Cabela's 2012 Annual Report Download - page 56

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Comparisons and analysis of operating income are presented below for the years ended:
2012 2011
Increase
(Decrease) % Change
(Dollars in Thousands)
Total operating income $ 275,699 $ 231,548 $ 44,151 19.1%
Total operating income as a percentage of total revenue 8.9% 8.2% 0.7%
Operating income by business segment:
Retail $ 345,040 $ 263,010 $ 82,030 31.2
Direct 155,237 172,163 (16,926) (9.8)
Financial Services 74,182 59,032 15,150 25.7
Operating income as a percentage of segment revenue:
Retail 18.7% 17.0% 1.7%
Direct 16.7 18.0 (1.3)
Financial Services 23.2 20.2 3.0
Operating income increased $44 million, or 19.1%, in 2012 compared to 2011, and operating income as a
percentage of revenue increased 70 basis points to 8.9% for 2012. The increases in total operating income and
total operating income as a percentage of total revenue were primarily due to increases in revenue from our Retail
and Financial Services segments as well as an increase in our merchandise gross profit. These increases were
partially offset by lower revenue from our Direct business, higher consolidated operating expenses, and higher
impairment losses primarily related to land held for sale. In addition, interchange income in 2012 in our Financial
Services segment was reduced by $12.5 million pursuant to the proposed settlement regarding the Visa litigation.
Selling, distribution, and administrative expenses increased in 2012 compared to 2011 primarily due to increases in
comparable and new store costs and related support areas.
Prior to January 1, 2012, under an Intercompany Agreement, the Financial Services segment had incurred
a marketing fee that was paid to the Retail and Direct segments. Effective January 1, 2012, this Intercompany
Agreement was amended with the marketing fee component eliminated and replaced with a fixed license fee equal
to 70 basis points on all originated charge volume of the Cabela’s CLUB Visa credit card portfolio. In addition,
among other changes, the agreement requires the Financial Services segment to reimburse the Retail and Direct
segments for certain operating and promotional costs. Reported operating income by segment, and the components
of operating income for each segment, were not materially impacted for 2012 compared to prior years by the
amendments to the Intercompany Agreement. Fees paid under the Intercompany Agreement by the Financial
Services segment to these two segments increased $14 million in 2012 compared to 2011; an $16 million increase to
the Retail segment and a $2 million decrease to the Direct segment.
Interest (Expense) Income, Net
Interest expense, net of interest income, decreased $4 million to $20 million in 2012 compared to $24 million
in 2011. Interest expense is accrued on our revolving credit facilities and long-term debt as well as on unrecognized
tax benefits. The decrease in interest expense was primarily due to an increase in capitalized interest in 2012
compared to 2011.
Other Non-Operating Income, Net
Other non-operating income was $6 million in 2012 compared to $7 million in 2011. This income is primarily
from interest earned on our economic development bonds.