to the Retail segment and a $2 million decrease to the Direct segment.    

Interest (Expense) Income, Net
Interest expense, net of interest income, decreased $4 million to $20 million in 2012 compared to $24 million in 2011. Interest expense is accrued on our revolving credit facilities and long-term debt as well as on unrecognized tax benefits. The decrease in interest expense was primarily due to an increase in capitalized interest in 2012 compared to 2011.

Other Non-Operating Income, Net
 
Other non-operating income was $6 million in 2012 compared to $7 million in 2011. This income is primarily from interest earned on our economic development bonds.

Provision for Income Taxes
 
Our effective tax rate was 33.7% in 2012 compared to 33.5% in 2011.  The effective tax rates for both years differed from our statutory rate primarily due to the mix of taxable income between the United States and foreign tax jurisdictions. The balance of unrecognized tax benefits, which is classified with long-term liabilities in the consolidated balance sheet, totaled $39 million at December 29, 2012, compared to $38 million at December 31, 2011.


Results of Operations - 2011 Compared to 2010

Revenues
 
 
 
 
 
 
 
 
 
Increase (Decrease)
 
% Change
 
2011
 
%
 
2010
 
%
 
 
 
(Dollars in Thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Retail
$
1,550,442

 
55.2
%
 
$
1,412,715

 
53.0
%
 
$
137,727

 
9.7
 %
Direct
956,834

 
34.0

 
999,771

 
37.5

 
(42,937
)
 
(4.3
)
Financial Services
291,746

 
10.4

 
227,675

 
8.6

 
64,071

 
28.1

Other
12,144

 
0.4

 
23,081

 
0.9

 
(10,937
)
 
(47.4
)
 
$
2,811,166

 
100.0
%
 
$
2,663,242

 
100.0
%
 
$
147,924

 
5.6


Product Sales Mix – The following table sets forth the percentage of our merchandise revenue contributed by major product categories for our Retail and Direct segments and in total for the years ended:
 
Retail
 
Direct
 
Total
 
2011
 
2010
 
2011
 
2010
 
2011
 
2010
Product Category:
 
 
 
 
 
 
 
 
 
 
 
Hunting Equipment
45.7
%
 
44.5
%
 
33.4
%
 
33.7
%
 
41.1
%
 
40.2
%
General Outdoors
30.7

 
31.5

 
32.7

 
32.9

 
31.5

 
32.1

Clothing and Footwear
23.6

 
24.0

 
33.9

 
33.4

 
27.4

 
27.7

    Total
100.0
%
 
100.0