Cabela's 2004 Annual Report Download - page 38

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have a material impact on the full Ñscal year 2004 results when compared to the prior full Ñscal
year results. We expect to complete a securitization transaction in the third or fourth Ñscal quarter
of 2005.
‚Rapid interest rate changes. During periods of falling interest rates, our Financial Services
segment generally beneÑts as the variable rate of interest paid in connection with our securitization
programs and borrowings generally falls more rapidly than the interest rates charged to our
cardholders. During periods of rising interest rates, we generally experience the opposite eÅect.
Interest rates have generally declined or been steady in the periods presented in our selected
Ñnancial data. The recent increases in interest rates have not materially impacted the operating
results of our Financial Services segment as we have obtained favorable Ñxed interest rates for a
portion of our securitizations and borrowings and have been able to increase the interest rates paid
by our cardholders. We cannot assure you that we will be able to obtain similar Ñxed interest rates
for our securitizations and borrowings in the future. See ""Factors AÅecting Future Results Ì Risks
Related to Our Financial Services Business Ì Changes in interest rates could have a negative
impact on our earnings.''
‚Changes in segment mix. We record direct labor expenses of our Retail segment and all of the
costs of our Financial Services segment in selling, general and administrative expenses. Therefore,
an increase in the revenue of those segments will generally be accompanied by an increase in
selling, general and administrative expenses. In addition, as discussed above, our Financial Services
segment does not have costs classiÑed as cost of revenue. If revenues in our Retail or Financial
Services segments grow at a disproportionate rate compared to our Direct segment, our results will
reÖect the disproportionate eÅect on gross proÑt and selling, general and administrative expenses
that results from our classiÑcation of these expenses.
‚Seasonality. Our revenues are seasonal in nature due to holiday buying patterns and hunting and
Ñshing season openings across the country. Our merchandise revenues are typically higher in the
third and fourth quarters than in the Ñrst and second quarters. See ""Quarterly Results of
Operations and Seasonal InÖuences.''
‚Compensation Charge. On May 1, 2004, we granted options to purchase 550,500 shares of our
common stock with an exercise price of $13.34 per share. These options vest in Ñve equal annual
installments commencing on January 1, 2005. We will incur a total pre-tax compensation charge of
approximately $3.7 million which is equal to the diÅerence between the initial public oÅering price
of $20.00 per share and the exercise price of $13.34 per share multiplied by the number of options
granted. This charge will be amortized to expense over the vesting period of the options. A pre-tax
compensation charge of $1.7 million was incurred in Ñscal 2004, and we anticipate pre-tax
compensation charges of $0.9 million, $0.6 million, $0.3 million and $0.2 million will be incurred in
Ñscal years 2005, 2006, 2007 and 2008, respectively.
‚Compensation Charges for New Accounting Pronouncements. On December 15, 2004, the FASB
issued FASB Statement 123R, Share Based Payment (""FASB 123R''). This revises the previously
issued FASB 123. It requires public companies to record compensation at fair value for newly
issued options and for the remaining outstanding unvested options as of the eÅective date, which is
for periods beginning after June 15, 2005. We expect to incur a total non-cash pre-tax
compensation charge for the outstanding unvested options of $2.0 to $3.0 million during Ñscal 2005,
which is in addition to the amount incurred relating to our May 1, 2004 option grants discussed
above. This does not include charges for any new option grants that may be approved during Ñscal
2005.
‚Land sales impact on other revenue. In Ñscal 2004, the amount of land sales increased over Ñscal
2003 by $5.2 million to $7.5 million compared to $2.3 million in Ñscal 2003. These land sales are
included in other revenue and pertain to development of land around our destination retail stores.
The cost of the land is reÖected in cost of sales as this land was held for sale. The timing and gross
proÑt of these land sales can have an impact on our annual and quarterly results. The primary
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