Cabela's 2009 Annual Report Download - page 85

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CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Except Share and Per Share Amounts)
Inventories – Inventories are stated at the lower of average cost or market. All inventories are finished goods.
The reserve for inventory shrinkage, estimated based on cycle counts and physical inventories, was $7,529 and
$9,825 at the end of 2009 and 2008, respectively. The reserves for returns of damaged goods, obsolescence, and slow-
moving items, estimated based upon historical experience, inventory aging, and specific identification, were $4,451
and $6,626 at the end of 2009 and 2008, respectively.
Vendor Allowances – Vendor allowances include price allowances, volume rebates, store opening costs
reimbursements, marketing participation, and advertising reimbursements received from vendors under vendor
contracts. Vendor merchandise allowances are recognized as a reduction of the costs of merchandise as sold. Vendor
reimbursements of costs are recorded as a reduction to expense in the period the related cost is incurred based on
actual costs incurred. Any cost reimbursements exceeding expenses incurred are recognized as a reduction of the
cost of merchandise sold. Volume allowances may be estimated based on historical purchases and estimates of
projected purchases.
Deferred Catalog Costs and Advertising – Advertising production costs are expensed as the advertising occurs
except for catalog costs which are amortized over the expected period of benefit estimated at three to 12 months after
mailing. Unamortized catalog costs totaled $26,098 and $31,015 at the end of 2009 and 2008, respectively. Advertising
expense, including catalog costs amortization, and website marketing paid search fees, was $188,312, $212,379, and
$207,373 for 2009, 2008, and 2007, respectively. Advertising vendor reimbursements netted in advertising expense
above totaled $1,602, $1,834, and $7,058 for 2009, 2008, and 2007, respectively.
Store Pre-opening Expenses – Non-capital costs associated with the opening of new stores are expensed as
incurred.
Leases – We lease certain retail locations, distribution centers, office space, equipment and land. Assets held
under capital lease are included in property and equipment. Operating lease rentals are expensed on a straight-line
basis over the life of the lease. At the inception of a lease, we determine the lease term by assuming the exercise
of those renewal options that are reasonably assured because of the significant economic penalty that exists for
not exercising those options. The exercise of lease renewal options is at our sole discretion. The expected lease
term is used to determine whether a lease is capital or operating and is used to calculate straight-line rent expense.
Additionally, the depreciable life of buildings and leasehold improvements is limited by the expected lease term.
Property and Equipment – Property and equipment are stated at cost. Depreciation and amortization are
provided over the estimated useful lives of the assets, including assets held under capital leases, on a straight-line
basis. Leasehold improvements are amortized over the lease term or, if shorter, the useful lives of the improvements.
Assets held under capital lease agreements are amortized using the straight-line method over the shorter of the
estimated useful lives of the assets or the lease term. When property is fully depreciated, retired or otherwise disposed
of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected
in the consolidated statement of income. The costs of major improvements that extend the useful life of an asset are
capitalized. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In connection with the preparation of our consolidated
financial statements during 2009 and 2008, we evaluated the recoverability of certain property and equipment,
including our existing store locations and future retail store sites, and recognized an impairment loss of $59,767 and
$2,486, in 2009 and 2008, respectively, recorded in impairment and restructuring charges. Capitalized interest on
projects during the construction period totaled $233, $2,472, and $4,069, for 2009, 2008, and 2007, respectively. Costs
related to internally developed software are capitalized and amortized on a straight-line basis over their estimated
useful lives. In the fourth quarter of 2009, we removed $39,221 from our property and equipment balance of fully
depreciated assets that were no longer in service. This asset adjustment was based primarily on an analysis of our
property and equipment records and had no net impact on our 2009 consolidated balance sheet, statement of income
or statement of cash flows.