Cabela's 2005 Annual Report Download - page 43

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of financial condition, results of operations, liquidity and capital
resources should be read in conjunction with our audited consolidated financial statements and notes thereto
appearing elsewhere in this report. This discussion contains forward-looking statements that involve risks and
uncertainties, including information with respect to our plans, intentions and strategies for our businesses. See
“Special Note Regarding Forward-Looking Statements.” For additional information regarding some of the risks
and uncertainties that affect our business and the industries in which we operate, please see “Risk Factors.” Our
actual results may differ materially from those estimated or projected in any of these forward-looking statements.
Overview
We are the world’s largest direct marketer, and a leading specialty retailer, of hunting, fishing, camping and
related outdoor merchandise. We serve people who enjoy the outdoor lifestyle through our well-established
direct business and our growing number of destination retail stores. In fiscal 2005, we drove incremental
merchandise sales and profitability through our growing number of destination retail stores and increases in our
Direct business through growth in usage of our website. Additionally, we benefit from our credit card operation
that strategically supports our business segments. Our co-branded credit card provides revenue from credit and
interchange fees and offers us the opportunity to enhance our merchandising business revenue by reinforcing our
brand and increasing customer loyalty. To best reflect our operations, we organize the financial reporting of our
business into the following segments:
• Direct, which consists of our catalogs and website;
• Retail, which consists of our destination retail stores;
• Financial Services, which consists of our credit card business, which is managed and administered by
our wholly-owned bank subsidiary, World’s Foremost Bank; and
• Other, which consists of aggregated non-merchandising outfitter services, our real estate land sales and
our corporate and other expenses.
In the discussion below, where we refer to our “merchandising business” we are referring to our Direct and
Retail segments, collectively. Where we refer to our “bank,” we are referring to our Financial Services segment.
Revenue
Revenue consists of sales of our products and services. Direct revenue includes sales from orders placed
over the phone, by mail and through our website and includes customer shipping charges. Retail revenue includes
all sales made at our destination retail stores and is driven by sales at new stores and changes in comparable store
sales. A store is included in our comparable store sales base on the first day of the month following the fifteen
month anniversary of its opening or expansion by greater than 25% of total square footage. Financial Services
revenue includes securitization income, interest income and interchange and other fees net of reward program
costs, interest expense and credit losses from our credit card operations. Other revenue consists primarily of land
sales around our destination retail stores and our non-merchandising outfitter services.
Cost of Revenue
Cost of revenue for our merchandising business includes cost of merchandise, shipping costs, inventory
shrink and other miscellaneous costs. However, it does not include occupancy costs, depreciation, direct labor or
warehousing costs, which are included in selling, general and administrative expenses. Our Financial Services
segment does not have costs classified as cost of revenue. Other cost of revenue includes the basis in land that we
have sold.
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