Cabela's 2006 Annual Report Download - page 84

Download and view the complete annual report

Please find page 84 of the 2006 Cabela's annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 114

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114

80
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Except Share and Per Share Amounts)
Deferred income taxes are included on the consolidated balance sheets under the following captions at the
fiscal years ended:
2006 2005
Deferred income tax liability – current . . . . . . . . . . . . . . . . . . . . . . . . . $(17,978) $ (3,994)
Deferred income tax liability – noncurrent . . . . . . . . . . . . . . . . . . . . . . (30,440) (20,190)
$(48,418) $(24,184)
10. DERIVATIVES
The Company is exposed to certain market risks including changes in currency exchange rates and interest
rates. The Company may enter into various derivative transactions pursuant to established Company policies to
manage volatility associated with these exposures.
Foreign Currency Management — The Company may enter into forward exchange or option contracts for
transactions denominated in a currency other than the applicable functional currency in order to reduce exposures
related to changes in foreign currency exchange rates. This primarily relates to hedging against anticipated inventory
purchases.
Hedges of anticipated inventory purchases are designated as cash flow hedges. The effective portion of the
derivative’s gain or loss associated with the hedge is deferred as a component of accumulated other comprehensive
income (loss) until the anticipated transaction is consummated and is then recognized in earnings in the same period
that the hedged transaction affects` earnings. For a foreign currency derivative not meeting the conditions for
designation as a hedge, changes in fair value are recorded in earnings in the period of change.
Gains totaling $28 and $296, net of taxes, for fiscal 2006 and 2004, respectively, and a loss of $102 (net of
tax), were transferred from accumulated other comprehensive income to income from operations. During fiscal
2005, there was ineffectiveness associated with the Company’s foreign currency derivatives designated as cash flow
hedges. The Company discontinued four foreign currency contracts during fiscal 2005 resulting in a loss of $58
recorded in earnings.
Generally, the Company hedges a portion of its anticipated inventory purchases for periods up to 12 months.
As of December 30, 2006, the Company had hedged certain portions of its anticipated inventory purchases through
June 30, 2007.
The fair value of foreign currency derivative assets or liabilities is classified in other current assets or other
current liabilities. The fair value of foreign currency derivative assets totaled $37 at December 30, 2006, and the fair
value of foreign currency derivative liabilities totaled $11 at December 31, 2005.
Interest Rate Management — In 2003, in connection with the Series 2003-1 term securitization, the
securitization trust entered into a $300,000 notional interest rate swap agreement in order to manage interest rate
exposure. The exposure is related to changes in cash flows from funding credit card loans, which include a high
percentage of accounts with floating rate obligations that do not incur monthly finance charges. The swap effectively
converts the interest rate on the investor bonds from a floating rate to a fixed rate. Since the securitization trust is
not consolidated, the fair value of the swap is not reflected in the consolidated financial statements. Additionally,
the Company entered into a swap with similar terms with the counter-party whereby the notional amount is zero
unless the notional amount of the interest rate swap agreement of the trust falls below $300,000. This derivative is
not designated as a hedge and, therefore, the fair value of this derivative is recognized in current earnings. As of
December 30, 2006, market value was determined to not be material.