Cabela's 2004 Annual Report Download - page 89

CABELA'S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(Dollar Amounts in Thousands Except Share and Per Share Amounts)
For purposes of pro forma disclosures, the estimated fair value of the options granted is amortized to
expense over the options' vesting period. The Company's pro forma net income for 2004, 2003 and 2002
were as follows:
2004 2003 2002
Net income Ì as reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $64,996 $51,391 $46,922
Add: Stock based employee compensation recognized, net of tax 1,086 Ì Ì
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net
of related tax eÅects ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (4,759) (953) (1,032)
Net income Ì pro forma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $61,323 $50,438 $45,890
Earnings per share:
Basic Ì as reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1.06 $ 0.99 $ 0.94
Basic Ì proforma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1.00 $ 0.97 $ 0.92
Diluted Ì as reportedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1.03 $ 0.93 $ 0.88
Diluted Ì proforma ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.94 $ 0.92 $ 0.87
The fair value of options granted subsequent to the Ñling of the initial public oÅering were estimated
on the date of the grant using the Black-Scholes option pricing model with the following weighted-average
assumptions. The expected stock price volatility was 50%; the risk free interest at grant date was 3.57%
and the expected term was 4.5 years. Prior to the May 1, 2004 option grant, the Company used a binomial
model and did not include a volatility factor.
Financial Instruments and Credit Risk Concentrations Ì Financial instruments, which potentially
subject the Company to concentrations of credit risk, are primarily cash, investments and accounts
receivable. The Company places its investments primarily in tax-free municipal bonds or commercial paper
with short-term maturities, and limits the amount of credit exposure to any one entity. Concentrations of
credit risk with respect to accounts receivable are limited due to the nature of the Company's receivables.
Fair Value of Financial Instruments Ì The carrying amount of cash and cash equivalents, receivables,
credit card loans held for sale, retained interests in asset securitizations, accounts payable, notes payable to
banks and accrued expenses approximate fair value because of the short maturity of these instruments.
The fair values of each of the Company's long-term debt instruments are based on the amount of future
cash Öows associated with each instrument discounted using the Company's current borrowing rate for
similar debt instruments of comparable maturity. The fair value estimates are made at a speciÑc point in
time and the underlying assumptions are subject to change based on market conditions. At Ñscal year
ended 2004 and 2003, the carrying amount of the Company's long-term debt was $148,152 and $142,651,
respectively, with an estimated fair value of approximately $150,910 and $149,597, respectively. For
purposes of estimating fair value, time deposits are pooled in homogeneous groups and the future cash
Öows of those groups are discounted using current market rates oÅered for similar products. At Ñscal year
end 2004 and 2003, the carrying amounts of the Company's time deposits were $100,659 and $81,664,
respectively, with an estimated fair value of approximately $100,636 and $82,917, respectively.
Derivatives Ì The Company uses derivatives for the purpose of hedging exposure to changes in
interest rates and foreign currency exchange rates. The fair value of each derivative is recognized in the
balance sheet within current assets or current liabilities. Changes in the fair value of derivatives are
recognized immediately in the income statement for derivatives that do not qualify for hedge accounting.
For derivatives designated as a hedge and used to hedge an anticipated transaction, changes in the fair
value of the derivatives are deferred in the balance sheet within accumulated other comprehensive income
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