| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
Cost of Revenue and Selling, Distribution, and Administrative Expenses– Our cost of revenue primarily consists of merchandise acquisition costs, including freight-in costs, as well as shipping costs. Our selling, distribution, and administrative expenses consist of the costs associated with selling, marketing, warehousing, retail store replenishment, and other operating expense activities. All depreciation and amortization expense is associated with selling, distribution, and administrative activities, and accordingly, is included in this same category on the consolidated statement of operations.
Cash and Cash Equivalents– Cash equivalents include commercial paper and other investments that are readily convertible into cash and have original maturities of three months or less, and credit card and debit card receivables from other banks, which settle within one to four business days. Receivables from other banks totaled $9,711 and $10,050 at the end of 2007 and 2006, respectively. Unpresented checks, net of available cash bank balances, are classified as current liabilities. Cash and cash equivalents of WFB were $123,163 and $52,830 at the end of 2007 and 2006, respectively. Due to regulatory restrictions on our bank, we are restricted from using cash held by WFB for non-banking operations.
Securitization of Credit Card Loans– WFB sells the majority of its credit card loans to a securitization trust and recognizes related gains or losses as a component of securitization income in Financial Services revenue. Credit card loans classified as held for sale, which includes WFB’s transferor’s interest in securitized credit card loans, are carried at the lower of cost or market. Net unrealized losses, if any, are recognized in income through a valuation allowance. Although WFB continues to service the underlying credit card accounts and maintains the customer relationships, these securitization transactions are treated as sales and the securitized loans are not included in our consolidated balance sheet. Gains or losses are recognized at the time of sale, and depend, in part, on the carrying amount assigned to the credit card loans sold, which is allocated between the assets sold and retained interest based on their relative fair values at date of transfer. For 2007, 2006 and 2005, WFB recognized gains on sales totaling $22,740, $17,410 and $17,020, respectively. A servicing asset or liability is not recognized as WFB receives adequate compensation relative to current market servicing rates.
WFB retains certain interests in securitized loans, including a transferor’s interest, interest-only strips, servicing rights, and in some cases, cash reserve accounts, and Class B securities. For interest-only strips, the Company estimates related fair values based on the present value of future expected cash flows using assumptions for credit losses, payment rates, and discount rates commensurate with the risks involved. WFB retains the rights to remaining cash flows (including interchange fees) after the other costs of the trust are paid. However, future expected cash flows for valuation of the interest-only strips do not include interchange income since interchange income is earned only when a charge is made to a customer’s account. Interchange income on securitized credit card loans is reflected as a component of securitization income included in Financial Services revenue.
WFB is required to maintain a cash reserve account under certain securitization programs. In addition, WFB owns Class B securities from one of the securitizations. The fair value of the cash reserve accounts are estimated by discounting future cash flows using a rate reflecting the risks commensurate with similar types of instruments. For the Class B securities, fair value approximates the book value of the underlying loans. Interest-only strips are recorded at fair value with fair value changes recorded to income.
Inventories– Inventories are stated at the lower of cost or market. Effective December 31, 2006, we changed our method for valuing inventories from the last-in, first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method. The effect of this change was not material to our consolidated financial statements for 2007, 2006, or 2005. Refer to Note 2 for additional information on this change.
All inventories are finished goods. The shrink reserve, estimated based on cycle counts and physical inventories, was $6,875 and $3,193 at the end of 2007 and 2006, respectively. The reserves for returns of damaged goods, obsolescence, and slow-moving items, estimated based upon historical experience, inventory aging, and specific identification, were $6,805 and $5,862 at the end of 2007 and 2006, respectively.
57
| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
Vendor Allowances– Vendor allowances include price allowances, volume rebates, store opening costs reimbursements, and advertising reimbursements received from vendors under vendor contracts. Vendor merchandise allowances are recognized as a reduction of the costs of merchandise as sold. Vendor reimbursements of costs are recorded as a reduction to expense in the period the related cost is incurred based on actual costs incurred. Any cost reimbursements exceeding expenses incurred are recognized as a reduction of the cost of merchandise sold. Volume allowances may be estimated based on historical purchases and estimates of projected purchases.
Deferred Catalog Costs and Advertising– Advertising production costs are expensed as the advertising occurs except for catalog costs which are amortized over the expected period of benefit estimated at 3 to 12 months after mailing. Unamortized catalog costs totaled $32,569 and $34,869 at the end of 2007 and 2006, respectively. Advertising expense, including catalog costs amortization, and website marketing paid search fees, was $207,373, $191,533 and $170,024 for 2007, 2006 and 2005, respectively. Advertising vendor reimbursements netted in advertising expense above totaled $7,058, $4,546 and $4,783 for 2007, 2006 and 2005, respectively.
Store Pre-opening Expenses– Non-capital costs associated with the opening of new stores is expensed as incurred.
Property and Equipment– Property and equipment are stated at cost. Depreciation and amortization are provided over the estimated useful lives of the assets, including assets held under capital leases, on a straight-line basis. Leasehold improvements are amortized over the lease term or, if shorter, the useful lives of the improvements. Assets held under capital lease agreements are amortized using the straight-line method over the shorter of the estimated useful lives of the assets or the lease term. The costs of major improvements that extend the useful life of an asset are capitalized. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Capitalized interest on projects during the construction period totaled $4,069 and $355, for 2007 and 2006, respectively. Costs related to internally developed software are capitalized and amortized on a straight-line basis over their estimated useful lives.
Intangible Assets– Intangible assets, recorded in other assets, include deferred financing costs, non-compete agreements, and goodwill. At the end of 2007 and 2006, intangible assets totaled $8,123 and $3,172, net of accumulated amortization of $4,509 and $3,847, respectively. Intangible assets, excluding goodwill, are amortized over three to 17 years. Amortization expense for these intangible assets for the next five years is estimated to approximate $744 (2008), $743 (2009), $739 (2010), $606 (2011) and $392 (2012).
On September 27, 2007, we purchased the net assets, and assumed certain liabilities, of an outdoors specialty retailer located in Winnipeg, Manitoba, totaling $11,162. The purchase price has been allocated to tangible and identifiable assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill of $3,505. We recorded goodwill related to this acquisition based on expected future economic benefits as this acquisition will serve as our platform for expansion into Canada. Results of operations for this acquisition for the last three months of 2007 are included in our consolidated income statement.
Land Held for Sale or Development– Proceeds from the sale of land from development activities are recognized in other revenue and the corresponding costs of land sold are recognized in other costs of revenue.
Government Economic Assistance– When we construct a new retail store or retail development, we may receive economic assistance from local governments to fund a portion or all of our associated capital costs. This assistance typically comes in the form of cash and/or land grants and has been typically funded by the local government through proceeds from the sale of economic development bonds. We have historically purchased the majority of the bonds associated with our developments. Cash grants are made available to fund land, retail store construction, and/or development infrastructure costs. Economic development bonds are typically repaid through sales and/or property taxes generated by the retail store and/or within a designated development area. Cash and land
58
| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
grants are recognized as deferred grant income as a reduction to the costs, or recognized fair value in the case of land grants, of the associated property and equipment. Deferred grant income is amortized to earnings, as a reduction of depreciation expense, over the average estimated useful life of the associated assets.
Deferred grant income estimates, and their associated present value, are updated quarterly. These estimates are determined when estimation of the fair value of associated economic development bonds are performed if there are related bond investments. When it is determined that recorded amounts will not be recovered through projected discounted cash flows, an adjustment is made to reduce deferred grant income, and accumulated amortization on the deferred grant at that point in time is reversed as an increase to depreciation expense.
We may agree to guarantee deficiencies in tax collections which fund the repayment of economic development bonds. We guaranteed an economic development bond totaling $3,695 and $3,960 at the end of years 2007 and 2006, respectively. As of December 29, 2007, cash flow projections reflect that any payments required by us under these guarantees would not have a material impact on our financial position, results of operations, or liquidity.
Land grants typically include land associated with the retail store and may include other land for sale and further development. Land grants are recognized at the fair value of the land on date of grant. Deferred grant income on land grants is recognized as a reduction to depreciation expense over the estimated life of the related assets of the developments. In 2007, we received land under land grants with a fair value of $19,000.
Certain grants contain covenants we are required to comply with regarding minimum employment levels, maintaining retail stores in certain locations, and maintaining office facilities in certain locations. For these grants we recognize grant revenue as the milestones associated with the grant are met. For 2007 and 2006, we were in compliance with all material requirements under these grants.
Economic Development Bonds– Economic development bonds (“bonds”) issued by state and local municipalities that management has the intent and ability to hold to maturity are classified as held-to-maturity and recorded at amortized cost. Other bonds are classified as available-for-sale and valued at their fair value. Fair values of bonds are estimated using discounted cash flow projections based on available market interest rates and management estimates including the estimated amounts and timing of expected future tax payments to be received by the municipalities under development zones. These fair values do not reflect any premium or discount that could result from offering these bonds for sale or through early redemption, or any related income tax impact. Declines in the fair value of held-to-maturity and available-for-sale economic development bonds below cost that are deemed to be other than temporary are reflected in earnings.
Credit Card and Loyalty Rewards Programs– Cabela’s CLUB Visa cardholders receive Cabela’s points based on the dollar amounts of transactions through WFB issued credit cards which may be redeemed for Cabela’s products and services. Points may also be awarded for special promotions for the acquisition and retention of accounts. The dollar amount of related points are accrued as earned by the cardholder and recorded as a reduction in Financial Services revenue. In addition to the WFB issued credit cards, customers receive points for purchases at Cabela’s from various loyalty programs. The dollar amount of unredeemed credit card points and loyalty points was $70,955 and $57,159 at the end of 2007 and 2006, respectively. The total cost incurred of all credit card rewards and loyalty programs was $109,619, $90,096, and $72,992 for 2007, 2006 and 2005, respectively.
Income Taxes– The Company files consolidated federal and state income tax returns with its wholly-owned subsidiaries. The consolidated group follows a policy of requiring each entity to provide for income taxes in an amount equal to the income taxes that would have been incurred if each were filing separately. We recognize deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of our assets and liabilities. We establish valuation allowances if we believe it is more likely than not that some or all of our deferred tax assets will not be realized.
59
| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
Stock-Based Compensation– We adopted the provisions of FAS No. 123 (revised 2004),Share-Based Payment (“FAS 123R”), on January 1, 2006, using the modified prospective transition method. Prior to January 1, 2006, we accounted for stock-based payments under the provisions of Accounting Principles Board (“APB”) Opinion No. 25,Accounting for Stock Issued to Employees, and related interpretations. Effective January 1, 2006, we also adopted FASB Staff Interpretation FAS 123(R)-3,Transition Election Related to Accounting for the Tax Effect of Share-Based Payment Awards, relating to transitional guidance on determining and reporting excess tax benefits from stock options exercised.
Under FAS 123R, we recognize compensation expense as follows. For equity awards issued after January 1, 2006, compensation expense is estimated based on grant date fair value on a straight-line basis over the requisite service period. For awards granted prior to, but not yet vested as of January 1, 2006, we estimated compensation expense based on the grant date fair value estimated under the provisions of APB Opinion No. 25. Costs associated with all awards are included in compensation expense as a component of selling, distribution, and administrative expenses.
Financial Instruments and Credit Risk Concentrations– Financial instruments which may subject us to concentrations of credit risk are primarily cash, investments, and accounts receivable. We invest primarily in money market accounts, tax-free municipal bonds, or commercial paper, with short-term maturities, limiting the amount of credit exposure to any one entity. Concentrations of credit risk on accounts receivable are limited due to the nature of our receivables.
Fair Value of Financial Instruments– The carrying amount of cash and cash equivalents, receivables, credit card loans held for sale, retained interests in asset securitizations, accounts payable, short-term borrowings, notes payable to banks, and accrued expenses approximate fair value because of the short maturity of these instruments. The fair values of our long-term debt instruments are based on the amount of future cash flows associated with each instrument discounted using current borrowing rates for similar debt instruments of comparable maturity. Time deposits are pooled in homogeneous groups, and the future cash flows of those groups are discounted using current market rates offered for similar products for purposes of estimating fair value.
Derivatives– We use derivatives for the purpose of hedging our exposure to changes in interest rates and foreign currency exchange rates. The fair value of each derivative is recognized in the consolidated balance sheets within current assets or current liabilities. For derivatives designated as a hedge and used to hedge an anticipated transaction, changes in the fair value of the derivatives are deferred in the consolidated balance sheets within accumulated other comprehensive income (loss) to the extent the hedge is effective in mitigating the exposure to the related anticipated transaction. Any ineffectiveness associated with the hedge is recognized immediately in earnings. Amounts deferred within accumulated other comprehensive income (loss) are recognized in the consolidated income statements in the same period during which the hedged transaction affects earnings. For derivatives that do not qualify for hedge accounting, changes in fair values are recognized immediately in earnings.
Comprehensive Income– Comprehensive income consists of net income, derivative adjustments, unrealized gains and losses on available-for-sale economic development bonds, and foreign currency translation adjustments, net of related income taxes.
Currency Translation– Assets and liabilities of our Canadian operations are translated into U. S. dollars at currency exchange rates in effect at the end of a reporting period. Gains and losses from translation into U. S. dollars are included in accumulated other comprehensive income (loss) in our consolidated balance sheets. Revenues and expenses are translated at average monthly currency exchange rates.
Earnings Per Share– Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed by dividing net income by the sum of the weighted average number of shares outstanding plus all additional common shares that would have been outstanding if potentially dilutive common share equivalents had been issued. Options exercised prior to vesting for 2006 and 2005 have not been considered in the basic EPS calculation, but are considered in the computation of diluted EPS.
60
| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
2. CHANGE IN ACCOUNTING PRINCIPLES
Inventories:
Effective the beginning of 2007, we changed our method for valuing inventories from the LIFO method to the FIFO method. Due to merchandise unit cost increases for new and higher-priced product lines we offer, and because of the market volatility for certain materials in the manufacture of other product lines (primarily firearms and ammunition), we believe this change was preferable as the FIFO method better reflects our inventory at current costs. Further, our adoption of the FIFO method enhances the comparability of our consolidated financial statements by changing to the predominant method utilized in our industry, and reflects the inventory of all of our operations on the same accounting method. The effect of the change did not have a material impact to our consolidated financial statements for the years ended 2007, 2006 and 2005. Because the effect of the change on all periods is not material, no adjustments have been made to our consolidated financial statements to reflect a retrospective application.
At December 30, 2006, $18,697 was included in the current portion of deferred income taxes payable in our consolidated balance sheet related to the book-tax difference resulting from the LIFO method used for income tax purposes. Although the use of the LIFO method under income tax regulations requires conformity of methods for financial reporting purposes, it does allow selection of alternative methods of calculation. Our LIFO calculation for income tax purposes utilizes a simplified LIFO approach which results in a book-tax difference. The change to the FIFO method in the first quarter of 2007 increased the current portion of income taxes payable by $4,674 and reduced the current deferred income tax liability by $4,674. We will incur a cash outlay totaling $18,697 over the next four years since we elected in our 2007 federal income tax return to change our method of accounting for inventory from LIFO to FIFO for income tax purposes.
Uncertainty in Income Taxes:
On December 31, 2006, we adopted the provisions of FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109(“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The recognition threshold requires that we determine whether it is more likely than not that a tax position will be sustained upon examination, and then the position is measured at the largest amount of the benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed on our tax returns that do not meet these recognition and measurement standards.
As a result of adopting FIN 48 we recognized additional liabilities for unrecognized tax benefits of $8,569. Of this amount, $966 after-tax was recorded as a one-time decrease to our beginning retained earnings. The remaining amount was previously accrued under FAS 5,Accounting for Contingencies, or FAS 109,Accounting for Income Taxes. In addition, we recorded $1,196 before-tax, or $789 after-tax, of accrued interest on the estimated unrecognized tax benefits as a one-time decrease to our beginning retained earnings. The cumulative effect of adopting FIN 48 totaled $1,755 as a decrease to our beginning retained earnings.
61
| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
3. ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued FAS No. 157,Fair Value Measurements. This statement defines fair value, establishes a framework for measuring fair value, and requires expanded disclosures about fair value measurements. FAS 157 is effective for financial statements issued in fiscal years beginning after November 15, 2007, or beginning in 2008 for us. We have evaluated the impact of this statement to Cabela’s, and we do not believe that the adoption of the provisions of this statement will have a material impact on our financial position or results of operations.
In February 2007, the FASB issued FAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. FAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. We evaluated the provisions of this statement and did not elect to adopt the fair value option on any financial instruments or other items held by the Company on December 29, 2007.
In December 2007, the FASB issued FAS No. 141R,Business Combinations, which replaces FAS No. 141. FAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired and the liabilities assumed. This statement applies prospectively to all business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. FAS 141R will be applicable to us beginning in 2009.
In December 2007, the FASB issued FAS No. 160,Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51. This statement amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. FAS 160 is effective for fiscal years beginning on or after December 15, 2008, including interim periods. We do not believe that the adoption of this statement will have a material effect on our financial position or results of operations.
4. CREDIT CARD LOANS AND SECURITIZATION
WFB has established a trust for the purpose of routinely securitizing and selling credit card loans. WFB maintains responsibility for servicing the securitized loans and receives a servicing fee based on the average outstanding loans in the trust. Servicing fees are paid monthly and reflected as a component of Financial Services revenue. The trust issues commercial paper, long-term bonds, or long-term notes. Variable bonds and notes are priced at a benchmark rate plus a spread. Fixed rate notes are priced on a five-year swap rate plus a spread. WFB retains rights to future cash flows arising after investors have received the return to which they are entitled and after certain administrative costs of operating the trust. This portion of the retained interests is known as interest-only strips and is subordinate to investor’s interests. The value of the interest-only strips is subject to credit, payment rate, and interest rate risks on the loans sold. The investors have no recourse to the assets of WFB for failure of debtors to pay. However, as contractually required, WFB establishes certain cash accounts, known as cash reserve accounts, to be used as collateral for the benefit of investors.
62
| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
Credit card loans consisted of the following for the years ended:
| | 2007 | | 2006 |
| Credit card loans held for sale (including transferor’s interest of $166,700 and | | | | | | | | |
| $122,824) | | $ | 178,258 | | | $ | 136,072 | |
| Credit card loans receivable, net of allowances of $1,197 and $699 | | | 13,635 | | | | 16,611 | |
| Total | | $ | 191,893 | | | $ | 152,683 | |
| | | | | | | | | |
| Composition of credit card loans at year end: | | | | | | | | |
| Loans serviced | | $ | 2,058,235 | | | $ | 1,674,064 | |
| Loans securitized and sold to outside investors | | | (1,850,000 | ) | | | (1,514,000 | ) |
| Securitized loans with securities owned by WFB which are classified as | | | | | | | | |
| retained interests | | | (12,650 | ) | | | (4,922 | ) |
| | | 195,585 | | | | 155,142 | |
| Less adjustments to market value and allowance for loan losses | | | (3,692 | ) | | | (2,459 | ) |
| Total (including transferor’s interest of $166,700 and $122,824) | | $ | 191,893 | | | $ | 152,683 | |
| |
| Transferor’s interest restricted for repayment of secured borrowing at year | | | | | | | | |
| end | | $ | 133,333 | | | $ | — | |
| |
| Delinquent loans in the managed credit card loan portfolio at year end: | | | | | | | | |
| 30-89 days | | | 14,319 | | | | 9,589 | |
| 90 days or more and still accruing | | | 5,835 | | | | 3,095 | |
| | | | | | | | | |
| Total net charge-offs on the managed credit card loans | | | | | | | | |
| portfolio for the year ended | | | 33,898 | | | | 25,199 | |
| | | | | | | | | |
| Annual average credit card loans: | | | | | | | | |
| Managed credit card loans | | | 1,690,543 | | | | 1,357,671 | |
| Securitized credit card loans including transferor’s interest | | | 1,656,078 | | | | 1,325,149 | |
| | | | | | | | | |
| Total net charge-offs as a percentage of annual average | | | | | | | | |
| managed credit card loans | | | 2.01 | % | | | 1.86 | % |
Retained Interests:
Retained interests in securitized loans consisted of the following at the years ended:
| | 2007 | | 2006 |
| Cash reserve account | | $ | 11,965 | | $ | 9,638 |
| Interest-only strips | | | 27,162 | | | 24,473 |
| Class B securities | | | 12,650 | | | 4,922 |
| | $ | 51,777 | | $ | 39,033 |
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| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
Key Assumptions:
The following are the key economic assumptions used to estimate the fair value of the interest-only strips resulting from the securitization of credit card loans for the years ended:
| | | 2007 | | 2006 |
| Weighted average payment rates | | 29.88 to 33.16% | | 33.05 to 35.27% |
| Weighted average life in years | | 0.542 to 0.708 | | 0.542 to 0.625 |
| |
| Weighted average expected credit losses | | 2.57 to 3.06% | | 2.59 to 2.96% |
| |
| Servicing fee | | 1.25 to 2.00% | | 1.25 to 2.00% |
| Discount rate | | 10.12 to 16.60% | | 10.37 to 11.39% |
| Weighted average interest rate paid to investors | | 5.47 to 5.64% | | 5.46 to 5.62% |
Sensitivity Analysis:
The key economic assumptions used and the sensitivity of the current fair value of retained interests of $51,777 at December 29, 2007, to immediate 10% and 20% adverse changes in those assumptions are as follows:
| | | | | Impact on Fair Value of |
| | | Assumption | | an Adverse Change of |
| | | | | 10% | | 20% |
| Weighted average payment rates | | 29.88 | % | | $ | (1,329 | ) | | $ | (2,562 | ) |
| Weighted average expected credit losses | | 3.06 | | | | (1,362 | ) | | | (2,678 | ) |
| Discount rate | | 15.60 and 16.60 | | | | (257 | ) | | | (516 | ) |
| Weighted average interest paid to investors | | 5.57 | | | | (1,320 | ) | | | (2,640 | ) |
The sensitivity analysis is hypothetical and is as of a specific point in time. As a result, these scenarios should be used with caution. As the table indicates, changes in fair value based on 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair values of the retained interests are calculated without changing any other assumption; in reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities.
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| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
Cash Flows from Securitizations:
The following table summarizes the cash flows received from the securitization trust during the years ended:
| | | 2007 | | 2006 | | 2005 |
| Proceeds from new securitizations, net | | $ | 336,000 | | $ | 267,000 | | $ | 237,000 |
| Collections used by the trust to purchase new balances in | | | | | | | | | |
| revolving credit card securitizations | | | 8,040,206 | | | 6,727,177 | | | 5,578,746 |
| Servicing fees received | | | 30,077 | | | 24,352 | | | 19,468 |
| Other cash flows received by the transferor other than | | | | | | | | | |
| servicing fees | | | 188,633 | | | 157,259 | | | 124,396 |
Certain restrictions exist related to securitization transactions that protect certificate and note holders against declining performance of the credit card loans. In the event performance declines outside stated parameters and waivers are not granted by certificate holders, note holders and/or credit enhancement providers, a rapid amortization of the certificates and notes could potentially occur. The credit card loans were performing within established guidelines during 2007, 2006 and 2005.
5. PROPERTY AND EQUIPMENT
Property and equipment included the following at the years ended:
| | | Depreciable Life | | | | |
| | | in Years | | 2007 | | 2006 |
| Land and improvements | | Up to 20 | | $ | 172,582 | | | $ | 91,561 | |
| Buildings and improvements | | 7 to 40 | | | 470,067 | | | | 303,600 | |
| Furniture, fixtures and equipment | | 3 to 15 | | | 378,050 | | | | 281,521 | |
| Assets held under capital lease | | 30 | | | 14,562 | | | | 14,363 | |
| Property and equipment | | | | | 1,035,261 | | | | 691,045 | |
| Less accumulated depreciation and amortization | | | | | (246,178 | ) | | | (190,912 | ) |
| | | | | | 789,083 | | | | 500,133 | |
| Construction in progress | | | | | 114,969 | | | | 99,932 | |
| | | | | $ | 904,052 | | | $ | 600,065 | |
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| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
6. ECONOMIC DEVELOPMENT BONDS
Economic development bonds consisted of the following at the years ended:
| | | 2007 |
| | | | | Gross | | Gross | | |
| | | | | Unrealized | | Unrealized | | Fair |
| | | Cost | | Gains | | Losses | | Value |
| Classified as: | | | | | | | | | | | | | | | | |
| Available-for-sale | | $ | 91,427 | | | $ | 9 | | | $ | (1,299 | ) | | $ | 90,137 |
| Held to maturity | | | 7,898 | | | | — | | | | — | | | | 7,898 |
| | | $ | 99,325 | | | $ | 9 | | | $ | (1,299 | ) | | $ | 98,035 |
| | | 2006 |
| | | | | Gross | | Gross | | |
| | | | | Unrealized | | Unrealized | | Fair |
| | | Cost | | Gains | | Losses | | Value |
| Classified as: | | | | | | | | | | | | | | | | | |
| Available-for-sale | | $ | 105,431 | | | $ | 467 | | | | $ | — | | | $ | 105,898 |
| Held to maturity | | | 11,462 | | | | — | | | | | — | | | | 11,462 |
| | | $ | 116,893 | | | $ | 467 | | | | $ | — | | | $ | 117,360 |
The carrying value and fair value of economic development bonds by contractual maturity at the end of 2007 was as follows:
| | | Available-for-Sale | | Held to Maturity |
| | | | | Fair | | Cost and |
| | | Cost | | Value | | Fair Value |
| 2008 | | $ | 847 | | $ | 759 | | | $ | 702 | |
| 2009 | | | 895 | | | 755 | | | | 703 | |
| 2010 | | | 1,183 | | | 917 | | | | 590 | |
| 2011 | | | 1,897 | | | 1,079 | | | | 637 | |
| 2012 | | | 2,531 | | | 2,086 | | | | 686 | |
| Thereafter | | | 84,074 | | | 84,541 | | | | 4,580 | |
| | | $ | 91,427 | | $ | 90,137 | | | $ | 7,898 | |
At the end of 2007, the fair value of two economic development bonds were determined to be below carrying value, with the decline in fair value deemed to be other than temporary. These fair value adjustments totaling $6,733 reduced the carrying value of the economic development bond portfolio.
Interest earned on the economic development bonds totaled $5,680, $9,574 and $10,549 for 2007, 2006 and 2005, respectively. There were no realized gains or losses in 2007, 2006 or 2005.
66
| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
7. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets (current and long-term) consisted of the following at the years ended:
| | | 2007 | | 2006 |
| Prepaid expenses and other current assets: | | | | | | |
| Deferred catalog costs | | $ | 32,569 | | $ | 34,892 |
| Interest and notes receivable | | | 5,520 | | | 10,092 |
| Financial Services - Visa interchange funding | | | 31,067 | | | 25,524 |
| Financial Services accrued interest and other receivables | | | 34,575 | | | 28,254 |
| Other | | | 12,566 | | | 7,647 |
| | | $ | 116,297 | | $ | 106,409 |
| Other assets: | | | | | | |
| Goodwill | | $ | 4,474 | | $ | 969 |
| Intangible assets, net | | | 3,649 | | | 2,203 |
| Financial Services deferred financing and new account costs | | | 6,942 | | | 7,537 |
| Long-term notes and other receivables | | | 12,382 | | | 8,452 |
| Other (2007 balance includes mortgage-backed securities of $1,630, | | | | | | |
| at cost, which approximates fair value) | | | 2,329 | | | 443 |
| | | $ | 29,776 | | $ | 19,604 |
8. ACCRUED EXPENSES
Accrued expenses consisted of the following at the years ended:
| | | 2007 | | 2006 |
| Accrued employee compensation and benefits | | $ | 61,519 | | $ | 61,277 |
| Accrued property, sales, and other taxes | | | 17,926 | | | 12,223 |
| Deferred revenue and accrued sales returns | | | 27,710 | | | 33,482 |
| Accrued interest | | | 6,305 | | | 6,025 |
| Accrued credit card fees | | | 6,306 | | | 5,502 |
| Other | | | 19,744 | | | 14,890 |
| | | $ | 139,510 | | $ | 133,399 |
9. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consisted of the following at the years ended:
| | | 2007 | | 2006 |
| Deferred lease tenant allowances | | $ | 17,018 | | $ | — |
| Deferred grant income | | | 9,685 | | | 9,550 |
| Deferred compensation | | | 5,379 | | | 5,174 |
| FIN 48 unrecognized tax benefits | | | 2,000 | | | — |
| | | $ | 34,082 | | $ | 14,724 |
67
| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
10. TIME DEPOSITS
WFB accepts time deposits only in amounts of at least one hundred thousand dollars. All time deposits are interest bearing. The aggregate amount of time deposits by maturity at the end of 2007 was as follows:
| 2008 | | $ | 49,219 | |
| 2009 | | | 36,886 | |
| 2010 | | | 37,886 | |
| 2011 | | | 22,200 | |
| 2012 | | | 14,200 | |
| Thereafter | | | 200 | |
| | | | 160,591 | |
| Less current maturities | | | (49,219 | ) |
| Deposits classified as non-current liabilities | | $ | 111,372 | |
For purposes of estimating fair value, time deposits are pooled in homogeneous groups and the future cash flows of those groups are discounted using current market rates offered for similar products. At the end of 2007 and 2006, the carrying amounts of the bank’s time deposits were $160,591 and $102,196, respectively, with estimated fair values of $162,939 and $102,739, respectively.
11. REVOLVING CREDIT FACILITIES
We have a credit agreement that provides for a $325,000 unsecured revolving credit facility. Effective August 15, 2007, we entered into an agreement to amend this credit facility - changing the expiration date of the revolving commitment to June 30, 2012, from June 30, 2010; increasing the limit of letters of credit to $200,000 from $150,000; and amending certain covenants. The credit facility may be increased to $450,000, and permits the issuance of up to $200,000 in letters of credit and standby letters of credit, which are applied against the overall credit limit available under the credit facility.
At December 29, 2007, the principal amount outstanding under this credit agreement totaled $50,576 and the average principal balance outstanding during 2007 was $66,840. Letters of credit and standby letters of credit totaling $59,596 were outstanding at December 29, 2007.
The weighted average interest rate for borrowings on the line of credit was 5.67% during 2007. During the term of the facility, we are required to pay a quarterly facility fee, which ranges from 0.10% to 0.25% of the average daily unused principal balance on the line of credit. Interest on advances on this credit facility is determined at the greater of 1) the lead lender’s prime rate, 2) the average rate on the federal funds rate in effect for the day plus one-half of one percent, or 3) the Eurodollar rate of interest plus a margin, as defined.
The credit agreement requires that Cabela’s comply with certain financial and other customary covenants, including 1) a fixed charge coverage ratio (as defined) of no less than 1.50 to 1.00 as of the last day of any quarter; 2) a cash flow leverage ratio (as defined) of no more than 3.00 to 1.00 as of the last day of any quarter; and 3) a minimum tangible net worth standard (as defined).
The credit agreement includes a dividend provision limiting the amount that Cabela’s could pay to stockholders, which at December 29, 2007, was not in excess of $108,933. The agreement also has a provision permitting acceleration by the lenders in the event there is a change in control, as defined. In addition, the credit agreement contains cross default provisions to other outstanding debt. In the event that we fail to comply with these covenants, a default is triggered. In the event of default, all outstanding letters of credit and all principal and outstanding interest would immediately become due and payable. We were in compliance with all financial debt covenants at December 29, 2007.
68
| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
On September 19, 2007, we entered into an unsecured revolving credit agreement for $14,933 ($15,000 Canadian) in conjunction with the acquisition of the net assets of an outdoors specialty retailer located in Winnipeg, Manitoba. Interest is variable, computed at rates as defined in the agreement, plus a margin, and payable monthly. At December 29, 2007, the interest rate was 5.60%.
The $325,000 credit agreement was previously amended eliminating certain limitations regarding pay downs of revolving loans advanced; therefore, advances made pursuant to this credit agreement are classified as long-term debt. The credit agreement for our Canada operations is also classified as long-term debt.
We also have financing agreements that allow certain boat and all-terrain vehicle merchandise vendors to give us extended payment terms. The vendors are responsible for all interest payments, with certain exceptions, for the financing period and the financing company holds a security interest in the specific inventory held Cabela’s. We record this merchandise in inventory. Our revolving credit facility limits this security interest to $50,000. The extended payment terms to the vendor do not exceed one year. The outstanding liability, included in accounts payable, was $7,988 and $9,829 at the end of 2007 and 2006, respectively.
12. SHORT-TERM BORROWINGS OF FINANCIAL SERVICES SUBSIDIARY
At December 29, 2007, the principal amount of $100,000 is outstanding under a variable funding facility credit agreement entered into by WFB. This facility is secured by a participation interest in the transferor’s interest of the Cabela’s Master Credit Card Trust. The facility limit was entered into on June 21, 2007, for $50,000, and was increased to $100,000 on November 29, 2007. The facility carries a liquidity fee of 0.15% on the outstanding commitment and a program fee of 0.10% on the principal amount outstanding. The interest rate on the facility is based upon the interest rate for commercial paper issued by the lender and was 5.11% at the end of 2007. The weighted average interest rate was 5.31% during 2007. The credit agreement expires on June 20, 2008.
WFB has an unsecured federal funds purchase agreement with a financial institution. The maximum amount that can be borrowed is $25,000. All federal funds transactions are on a daily origination and return basis. Daily interest charges are determined upon mutual agreement by the parties. There were no amounts outstanding at the end of 2007 and 2006.
WFB also has an unsecured federal funds purchase agreement with another financial institution. The maximum amount that can be borrowed is $60,000. The interest rate for the purchase agreement is based on the current federal funds rate. There were no amounts outstanding as of December 29, 2007, and at December 30, 2006, there was $6,491 outstanding at 5.75%.
13. LONG-TERM DEBT AND CAPITAL LEASES
Long-term debt and capital leases consisted of the following at the years ended:
| | | 2007 | | 2006 |
| Unsecured revolving credit facility expiring June 30, 2012 | | $ | 50,576 | | | $ | — | |
| Unsecured senior notes due 2008-2009 with interest at 4.95% | | | 50,000 | | | | 75,000 | |
| Unsecured notes payable due 2016 with interest at 5.99% | | | 215,000 | | | | 215,000 | |
| Senior unsecured notes payable due 2017 with interest at 6.08% | | | 60,000 | | | | — | |
| Unsecured revolving credit facility for Canadian | | | | | | | | |
| operations expiring June 30, 2010 | | | 7,447 | | | | — | |
| Capital lease obligations payable through 2036 | | | 13,939 | | | | 13,948 | |
| Other long-term debt | | | 6,423 | | | | 7,434 | |
| Total debt | | | 403,385 | | | | 311,382 | |
| Less current portion of debt | | | (26,785 | ) | | | (26,803 | ) |
| Long-term debt, less current maturities | | $ | 376,600 | | | $ | 284,579 | |
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| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
On June 15, 2007, we issued $60,000 of 6.08% senior unsecured notes pursuant to a supplement to our February 2006 debt issuance of $215,000. The notes mature on June 15, 2017, with interest on the notes payable semi-annually. These notes contain the same default provisions and covenants as those pertaining to the February 2006 debt issuance, including limitations on indebtedness and financial covenants relating to net worth and fixed charges.
Certain of the long-term debt agreements contain various covenants and restrictions such as the maintenance of minimum debt coverage, net worth, and financial ratios. The significant financial ratios and net worth requirements in the long-term debt agreements are 1) a limitation of funded debt to be less than 60% of consolidated total capitalization; 2) cash flow fixed charge coverage ratio, as defined, of no less than 2.00 to 1.00 as of the last day of the any quarter; and 3) a minimum consolidated adjusted net worth (as defined).
In addition, the debt contains cross default provisions to other outstanding credit facilities. In the event that we failed to comply with these covenants and the failure to comply would go beyond 30 days, a default would trigger and all principal and outstanding interest would immediately be due and payable. At December 29, 2007, we were in compliance with all financial covenants under credit agreements and unsecured notes.
At the end of 2007 and 2006, the total carrying amount of long-term debt was $403,385 and $311,382, respectively, with an estimated fair value of $387,743 and $315,979, respectively.
We have a lease agreement for our distribution facility in Wheeling, West Virginia. The lease term is through June 2036. The monthly installments are $83 with the lease contains a bargain purchase option at the end of the lease term. We are accounting for this lease as a capital lease and have recorded the additional leased asset at the present value of the future minimum lease payments using a 5.9% implicit rate. The additional leased asset was recorded at $5,649 and is being amortized on a straight-line basis over 30 years.
Aggregate expected maturities of long-term debt and scheduled capital lease payments for the years shown are as follows:
| | | Scheduled Capital | | Long-Term Debt |
| | | Lease Payments | | Maturities |
| 2008 | | | $ | 1,003 | | | | | $ | 26,547 | |
| 2009 | | | | 1,092 | | | | | | 26,376 | |
| 2010 | | | | 1,000 | | | | | | 7,990 | |
| 2011 | | | | 1,000 | | | | | | 494 | |
| 2012 | | | | 1,000 | | | | | | 51,096 | |
| Thereafter | | | | 23,500 | | | | | | 276,943 | |
| | | | | 28,595 | | | | | | 389,446 | |
| Capital lease amount representing interest | | | | (14,656 | ) | | | | | | |
| Present value of net scheduled lease payments | | | $ | 13,939 | | | | | | 13,939 | |
| Total long-term debt and capital leases | | | | | | | | | $ | 403,385 | |
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| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
14. INTEREST (EXPENSE) INCOME, NET
Interest expense, net of interest income, consisted of the following for years ended:
| | | 2007 | | 2006 | | 2005 |
| Interest expense | | $ | (24,312 | ) | | $ | (18,302 | ) | | $ | (11,299 | ) |
| Capitalized interest | | | 4,069 | | | | 355 | | | | 371 | |
| Interest income | | | 1,465 | | | | 1,821 | | | | 672 | |
| | | $ | (18,778 | ) | | $ | (16,126 | ) | | $ | (10,256 | ) |
15. INCOME TAXES
The provision for income taxes consisted of the following for the years ended:
| | | 2007 | | 2006 | | 2005 |
| Current: | | | | | | | | | | |
| Federal | | $ | 47,431 | | | $ | 24,601 | | $ | 28,874 |
| State | | | 4,993 | | | | 2,840 | | | 2,619 |
| | | | 52,424 | | | | 27,441 | | | 31,493 |
| Deferred: | | | | | | | | | | |
| Federal | | | (599 | ) | | | 22,225 | | | 10,723 |
| State | | | (477 | ) | | | 1,805 | | | 585 |
| | | | (1,076 | ) | | | 24,030 | | | 11,308 |
| | | $ | 51,348 | | | $ | 51,471 | | $ | 42,801 |
A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows for the years ended:
| | | 2007 | | 2006 | | 2005 |
| Statutory federal rate | | 35.0 | % | | 35.0 | % | | 35.0 | % |
| State income taxes, net of federal tax benefit | | 1.8 | | | 1.8 | | | 1.2 | |
| Other nondeductible items | | 0.1 | | | 0.1 | | | (0.1 | ) |
| Other, net | | — | | | 0.6 | | | 1.0 | |
| | | 36.9 | % | | 37.5 | % | | 37.1 | % |
71
| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
Deferred tax assets and liabilities consisted of the following for the years ended:
| | | 2007 | | 2006 |
| Deferred tax assets: | | | | | | | | |
| Deferred compensation | | $ | 5,547 | | | $ | 3,907 | |
| Deferred revenue | | | 3,744 | | | | 3,276 | |
| Reserve for returns | | | 7,550 | | | | 8,032 | |
| Accrued expenses | | | 5,121 | | | | 4,360 | |
| Gift certificates liability | | | 3,401 | | | | — | |
| Allowance for doubtful accounts | | | 2,505 | | | | 1,822 | |
| Other | | | 3,623 | | | | 2,298 | |
| | | | 31,491 | | | | 23,695 | |
| Deferred tax liabilities: | | | | | | | | |
| Prepaid expenses | | | 17,773 | | | | 14,249 | |
| Property and equipment | | | 34,519 | | | | 28,955 | |
| Inventories | | | 14,902 | | | | 16,999 | |
| Retained interests in securitized loans | | | 10,050 | | | | 9,055 | |
| Other | | | 45 | | | | 2,855 | |
| | | | 77,289 | | | | 72,113 | |
| Valuation allowance | | | (916 | ) | | | — | |
| Net deferred tax liability | | | (46,714 | ) | | | (48,418 | ) |
| Less current deferred income taxes | | | 15,601 | | | | 17,978 | |
| Long-term deferred income taxes | | $ | (31,113 | ) | | $ | (30,440 | ) |
As of December 29, 2007, state net operating losses totaling $15,656 are being carried forward which begin to expire in 2014. These losses will expire completely by 2021. A full valuation allowance has been established against net operating loss carryforwards as it is uncertain if we will generate sufficient taxable income in these jurisdictions to recognize the tax benefit of these losses.
We adopted the provisions of FIN 48 in 2007 as discussed in Note 2. The reconciliation of unrecognized tax benefits, the balance of which is classified as other long-term liabilities in the consolidated balance sheet, is as follows for the year ended 2007:
| Unrecognized tax benefits, beginning of year | $ | 8,569 | |
| Decreases on items related to prior periods | | (6,866 | ) |
| Increases from current period items | | 297 | |
| Unrecognized tax benefits, end of year | $ | 2,000 | |
72
| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
Our policy is to accrue interest expense, and penalties as appropriate, on estimated unrecognized tax benefits as a charge to interest expense in the consolidated statements of income. We recorded a net credit of $346 against interest expense during 2007 due to the gross decrease of certain unrecognized tax benefits. No penalties were accrued. The liability for estimated interest on unrecognized tax benefits totaling $850 at the end of 2007 is included in other long-term liabilities in the consolidated balance sheet. We do not anticipate a substantial change in the balance of unrecognized tax benefits in the next twelve months.
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $1,587. We file income tax returns in the United States, Canada, and various states. The tax years 2003 through 2006 remain open to examination by major taxing jurisdictions to which Cabela’s is subject.
16. COMMITMENTS AND CONTINGENCIES
We lease various buildings, computer equipment, signs, and storage space under operating leases, which expire on various dates through April 2033. Rent expense on these leases as well as other month to month rentals was $12,938, $8,896 and $6,793 for 2007, 2006 and 2005, respectively. The following is a schedule of future minimum rental payments under operating leases as of December 29, 2007:
| 2008 | $ | 5,126 |
| 2009 | | 5,209 |
| 2010 | | 4,944 |
| 2011 | | 4,586 |
| 2012 | | 4,167 |
| Thereafter | | 78,398 |
| | $ | 102,430 |
We have entered into certain lease agreements for retail store locations. Certain leases include tenant allowances that will be amortized over the life of the lease. In 2007, we received $17,018 in tenant allowances. Certain leases require us to pay contingent rental amounts based on a percentage of sales, in addition to real estates taxes, insurance, maintenance, and other operating expenses associated with the leased premises. These leases include options to renew with lease periods, including extensions, varying from 10 to 70 years.
We have entered into real estate purchase, construction, and/or economic development agreements for various new retail store site locations. At December 29, 2007, we had total estimated cash commitments of approximately $180,000 for 2008 and 2009 for projected retail store-related expenditures and the purchase of future economic development bonds connected with the development, construction, and completion of new retail stores. This does not include any amounts for contractual obligations associated with retail store locations where we are in the process of certain negotiations.
Under various grant programs, state or local governments provide funding for certain costs associated with developing and opening a new retail store. We generally receive grant funding in exchange for commitments, such as assurance of agreed employment and wage levels at the retail store or that the retail store will remain open, made by us to the state or local government providing the funding. The commitments typically phase out over approximately five to ten years. If we fail to maintain the commitments during the applicable period, the funds received may have to be repaid or other adverse consequences may arise, which could affect our cash flows and profitability. As of December 29, 2007, the total amount of grant funding subject to a specific contractual remedy was $13,049. In addition, at December 29, 2007, we had an obligation under our open account document instructions program to pay $6,399 to participating vendors.
73
| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
WFB enters into financial instruments with off balance sheet risk in the normal course of business through the origination of unsecured credit card loans. These financial instruments consist of commitments to extend credit, totaling $11,635,000 and $9,528,000, in addition to any other balances a cardholder might have, at years ended 2007 and 2006, respectively. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheet. The principal amounts of these instruments reflect the maximum exposure WFB has in the instruments. WFB has not experienced and does not anticipate that all of the customers will exercise their entire available line of credit at any given point in time. WFB has the right to reduce or cancel these available lines of credit at any time.
Litigation– We are engaged in various legal actions arising in the ordinary course of business. The subject matter of these proceedings primarily includes commercial disputes, employment issues, and product liability lawsuits. After taking into consideration legal counsel’s evaluation of such actions, management is of the opinion that the ultimate outcome will not have a material adverse effect on our financial position or results of operations.
Self-Insurance– We are self-insured for health claims up to $300 per individual. We have established a liability for health claims submitted and for those claims incurred prior to year end but not yet reported totaling $3,929 and $3,934 at the end of 2007 and 2006, respectively.
We are also self-insured for workers’ compensation claims up to $500 per individual. We have established a liability for workers’ compensation claims submitted and for those claims incurred prior to year end but not yet reported totaling $4,326 and $3,843 at the end of 2007 and 2006, respectively.
Our liabilities for health and workers’ compensation claims incurred but not reported are based upon internally developed calculations. These estimates are regularly evaluated for adequacy based on the most current information available, including historical claim payments, expected trends, and industry factors.
17. REGULATORY CAPITAL REQUIREMENTS
WFB is subject to various regulatory capital requirements administered by the FDIC and the Nebraska State Department of Banking and Finance. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, WFB must meet specific capital guidelines that involve quantitative measures of WFB’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. WFB’s capital amounts and classification are also subject to qualitative judgment by the regulators with respect to components, risk weightings, and other factors.
The quantitative measures established by regulation to ensure capital adequacy require that WFB maintain minimum amounts and ratios (defined in the regulations) as set forth in the following table. WFB exceeded the minimum requirements for the well-capitalized category under the regulatory framework for prompt corrective action provisions for both periods presented.
At the end of 2007 and 2006, the most recent notification from the FDIC categorized WFB as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized WFB must maintain certain amounts and ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the institution’s category.
74
| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
| | | 2007 |
| | | | | Ratio Required to be Considered |
| | | | | “Adequately- | | “Well- |
| | | Actual | | Capitalized” | | Capitalized” |
| | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| Total Capital to Risk-Weighted Assets | | $ | 118,030 | | 16.8 | % | | $ | 56,102 | | 8.0 | % | | $ | 70,127 | | 10.0 | % |
| Tier I Capital to Risk-Weighted Assets | | | 114,336 | | 16.3 | | | | 28,051 | | 4.0 | | | | 42,076 | | 6.0 | |
| Tier I Capital to Average Assets | | | 114,336 | | 27.6 | | | | 16,568 | | 4.0 | | | | 20,710 | | 5.0 | |
| |
| | | 2006 |
| | | | | Ratio Required to be Considered |
| | | | | “Adequately- | | “Well- |
| | | Actual | | Capitalized” | | Capitalized” |
| | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| Total Capital to Risk-Weighted Assets | | $ | 96,629 | | 19.2 | % | | $ | 40,352 | | 8.0 | % | | $ | 50,440 | | 10.0 | % |
| Tier I Capital to Risk-Weighted Assets | | | 94,169 | | 18.7 | | | | 20,176 | | 4.0 | | | | 30,264 | | 6.0 | |
| Tier I Capital to Average Assets | | | 94,169 | | 33.5 | | | | 11,249 | | 4.0 | | | | 14,061 | | 5.0 | |
18. STOCK BASED COMPENSATION AND STOCK OPTION PLANS
Effective January 1, 2006, we adopted the provisions of FAS 123R, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock option awards and employee stock purchases made under an employee stock purchase plan. We previously applied the recognition and measurement provisions of APB Opinion No. 25 and related interpretations.
We recorded share-based compensation expense of $4,944 ($3,115 after-tax, or $0.05 per diluted share) and $3,615 ($2,259 after-tax, or $.03 per diluted share) for 2007 and 2006, respectively. Compensation expense related to our share-based payment awards is recorded in selling, distribution, and administrative expenses in the consolidated statements of income. There was no share-based compensation capitalized in assets as of December 29, 2007, or December 30, 2006.
During the year ended December 30, 2006, share-based compensation expense was recorded for awards granted since 2004 but not yet vested as of January 1, 2006. For these awards, we continue to recognize compensation expense using the accelerated or graded method of amortization. Compensation cost for awards granted after the adoption date is recognized using a straight-line amortization method over the vesting period. As of December 29, 2007, the total unrecognized deferred share-based compensation balance for unvested shares issued, net of expected forfeitures, was approximately $7,725, net of tax, which is expected to be amortized over a weighted average period of 3.5 years.
The fair value of options granted on and subsequent to May 1, 2004, is estimated on the date of the grant using the Black-Scholes option pricing model. The expected volatility for 2007 was based on the historical volatility of our common stock. For 2006 and 2005, the expected volatility was derived using a historical volatility model as well as comparisons to peers in our market sector since we have only been a public company since June 2004.
75
| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
The fair value of options in the years presented was estimated using the Black-Scholes model with the following weighted average assumptions:
| | | 2007 | | 2006 | | 2005 |
| Risk-free interest rate based on U.S. Treasury yield curve in effect | | | | | | | | | | | |
| at the grant date | | | 3.31 to 4.63% | | | 5.01 | % | | | 3.87 to 4.38% | |
| Dividend yield | | | — | | | — | | | | — | |
| Expected volatility | | | 30 to 33% | | | 50 | % | | | 50 | % |
| Weighted average expected life based on historical information | | | 5.0 years | | | 6.0 years | | | | 4.5 years | |
| Weighted average grant date fair value of options granted | | $ | 7.82 | | $ | 10.45 | | | $ | 9.14 | |
The following table summarizes our option activity during 2007:
| | | | | All Options | | Non-Vested Options |
| | | | | | | Weighted | | | | Weighted |
| | | Options | | | | Average | | | | Average |
| | | Available | | Number | | Exercise | | Number | | Grant Date |
| | | for Grant | | of Options | | Price | | of Options | | Fair Value |
| Outstanding, beginning of year | | 39,434 | | | 4,887,409 | | | | $ | 14.01 | | | 2,833,599 | | | | $ | 6.61 | |
| Additional options authorized | | 3,500,000 | | | | | | | | | | | | | | | | | |
| Granted | | (1,115,000 | ) | | 1,115,000 | | | | | 22.19 | | | 1,115,000 | | | | | 7.82 | |
| Vested | | — | | | — | | | | | — | | | (885,777 | ) | | | | 5.67 | |
| Exercised | | — | | | (524,648 | ) | | | | 7.72 | | | — | | | | | — | |
| Forfeited (1) (2) | | 104,762 | | | (165,317 | ) | | | | 16.21 | | | (147,507 | ) | | | | 6.55 | |
| Outstanding, end of year (3) | | 2,529,196 | | | 5,312,444 | | | | | 16.28 | | | 2,915,315 | | | | | 7.36 | |
____________________
| (1) | | Options forfeited under the 1997 Plan do not become available for grant under the 2004 Plan. |
| |
| (2) | | Options forfeited under the 2004 Plan are immediately available for grant. |
| |
| (3) | | Options outstanding at the end of 2007 were comprised of 1,089,191 of incentive stock options and 4,223,253 of nonqualified stock options. |
The following table provides information relating to our equity share-based payment awards at December 29, 2007:
| | | | | | | | | | | Weighted Average |
| | | | | Weighted | | Weighted | | Aggregate | | Remaining |
| | | | | Average | | Average | | Intrinsic | | Contractual Life |
| | | Shares | | Exercise Price | | Fair Value | | Value | | (in Years) |
| Vested and exercisable | | 2,397,129 | | $ | 14.83 | | $ | 6.49 | | $ | 5,839 | | 4.94 |
| Non vested | | 2,915,315 | | | 17.47 | | | 7.36 | | | 4,407 | | 6.72 |
| Total outstanding | | 5,312,444 | | | 16.28 | | | 6.97 | | $ | 10,246 | | 5.91 |
| Expected to vest after | | | | | | | | | | | | | |
| December 29, 2007 | | 2,791,051 | | | 17.33 | | | 7.28 | | $ | 4,406 | | 6.64 |
The aggregate intrinsic value of awards exercised was $8,188, $3,473 and $1,000 during 2007, 2006 and 2005, respectively. The total fair value of shares vested was $5,025, $3,843 and $6,304 in 2007, 2006 and 2005, respectively. Based on our closing stock price of $14.80 as of December 29, 2007, the total number of in-the-money awards exercisable as of December 29, 2007, was approximately 1,241,694.
76
| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
The stock options outstanding and exercisable for equity share-based payment awards as of December 29, 2007, were in the following exercise price ranges:
| Options Outstanding | | Options Exercisable |
| | | | | | | Average | | | | |
| | | | | Weighted | | Remaining | | | | Weighted |
| Exercise | | | | Average | | Contractual Life | | | | Average |
| Price | | Shares | | Exercise Price | | (in Years) | | Shares | | Exercise Price |
| $0.00 to $5.00 | | 176,160 | | | $ | 4.17 | | | 0.82 | | 133,954 | | | $ | 4.12 | |
| $5.01 to $10.00 | | 618,075 | | | | 8.26 | | | 3.31 | | 281,352 | | | | 8.18 | |
| $10.01 to $15.00 | | 1,409,228 | | | | 11.73 | | | 3.54 | | 826,388 | | | | 11.72 | |
| $15.01 to $20.00 | | 2,058,981 | | | | 19.72 | | | 7.45 | | 1,149,435 | | | | 19.89 | |
| $20.01 to $25.00 | | 1,046,000 | | | | 22.38 | | | 8.48 | | 2,000 | | | | 21.77 | |
| $25.01 to $30.00 | | 4,000 | | | | 27.26 | | | 6.58 | | 4,000 | | | | 27.26 | |
| | | 5,312,444 | | | | 16.28 | | | 5.91 | | 2,397,129 | | | | 14.83 | |
19. STOCK OPTION AND OTHER EMPLOYEE BENEFIT PLANS
Employee Stock Option Plans– The Cabela’s Incorporated 2004 Stock Plan (the “2004 Plan”) provides for the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards to employees, directors, and consultants. Options granted under the 2004 Plan will have a term of no greater than ten years from the grant date and will become exercisable in accordance with the vesting schedule determined at the time the awards are granted. As of December 29, 2007, there were 3,608,879 shares subject to options and 2,529,196 shares authorized and available for grant under the 2004 Plan. Our policy has been to issue new shares for the exercise of stock options.
As of December 29, 2007, under our 1997 Stock Option Plan (the “1997 Plan”), there were 1,703,565 shares subject to options with no shares available for grant. Options issued expire on the fifth or the tenth anniversary of the date of the grant under the 1997 Plan.
Employee Stock Purchase Plan– The maximum number of shares of common stock available for issuance under our Employee Stock Purchase Plan (the “ESPP”) is 1,835,000. During 2007, there were 133,606 shares issued under the ESPP. As of December 29, 2007, 1,445,276 shares were authorized and available for issuance. We intend to utilize market purchases, rather than new issuances, whenever possible.
401(k) Savings Plan– All employees are eligible to defer up to 80% of their wages to Cabela’s 401(k) savings plan, subject to certain limitations. The Company matches 100% of eligible employee deferrals up to 6% of eligible wages. Total expense for employer contributions was $7,007, $6,502 and $10,307 in 2007, 2006 and 2005, respectively.
Deferred Compensation Plan– We have a self-funded, nonqualified deferred compensation plan for certain key employees that was amended on December 31, 2004, to restrict any further contributions. Participants’ balances earn interest with the rate adjusting on a semi-annual basis. Upon certain conditions participants can receive their balance in either a lump sum or in equal annual payments over various time periods. The charge to interest expense under this plan was $525, $503 and $633 for 2007, 2006 and 2005, respectively.
77
| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
20. STOCKHOLDERS’ EQUITY AND DIVIDEND RESTRICTIONS
Preferred Stock– We are authorized to issue 10,000,000 shares of preferred stock having a par value of $0.01 per share. None of the shares of the authorized preferred stock have been issued. The board of directors is authorized to issue these shares of preferred stock without stockholder approval in different classes and series and, with respect to each class or series, to determine the dividend rate, the redemption provisions, conversion provisions, liquidation preference, and other rights, privileges, and restrictions. The issuance of any preferred stock could have the effect of diluting the voting power of the holders of common stock, restricting dividends on the common stock, impairing the liquidation rights of the common stock, or delaying or preventing a change in control without further action by the stockholders.
Class A Voting Common Stock– The holders of our Class A common stock are entitled to receive ratably dividends, if any, the board of directors may declare from time to time from funds legally available therefore, subject to the preferential rights of the holders of any shares of preferred stock that we may issue in the future. The holders of our Class A common stock are entitled to one vote per share on any matter to be voted upon by stockholders.
Upon any voluntary or involuntary liquidation, dissolution, or winding up of company affairs, the holders of our Class A common stock are entitled to share ratably with the holders of Class B non-voting common stock in all assets remaining after payment to creditors and subject to prior distribution rights of any shares of preferred stock that the Company may issue in the future. All of the outstanding shares of Class A common stock are fully paid and non-assessable.
Class B Non-voting Common Stock– The holders of our Class B non-voting common stock are not entitled to any voting rights, except that the holders may vote as a class, with each holder receiving one vote per share of Class B non-voting common stock, on any amendment, repeal, or modification of any provision of our Amended and Restated Certificate of Incorporation that adversely affects the powers, preferences, or special rights of holders of Class B non-voting common stock. Shares of the Class B non-voting common stock are convertible into the same number of shares of Class A voting common stock at any time. However, no holder of shares of Class B non-voting common stock is entitled to convert any of its shares into shares of Class A common stock, to the extent that, as a result of such conversion, the holder directly, or indirectly, would own, control, or have the power to vote a greater number of shares of Class A common stock or other securities of any kind issued by us than the holder is legally permitted to own, control, or have the power to vote. Subject to the prior rights of holders of preferred stock, if any, holders of Class B non-voting common stock, which rates equally with the Class A common stock in respect of dividends, are entitled to receive ratably dividends, if any, as may be lawfully declared from time to time by our board of directors.
Upon any voluntary or involuntary liquidation, dissolution, or winding up of company affairs, the holders of Class B non-voting common stock are entitled to share ratably with the holders of Class A common stock in all assets remaining after payment to creditors and subject to prior distribution rights of any shares of preferred stock that we may issue in the future.
Retained Earnings– The most significant restrictions on the payment of dividends are the covenants contained in our revolving credit agreement and unsecured senior notes purchase agreements. Nebraska banking laws also govern the amount of dividends that WFB can pay to Cabela’s. We have unrestricted retained earnings of $108,933 available for dividends.
Shelf Registration– On September 2, 2005, we filed with the SEC a Form S-3 Registration Statement (Registration No. 333-128100) to register 6,252,768 shares of our common stock (the “Form S-3 Registration Statement”). On March 8, 2007, we entered into an underwriting agreement providing for the sale by the selling stockholders named in the underwriting agreement (the “Selling Stockholders”) of 4,736,868 shares of our common stock. On March 9, 2007, we filed with the SEC a prospectus supplement to the effective Form S-3 Registration Statement relating to the underwritten public offering of the 4,736,868 shares of our common stock by the Selling Stockholders. The sale of the shares of our common stock by the Selling Stockholders closed on March 14, 2007, and the public offering price was $24.05 per share. We did not receive any proceeds from the sale of this common stock by the Selling Stockholders.
78
| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
Other Comprehensive Income (Loss)– The components of accumulated other comprehensive income (loss), net of related taxes, are as follows for the years ended:
| | | 2007 | | 2006 |
| Accumulated net unrealized holding gains (losses) on available-for-sale bonds | | $ | (806 | ) | | $ | 292 |
| Accumulated net unrealized holding gains on derivatives | | | 76 | | | | 23 |
| Cumulative foreign currency translation adjustment | | | 7 | | | | — |
| Total accumulated other comprehensive income (loss) | | $ | (723 | ) | | $ | 315 |
21. EARNINGS PER SHARE
The following table reconciles the number of shares utilized in the earnings per share calculations for the years ended:
| | | 2007 | | 2006 | | 2005 |
| Weighted average number of shares: | | | | | | |
| Common shares – basic | | 65,744,077 | | 65,221,339 | | 64,668,973 |
| Effect of incremental dilutive securities: | | | | | | |
| Stock options and employee stock purchase plan shares | | 1,531,454 | | 1,422,517 | | 1,599,401 |
| Common shares – diluted | | 67,275,531 | | 66,643,856 | | 66,268,374 |
| Options outstanding considered anti-dilutive | | 1,048,000 | | 6,000 | | 1,444,186 |
22. SUPPLEMENTAL CASH FLOW INFORMATION
The following table sets forth non-cash financing and investing activities and other cash flow information for the years ended:
| | | 2007 | | 2006 | | 2005 |
| Non-cash financing and investing activities: | | | | | | | | | | | | |
| Accrued property and equipment additions (1) | | $ | 48,534 | | | $ | 19,852 | | | $ | 8,498 | |
| Capital lease obligations | | | 201 | | | | 5,649 | | | | — | |
| Contribution of land | | | 19,000 | | | | — | | | | — | |
| |
| Other cash flow information: | | | | | | | | | | | | |
| Interest paid | | $ | 30,273 | | | $ | 19,017 | | | $ | 14,968 | |
| Capitalized interest | | | (4,069 | ) | | | (355 | ) | | | (371 | ) |
| Interest paid, net of capitalized interest | | $ | 26,204 | | | $ | 18,662 | | | $ | 14,597 | |
| Income taxes, net | | $ | 33,575 | | | $ | 41,012 | | | $ | 38,354 | |
____________________
| (1) | | Accrued property and equipment additions are recognized in the consolidated statements of cash flows in the period they are paid. |
23. SEGMENT REPORTING
We have three reportable segments: Retail, Direct, and Financial Services. The Retail segment sells products and services through our retail stores; the Direct segment sells products through direct mail catalogs and e-commerce websites (Cabelas.com and complementary websites); and the Financial Services segment issues co-branded credit cards. For the Retail segment, operating costs primarily consist of labor, advertising, depreciation, and occupancy costs of retail stores. For the Direct segment, operating costs primarily consist of catalog costs, e-commerce advertising costs, and order processing costs. For the Financial Services segment, operating costs primarily consist of advertising and promotion, marketing fees, third party services for processing credit card transactions, salaries, and other general and administrative costs.
79
| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
Revenues included in Corporate Overhead and Other are primarily made up of land sales. Corporate Overhead and Other expenses include unallocated shared-service costs, operations of various ancillary subsidiaries such as real estate development and travel, and eliminations. Unallocated shared-service costs include receiving, distribution, and storage costs of inventory, merchandising, and quality assurance costs, as well as corporate headquarters occupancy costs.
Segment assets are those directly used in or clearly allocable to an operating segment’s operations. For the Retail segment, assets primarily include inventory in the retail stores, land, buildings, fixtures, and leasehold improvements. For the Direct segment, assets primarily include deferred catalog costs and fixed assets. Included in the assets of the Direct and Retail segments is goodwill of $4,474 that has been allocated $969 to the Direct segment and $3,505 to the Retail segment as of December 29, 2007. For the Financial Services segment, assets primarily include cash, credit card loans, retained interest, buildings, and fixtures. Corporate and other assets include corporate headquarters, merchandise distribution inventory, shared technology infrastructure, as well as corporate cash and cash equivalents, economic development bonds, prepaid expenses, and other assets. Depreciation, amortization, and property and equipment expenditures of each segment are allocated to each respective segment. Unallocated assets include corporate cash and cash equivalents, merchandise distribution inventory for the Retail or Direct segments, the net book value of corporate facilities and related information systems, deferred income taxes, and other corporate long-lived assets. The accounting policies of the segments, where applicable, are the same as those described in the summary of significant accounting policies in our notes to consolidated financial statements. Intercompany revenue between segments has been eliminated in consolidation.
Results by business segment are presented in the following tables for 2007, 2006 and 2005:
| | | | | | | | | Corporate | | |
| | | | | | | Financial | | Overhead | | |
| Fiscal Year 2007 | | Retail | | Direct | | Services | | and Other | | Total |
| Revenue from external | | $ | 1,040,664 | | | $ | 1,127,942 | | | $ | 159,943 | | | $ | 21,050 | | | $ | 2,349,599 | |
| Revenue (loss) from internal | | | 2,778 | | | | 2,611 | | | | (608 | ) | | | (4,781 | ) | | | — | |
| Total revenue | | $ | 1,043,442 | | | $ | 1,130,553 | | | $ | 159,335 | | | $ | 16,269 | | | $ | 2,349,599 | |
| Operating income (loss) | | $ | 127,744 | | | $ | 190,046 | | | $ | 37,448 | | | $ | (204,146 | ) | | $ | 151,092 | |
| As a percentage of revenue | | | 12.2 | % | | | 16.8 | % | | | 23.5 | % | | | N/A | | | | 6.4 | % |
| Depreciation and amortization | | $ | 29,830 | | | $ | 4,462 | | | $ | 1,129 | | | $ | 24,442 | | | $ | 59,863 | |
| Assets | | | 1,065,234 | | | | 480,341 | | | | 450,616 | | | | 216,639 | | | | 2,212,830 | |
| Property and equipment additions | | | | | | | | | | | | | | | | | | | | |
| including accrued amounts | | | 324,272 | | | | 8,466 | | | | 1,037 | | | | 30,551 | | | | 364,326 | |
| | | | | | | | | | | | | | | Corporate | | | | |
| | | | | | | | | | | Financial | | Overhead | | | | |
| Fiscal Year 2006 | | Retail | | Direct | | Services | | and Other | | Total |
| Revenue from external | | $ | 817,836 | | | $ | 1,086,162 | | | $ | 138,164 | | | $ | 21,362 | | | $ | 2,063,524 | |
| Revenue (loss) from internal | | | 2,485 | | | | 2,318 | | | | (741 | ) | | | (4,062 | ) | | | — | |
| Total revenue | | $ | 820,321 | | | $ | 1,088,480 | | | $ | 137,423 | | | $ | 17,300 | | | $ | 2,063,524 | |
| Operating income (loss) | | $ | 124,122 | | | $ | 179,182 | | | $ | 30,061 | | | $ | (189,620 | ) | | $ | 143,745 | |
| As a percentage of revenue | | | 15.1 | % | | | 16.5 | % | | | 21.9 | % | | | N/A | | | | 7.0 | % |
| Depreciation and amortization | | $ | 19,050 | | | $ | 4,371 | | | $ | 941 | | | $ | 21,197 | | | $ | 45,559 | |
| Assets | | | 602,513 | | | | 496,963 | | | | 316,417 | | | | 335,337 | | | | 1,751,230 | |
| Property and equipment additions | | | | | | | | | | | | | | | | | | | | |
| including accrued amounts | | | 161,585 | | | | 5,680 | | | | 1,735 | | | | 21,592 | | | | 190,592 | |
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| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
| | | | | | | | | | | | | | | Corporate | | | | |
| | | | | | | | | | | Financial | | Overhead | | | | |
| Fiscal Year 2005 | | Retail | | Direct | | Services | | and Other | | Total |
| Revenue from external | | $ | 618,044 | | | $ | 1,042,219 | | | $ | 106,439 | | | $ | 32,959 | | | $ | 1,799,661 | |
| Revenue (loss) from internal | | | 2,061 | | | | 1,948 | | | | (608 | ) | | | (3,401 | ) | | | — | |
| Total revenue | | $ | 620,105 | | | $ | 1,044,167 | | | $ | 105,831 | | | $ | 29,558 | | | $ | 1,799,661 | |
| Operating income (loss) | | $ | 85,895 | | | $ | 171,908 | | | $ | 23,060 | | | $ | (165,900 | ) | | $ | 114,963 | |
| As a percentage of revenue | | | 13.9 | % | | | 16.5 | % | | | 21.8 | % | | | N/A | | | | 6.4 | % |
| Depreciation and amortization | | $ | 12,916 | | | $ | 5,308 | | | $ | 1,089 | | | $ | 15,599 | | | $ | 34,912 | |
| Assets | | | 460,776 | | | | 405,303 | | | | 262,799 | | | | 237,402 | | | | 1,366,280 | |
| Property and equipment additions | | | | | | | | | | | | | | | | | | | | |
| including accrued amounts | | | 163,123 | | | | 5,853 | | | | 603 | | | | 33,578 | | | | 203,157 | |
The components and amounts of total revenue for the Financial Services business segment were as follows for the years ended:
| | | 2007 | | 2006 | | 2005 |
| Interest and fee income, net of provision for loan losses | | $ | 28,974 | | | $ | 23,973 | | | $ | 17,196 | |
| Interest expense | | | (7,288 | ) | | | (5,008 | ) | | | (3,241 | ) |
| Net interest income, net of provision for loan losses | | | 21,686 | | | | 18,965 | | | | 13,955 | |
| Non-interest income: | | | | | | | | | | | | |
| Securitization income | | | 194,516 | | | | 169,173 | | | | 133,032 | |
| Other non-interest income | | | 51,670 | | | | 39,381 | | | | 31,836 | |
| Total non-interest income | | | 246,186 | | | | 208,554 | | | | 164,868 | |
| Less: Customer rewards costs | | | (108,537 | ) | | | (90,096 | ) | | | (72,992 | ) |
| Financial Services total revenue | | $ | 159,335 | | | $ | 137,423 | | | $ | 105,831 | |
Our products are principally marketed to individuals within the United States. Net sales realized from other geographic markets, primarily Canada, have collectively been less than 2% of consolidated net merchandise sales in each reported period. No single customer accounted for 10% or more of consolidated net sales. No single product or service accounts for a significant percentage of our consolidated revenue.
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| CABELA’S INCORPORATED AND SUBSIDIARIES |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| (Dollars in Thousands Except Share and Per Share Amounts) |
24. QUARTERLY FINANCIAL INFORMATION (Unaudited)
The following table sets forth unaudited financial and operating data in each quarter for the years ended 2007 and 2006:
| | | 2007 | | 2006 |
| | | First | | Second | | Third | | Fourth | | First | | Second | | Third | | Fourth |
| | | Quarter | | Quarter | | Quarter | | Quarter | | Quarter | | Quarter | | Quarter | | Quarter |
| Total revenue | | $ | 462,091 | | $ | 451,199 | | $ | 546,809 | | $ | 889,500 | | $ | 404,805 | | $ | 387,263 | | $ | 490,453 | | $ | 781,003 |
| Operating income | | | 12,391 | | | 20,252 | | | 24,346 | | | 94,103 | | | 14,203 | | | 14,545 | | | 26,851 | | | 88,146 |
| Net income | | | 7,142 | | | 11,264 | | | 13,232 | | | 56,241 | | | 9,083 | | | 8,356 | | | 14,994 | | | 53,352 |
| Earnings per share — Basic (1) | | | 0.11 | | | 0.17 | | | 0.20 | | | 0.85 | | | 0.14 | | | 0.13 | | | 0.23 | | | 0.82 |
| Earnings per share — Diluted (1) | | | 0.11 | | | 0.17 | | | 0.20 | | | 0.84 | | | 0.14 | | | 0.13 | | | 0.23 | | | 0.80 |
____________________
| (1) | | Basic and diluted earnings per share are computed independently for each of the quarters presented. |
Revenue is typically higher in our third and fourth quarters than in the first and second quarters due to holiday buying patterns and hunting and fishing season openings across the United States. Our quarterly operating results may fluctuate significantly as a result of these events and a variety of other factors, and operating results for any quarter are not necessarily indicative of results for a full year.
25. SUBSEQUENT EVENTS
On January 18, 2008, the Cabela’s Credit Card Master Note Trust completed the sale of $500,000 in asset-backed notes, Series 2008-I. The securitization transaction included the issuance of six classes of notes with an expected life of approximately three years (a legal maturity of approximately six years). This securitization refinanced an existing $300,000 securitization that matured January 2008, with the remaining amount to fund continued growth of the bank’s credit card portfolio. These notes are obligations of the aforementioned trust, and are not in the consolidated balance sheet of the Company.
On January 16, 2008, we issued $57,000 of 7.20% unsecured notes to institutional buyers. The notes have a final maturity of 10 years and an average life of seven years. We intend to use the proceeds to pay down existing debt and for general corporate purposes.
82
CABELA’S INCORPORATED AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
| | | Beginning | | Charged to | | Charged | | Net | | End |
| | | of Year | | Costs and | | to Other | | Charge- | | of Year |
| | | Balance | | Expenses | | Accounts | | Offs | | Balance |
| YEAR ENDED DECEMBER 29, 2007: | | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 1,932 | | $ | (81 | ) | | $ | — | | | $ | (81 | ) | | $ | 1,851 |
| Allowance for credit card receivable loan losses | | | 699 | | | 1,748 | | | | (1,250 | ) | | | 498 | | | | 1,197 |
| YEAR ENDED DECEMBER 30, 2006: | | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts | | | 1,404 | | | 527 | | | | 1 | | | | 528 | | | | 1,932 |
| Allowance for credit card receivable loan losses | | | 536 | | | 664 | | | | (501 | ) | | | 163 | | | | 699 |
| YEAR ENDED DECEMBER 31, 2005: | | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts | | | 1,483 | | | (79 | ) | | | — | | | | (79 | ) | | | 1,404 |
| Allowance for credit card receivable loan losses | | | 65 | | | 720 | | | | (249 | ) | | | 471 | | | | 536 |
| ITEM 9. | | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) designed to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized, and reported within specified time periods. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
In connection with this annual report on Form 10-K, our Chief Executive Officer and Chief Financial Officer evaluated, with the participation of our management, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on management’s evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that our disclosure controls and procedures were effective as of December 29, 2007.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America.
With the participation of our Chief Executive Officer and our Chief Financial Officer, management evaluated the effectiveness of our internal control over financial reporting as of December 29, 2007, based on the criteria established inInternal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 29, 2007.
83
The independent registered public accounting firm of Deloitte & Touche LLP, as auditors of our consolidated financial statements included in this annual report on Form 10-K, has issued an attestation report on the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Their report is included in this Item 9A.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 29, 2007, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
84
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Cabela’s Incorporated and Subsidiaries
Sidney, Nebraska
We have audited the internal control over financial reporting of Cabela’s Incorporated and Subsidiaries (the “Company”) as of December 29, 2007, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanyingManagement’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 29, 2007, based on the criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 29, 2007 of the Company and our report dated February 26, 2008 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP | |
| |
Omaha, Nebraska
February 26, 2008 | |
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ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information under the headings “Proposal One – Election of Directors,” “Executive Officers of the Company,” “Corporate Governance – Committees of the Board of Directors – Audit Committee,” and “Section 16 (a) Beneficial Ownership Reporting Compliance,” in our Proxy Statement relating to our 2008 Annual Meeting of Shareholders (our “Proxy Statement”) is incorporated herein by reference. With the exception of the foregoing information and other information specifically incorporated by reference into this Report on Form 10-K, our Proxy Statement is not being filed as a part hereof.
The policies comprising our code of ethics are set forth in our Business Code of Conduct and Ethics. These policies satisfy the SEC’s requirements for a “code of ethics,” and apply to all of our directors, officers, and employees. Our Business Code of Conduct and Ethics is posted on our website atwww.cabelas.com. We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding certain amendments to, or waivers from, the provisions of our Business Code of Conduct and Ethics by posting such information on our website at the address specified above. Information contained on our website, whether currently posted or posted in the future, is not part of this document or the documents incorporated by reference in this document.
On June 12, 2007, we filed with the NYSE the Annual CEO Certification regarding the company’s compliance with the NYSE’s Corporate Governance listing standards as required by Section 303A.12(a) of the NYSE Listed Company Manual.
ITEM 11. EXECUTIVE COMPENSATION
The information under the headings “Executive Compensation” and “Director Compensation” in our Proxy Statement is incorporated herein by reference.
| ITEM 12. | | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information under the headings “Executive Compensation – Equity Compensation Plan Information as of Fiscal Year-End” and “Security Ownership of Certain Beneficial Owners and Management” in our Proxy Statement is incorporated herein by reference.
| ITEM 13. | | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information under the headings “Transactions with Related Persons” and “Corporate Governance – Board of Directors” in our Proxy Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information under the heading “Proposal Three – Ratification of Independent Registered Public Accounting Firm” in our Proxy Statement is incorporated herein by reference.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| | (a) | | The following documents are filed as part of this report: |
| | | |
| 1. | | Financial Statements: |
| | | | |
| | | - Report of Independent Registered Public Accounting Firm
- Consolidated Statements of Income –Years ended December 29, 2007, December 30, 2006 and December 31, 2005
- Consolidated Balance Sheets – December 29, 2007 and December 30, 2006
- Consolidated Statements of Cash Flows – Years ended December 29, 2007, December 30, 2006 and December 31, 2005
- Consolidated Statements of Stockholders’ Equity – Years ended December 29, 2007, December 30, 2006 and December 31, 2005
- Notes to Consolidated Financial Statements
|
| | | | |
| 2. | | Financial Statement Schedules: |
| | | |
| | | - Schedule II – Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted.
|
| | | | |
| 3. | | Exhibits: See Item 15(b) below. |
| | | |
| (b) | | Exhibits |
| Exhibit | | |
| Number | | Exhibit Description |
| 3.1 | | Amended and Restated Certificate of Incorporation of Cabela’s Incorporated (incorporated by reference from Exhibit 3.1 of our Quarterly Report on Form 10-Q, filed on August 13, 2004, File No. 001-32227) |
| |
| 3.2 | | Certificate of Amendment of Amended and Restated Certificate of Incorporation of Cabela’s Incorporated (incorporated by reference from Exhibit 3.1 of our Current Report on Form 8-K, filed on May 15, 2006, File No. 001-32227) |
| |
| 3.3 | | Amended and Restated Bylaws of Cabela’s Incorporated (incorporated by reference from Exhibit 3 of our Current Report on Form 8-K, filed on August 30, 2007, File No. 001-32227) |
| |
| 4.1 | | Specimen Stock Certificate (incorporated by reference from Exhibit 4.1 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835) |
| |
| 4.2 | | Registration Rights Agreement dated as of September 23, 2003, among Cabela’s Incorporated and the security holders named therein (incorporated by reference from Exhibit 4.2 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835) |
| |
| 4.3 | | Form of 7.2% Senior Note, Series 2008-A, due January 16, 2018 (incorporated by reference from Exhibit 4.1 of our Current Report on Form 8-K, filed on January 22, 2008, File No. 001-32227) |
| |
| 4.4 | | Form of 6.08% Senior Note, Series 2007-A, due June 15, 2007 (incorporated by reference from Exhibit 4.2 of our Current Report on Form 8-K, filed on June 20, 2007, File No. 001-32227) |
| |
| 4.5 | | Form of 5.99% Senior Note, Series 2006-A, due February 27, 2016 (incorporated by reference from Exhibit 4.7 of our Current Report on Form 8-K, filed on June 20, 2007, File No. 001-32227) |
| |
| 4.6 | | Form of 4.95% Senior Note due September 2009 (incorporated by reference from Exhibit 4.8 of our Current Report on Form 8-K, filed on June 20, 2007, File No. 001-32227) |
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| 4.7 | | Form of 9.19% Senior Note, Series C, due January 2010 (incorporated by reference from Exhibit 4.9 of our Current Report on Form 8-K, filed on June 20, 2007, File No. 001-32227) |
| |
| 4.8 | | Note Purchase Agreements dated as of February 27, 2006, among Cabela’s Incorporated and various purchasers party thereto (incorporated by reference from Exhibit 4.2 of our Current Report on Form 8-K, filed on March 3, 2006, File No. 001-32227) |
| |
| 4.9 | | First Supplement to Note Purchase Agreements dated as of February 27, 2006, among Cabela’s Incorporated and various purchasers party thereto (incorporated by reference from Exhibit 4.1 of our Current Report on Form 8-K, filed on June 20, 2007, File No. 001-32227) |
| |
| 4.10 | | Second Supplement to Note Purchase Agreements dated as February 27, 2006, among Cabela’s Incorporated and various purchasers party thereto (incorporated by reference from Exhibit 4.2 of our Current Report on Form 8-K, filed on January 22, 2008, File No. 001-32227) |
| |
| 4.11 | | Amendment No. 1 to Note Purchase Agreements dated as of February 27, 2006, among Cabela’s Incorporated and various purchasers party thereto (incorporated by reference from Exhibit 4.4 of our Current Report on Form 8-K, filed on June 20, 2007, File No. 001-32227) |
| |
| 4.12 | | Note Purchase Agreements dated as of September 5, 2002, among Cabela’s Incorporated and various purchasers party thereto (incorporated by reference from Exhibit 4.7 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835) |
| | | |
| 4.13 | | First Amendment Agreement to Note Purchase Agreements dated as of September 5, 2002, among Cabela’s Incorporated and various purchasers party thereto (incorporated by reference from Exhibit 10 of our Quarterly Report of Form 10-Q, filed on November 4, 2005, File No. 001-32227) |
| |
| 4.14 | | Second Amendment Agreement to Note Purchase Agreements dated as of September 5, 2002, among Cabela’s Incorporated and various purchasers party thereto (incorporated by reference from Exhibit 4.3 of our Current Report on Form 8-K, filed on March 3, 2006, File No. 001-32227) |
| |
| 4.15 | | Third Amendment Agreement to Note Purchase Agreements dated as of September 5, 2002, among Cabela’s Incorporated and various purchasers party thereto (incorporated by reference from Exhibit 4.5 of our Current Report on Form 8-K, filed on June 20, 2007, File No. 001-32227) |
| |
| 4.16 | | Note Agreements dated as of January 1, 1995, among Cabela’s Incorporated and various purchasers party thereto (incorporated by reference from Exhibit 4.8 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835) |
| |
| 4.17 | | Amendment No. 1 to Note Agreements dated as of January 1, 1995, among Cabela’s Incorporated and various purchasers party thereto (incorporated by reference from Exhibit 4.9 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835) |
| |
| 4.18 | | Amendment No. 2 to Note Agreements dated as of January 1, 1995, among Cabela’s Incorporated and various purchasers party thereto (incorporated by reference from Exhibit 4.10 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835) |
| |
| 4.19 | | Amendment No. 3 to Note Agreements dated as of January 1, 1995, among Cabela’s Incorporated and various purchasers party thereto (incorporated by reference from Exhibit 4.11 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835) |
| |
| 4.20 | | Amendment No. 4 to Note Agreements dated as of January 1, 1995, among Cabela’s Incorporated and various purchasers party thereto (incorporated by reference from Exhibit 4.12 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835) |
| |
| 4.21 | | Amendment No. 5 to Note Agreements dated as of January 1, 1995, among Cabela’s Incorporated and various purchasers party thereto (incorporated by reference from Exhibit 4.13 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835) |
88
| 4.22 | | Amendment No. 6 to Note Agreements dated as of January 1, 1995, among Cabela’s Incorporated and various purchasers party thereto (incorporated by reference from Exhibit 4.4 of our Current Report on Form 8-K, filed on March 3, 2006, File No. 001-32227) |
| |
| 4.23 | | Amendment No. 7 to Note Agreements dated as of January 1, 1995, among Cabela’s Incorporated and various purchasers party thereto (incorporated by reference from Exhibit 4.6 of our Current Report on Form 8-K, filed on June 20, 2007, File No. 001-32227) |
| | | |
| 10.1 | | Executive Employment Agreement dated as of January 4, 2004, between Cabela’s Incorporated and Richard N. Cabela (incorporated by reference from Exhibit 10.1 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835)* |
| |
| 10.2 | | Addendum to Executive Employment Agreement dated as of January 4, 2004, between Cabela’s Incorporated and Richard N. Cabela (incorporated by reference from Exhibit 10.1 of our Quarterly Report of Form 10-Q, filed on May 12, 2005, File No. 001-32227)* |
| | | |
| 10.3 | | Executive Employment Agreement dated as of January 4, 2004, between Cabela’s Incorporated and James W. Cabela (incorporated by reference from Exhibit 10.2 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835)* |
| | | |
| 10.4 | | Addendum to Executive Employment Agreement dated as of January 4, 2004, between Cabela’s Incorporated and James W. Cabela (incorporated by reference from Exhibit 10.2 of our Quarterly Report of Form 10-Q, filed on May 12, 2005, File No. 001-32227)* |
| | | |
| 10.5 | | Employee Lease Agreement dated as of January 1, 2005, between Cabela’s Incorporated and Mudhead Enterprises, LLC (incorporated by reference from Exhibit 10.5 of our Quarterly Report on Form 10-Q, filed on May 12, 2005, File No. 001-32227) |
| | | |
| 10.6 | | 1997 Stock Option Plan (incorporated by reference from Exhibit 10.6 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835)* |
| | | |
| 10.7 | | First Amendment to 1997 Stock Option Plan (incorporated by reference from Exhibit 10.7 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835)* |
| |
| 10.8 | | Second Amendment to 1997 Stock Option Plan (incorporated by reference from Exhibit 10.8 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835)* |
| |
| 10.9 | | Third Amendment to 1997 Stock Option Plan (incorporated by reference from Exhibit 10.9 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835)* |
| | | |
| 10.10 | | Fourth Amendment to 1997 Stock Option Plan (incorporated by reference from Exhibit 10.9.1 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835)* |
| |
| 10.11 | | Fifth Amendment to 1997 Stock Option Plan (incorporated by reference from Exhibit 10 of our Quarterly Report of Form 10-Q, filed on August 6, 2007, File No. 001-32227)* |
| |
| 10.12 | | Form of 1997 Employee Stock Option Agreement (incorporated by reference from Exhibit 10.10 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835)* |
| | | |
| 10.13 | | Form of Employee Stock Purchase Agreement (incorporated by reference from Exhibit 10.11 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835)* |
| |
| 10.14 | | 2004 Stock Plan (as amended and restated effective May 15, 2007) (incorporated by reference from Exhibit 10 of our Current Report on Form 8-K, filed on May 21, 2007, File No. 001-32227)* |
| |
| 10.15 | | Form of 2004 Stock Plan Employee Stock Option Agreement (incorporated by reference from Exhibit 10.13 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835)* |
| | | |
| 10.16 | | Form of 2004 Stock Plan Employee Stock Option Agreement (2006) (incorporated by reference from Exhibit 10.1 of our Current Report on Form 8-K, filed on May 15, 2006, File No. 001-32227)* |
89
| 10.17 | | Form of 2004 Stock Plan Non-Employee Director Stock Option Agreement (2006) (incorporated by reference from Exhibit 10.2 of our Current Report on Form 8-K, filed on May 15, 2006, File No. 001-32227)* |
| |
| 10.18 | | 2004 Employee Stock Purchase Plan (incorporated by reference from Exhibit 10.14 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835)* |
| |
| 10.19 | | Second Amended and Restated Credit Agreement dated as of July 15, 2005, among Cabela’s Incorporated, various lenders party thereto, and U.S. Bank National Association, as Administrative Agent (incorporated by reference from Exhibit 10 of our Current Report on Form 8-K, filed on July 15, 2005, File No. 001-32227) |
| | | |
| 10.20 | | Joinder Agreement made by Cabela’s Retail IL, Inc., to Second Amended and Restated Credit Agreement dated as of July 15, 2005, among Cabela’s Incorporated, various lenders party thereto, and U.S. Bank National Association, as Administrative Agent (incorporated by reference from Exhibit 10.2 of our Current Report on Form 8-K, filed on June 20, 2007, File No. 001-32227) |
| |
| 10.21 | | First Amendment to Second Amended and Restated Credit Agreement dated as of July 15, 2005, among Cabela’s Incorporated, various lenders party thereto, and U.S. Bank National Association, as Administrative Agent (incorporated by reference from Exhibit 10 of our Quarterly Report of Form 10-Q, filed on November 5, 2007, File No. 001-32227) |
| |
| 10.22 | | Fourth Amended and Restated Intercreditor Agreement dated as of June 15, 2007, among Cabela’s Incorporated, various noteholders party thereto, various lenders party thereto, and U.S. Bank National Association, as Collateral Agent (incorporated by reference from Exhibit 10.1 of our Current Report on Form 8-K, filed on June 20, 2007, File No. 001-32227) |
| |
| 10.23 | | Promissory Note dated October 22, 2007, among Cabela’s Incorporated and U.S. Bank National Association (incorporated by reference from Exhibit 10 of our Current Report on Form 8-K, filed on October 26, 2007, File No. 001-32227) |
| |
| 10.24 | | Form of Indemnification Agreement (incorporated by reference from Exhibit 10.18 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835)* |
| |
| 10.25 | | Form of Management Change of Control Severance Agreement (incorporated by reference from Exhibit 10.19 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835)* |
| |
| 10.26 | | Amended and Restated Management Change of Control Severance Agreement dated May 9, 2006, between Cabela’s Incorporated and Joseph M. Friebe (incorporated by reference from Exhibit 10.3 of our Current Report on Form 8-K, filed on May 15, 2006, File No. 001-32227)* |
| |
| 10.27 | | Restated Bonus Plan (incorporated by reference from Exhibit 10.20 of our Registration Statement on Form S-1, filed on March 23, 2004, Registration No. 333-113835)* |
| |
| 10.28 | | Cabela’s Incorporated Third Amended and Restated Deferred Compensation Plan (incorporated by reference from Exhibit 10.1 of our Current Report on Form 8-K, filed on March 1, 2005, File No. 001-32227)* |
| |
| 10.29 | | First Amendment of the Cabela’s Incorporated Third Amended and Restated Deferred Compensation Plan (incorporated by reference from Exhibit 10.1 of our Current Report on Form 8-K, filed on March 1, 2005, File No. 001-32227)* |
| |
| 10.30 | | Second Amendment of the Cabela’s Incorporated Third Amended and Restated Deferred Compensation Plan (incorporated by reference from Exhibit 10.28 of our Annual Report on Form 10-K, filed on February 28, 2007, File No. 001-32227)* |
| |
| 10.31 | | Summary of Non-Employee Director Compensation* |
| |
| 10.32 | | Summary of Named Executive Officer Compensation* |
90
| 10.33 | | Form of Confidentiality and Noncompetition Agreement (executed by Dennis Highby, Patrick A. Snyder, Michael Callahan, Brian J. Linneman, and Charles Baldwin) (incorporated by reference from Exhibit 10.3 of our Quarterly Report of Form 10-Q, filed on May 12, 2005, File No. 001-32227)* |
| |
| 10.34 | | Form of Confidentiality and Noncompetition Agreement – World’s Foremost Bank (executed by David A. Roehr and Ralph Castner effective April 14, 2005) (incorporated by reference from Exhibit 10.4 of our Quarterly Report of Form 10-Q, filed on May 12, 2005, File No. 001-32227)* |
| |
| 10.35 | | Retirement and General Release Agreement dated January 30, 2006, between Cabela’s Incorporated and David A. Roehr (incorporated by reference from Exhibit 10 of our Current Report of Form 8-K/A, filed on February 1, 2006, File No. 001-32227)* |
| |
| 10.36 | | Amended and Restated Lease Agreement with Option to Purchase dated April 26, 2005, between Ohio County Development Authority and Cabela’s Wholesale, Inc. (incorporated by reference from Exhibit 10.29 of our Annual Report of Form 10-K, filed on March 1, 2006, File No. 001-32227) |
| | | |
| 10.37 | | Performance Bonus Plan (incorporated by reference from Exhibit 10 of our Current Report on Form 8-K, filed February 19, 2007, File No. 001-32227)* |
| | | |
| 18 | | Letter re Change in Accounting Principle (incorporated by reference from Exhibit 18 of our Quarterly Report of Form 10-Q, filed on May 4, 2007, File No. 001-32227) |
| | | |
| 21.1 | | Subsidiaries of Cabela’s Incorporated |
| |
| 23.1 | | Consent of Deloitte & Touche LLP |
| |
| 24.1 | | Powers of Attorney |
____________________
| * | | Indicates management contract or compensatory plan or arrangement required to be filed as exhibits pursuant to Item 15(b) of this report. |
| |
| (c) | | Financial Statement Schedules. See Item 15(a) above. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | CABELA’S INCORPORATED |
| |
| |
| Dated: February 26, 2008 | By: | /s/ Dennis Highby | |
| | Dennis Highby |
| | President and Chief Executive | Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | | Title | | Date |
| |
| /s/ Dennis Highby | | President, Chief Executive Officer, and | | February 26, 2008 |
| Dennis Highby | | Director (Principal Executive Officer) | | |
| |
| /s/ Ralph W. Castner | | Vice President and Chief Financial Officer | | February 26, 2008 |
| Ralph W. Castner | | (Principal Financial Officer and Principal | | |
| | Accounting Officer) | | |
| |
| * | | Chairman of the Board and Director | | February 26, 2008 |
| Richard N. Cabela | | | | |
| |
| * | | Vice-Chairman of the Board and Director | | February 26, 2008 |
| James W. Cabela | | | | |
| |
| * | | Director | | February 26, 2008 |
| Theodore M. Armstrong | | | | |
| | | | | |
| * | | Director | | February 26, 2008 |
| John H. Edmondson | | | | |
| |
| * | | Director | | February 26, 2008 |
| John Gottschalk | | | | |
| |
| * | | Director | | February 26, 2008 |
| Reuben Mark | | | | |
| |
| * | | Director | | February 26, 2008 |
| Michael R. McCarthy | | | | |
| |
| * | | Director | | February 26, 2008 |
| Stephen P. Murray | | | | |
| * By: | /s/ Ralph W. Castner | |
| Ralph W. Castner |
| Attorney-in-fact |
| February 26, 2008 |
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