Cabela's 2004 Annual Report Download - page 101

CABELA'S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(Dollar Amounts in Thousands Except Share and Per Share Amounts)
11. DERIVATIVES
The Company is exposed to 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 Ì 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 Öow hedges. The gains and losses
associated with these hedges are deferred in accumulated other comprehensive income (loss) until the
anticipated transaction is consummated and are recognized in the income statement in the same period
during which the hedged transactions aÅect earnings. Gains and losses on foreign currency derivatives for
which the Company has not elected hedge accounting are recorded immediately in earnings.
For the Ñscal years ended 2004 and 2003, there was no ineÅectiveness associated with the Company's
foreign currency derivatives designated as cash Öow hedges. There were no discontinued foreign currency
derivative cash Öow hedges during the Ñscal years ended 2004 and 2003.
Generally, the Company hedges a portion of its anticipated inventory purchases for periods up to
12 months. As of Ñscal year ended 2004, the Company has hedged certain portions of its anticipated
inventory purchases through January of 2005, while other portions are hedged through the majority of
2005.
The fair value of foreign currency derivatives assets or liabilities is recognized within either other
current assets or liabilities. As of Ñscal years ended 2004 and 2003, the fair value of foreign currency
derivative assets was $235 and $553, respectively and, the fair value of foreign currency derivative
liabilities was $0 and $0, respectively.
As of Ñscal years ended 2004 and 2003, the net deferred gain recognized in other comprehensive
income/(loss) was $(205) and $238, net of tax, respectively. The Company anticipates a gain of $151, net
of tax, will be transferred out of accumulated other comprehensive income and recognized within earnings
over the next 12 months. Gains of $296, $430 and $172, net of tax, were transferred from accumulated
other comprehensive income into income from operations in Ñscal years 2004, 2003 and 2002, respectively.
Interest Rate Management Ì On February 4, 2003, in connection with the Series 2003-1
securitization the securitization trust entered into a $300 million notional swap agreement in order to
manage interest rate exposure. The exposure is related to changes in cash Öows from funding credit card
loans which include a high percentage of accounts with Öoating rate obligations that do not incur monthly
Ñnance charges. The swap converts the interest rate on the investor bonds from a Öoating rate basis with a
spread over a benchmark note to a Ñxed rate of 3.699%. Since the trust is not consolidated, the fair value
of the swap is not reÖected on the Ñnancial statements. The Company entered into a swap with similar
terms with the counter-party whereby the notional amount is zero unless the notional amount of trust's
swap falls below $300 million. The Company has not elected to designate this derivative as a hedge and,
therefore, the derivative is marked to market through the statement of income. Market is currently
determined to be zero. WFB pays the Company a fee for the credit enhancement provided by this swap,
which was $610 and $552 in 2004 and 2003, respectively.
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