Cabela's 2010 Annual Report Download - page 103

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93
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Except Share and Per Share Amounts)
Effective April 1, 2008, the Company completed a legal entity restructuring by merging certain subsidiaries
resulting in the major selling channels (retail, Internet, and catalog) residing in a single legal entity. Prior to the
restructuring, state net operating losses were being carried forward. Under the previous operating structure, the
losses were likely to have expired unused, therefore a full valuation allowance was established. The surviving
entity in the restructuring is anticipated to generate sufficient taxable income to fully recognize the tax benefit
of these net operating losses. Accordingly, in the second quarter of 2008, the Company reversed the state net
operating losses valuation allowance of $916.
The reconciliation of unrecognized tax benefits, the balance of which is classified as other long-term
liabilities in the consolidated balance sheet, was as follows for the years ended:
2010 2009 2008
Unrecognized tax benefits, beginning of year $ 2,989 $3,076 $2,000
Gross decreases related to prior period tax positions (1,660)(846)(134)
Gross increases related to prior period tax positions 33,669 183 -
Gross increases related to current period tax positions 8,200 576 1,210
Unrecognized tax benefits, end of year $ 43,198 $2,989 $3,076
The Company’s policy is to accrue interest expense, and penalties as appropriate, on estimated unrecognized
tax benefits as a charge to interest expense in the consolidated statements of income. The Company recorded
net interest expense of $3,684 in 2010. The Company recorded a net credit to interest expense of $138 and $134
against interest expense in 2009 and 2008, respectively. The net credit was due to the gross decrease of certain
unrecognized tax benefits. No penalties were accrued. The liability for estimated interest on unrecognized tax
benefits totaling $5,492 and $683 at the end of 2010 and 2009, respectively, is included in other long-term liabilities
in the consolidated balance sheet. The total amount of unrecognized tax benefits that, if recognized, would affect
the effective tax rate is $2,617.
The Internal Revenue Service commenced its examination of the Company’s 2007 and 2008 tax years in early
2010. The Company does not expect the examination process and related appeals to be completed within the next
12 months. The Company has reserved for potential adjustments to the provision for income taxes that may result
from examinations by the tax authorities and the Company believes that the final outcome of these examinations or
agreements will not have a material effect on results of operations.
Because existing tax positions will continue to generate increased liabilities for the Company for
unrecognized tax benefits over the next 12 months, and since the Company is routinely under audit by various
taxing authorities, it is reasonably possible that the amount of unrecognized tax benefits will change during
the next 12 months. However, the Company does not expect the change, if any, to have a material effect on the
consolidated financial condition or results of operations within the next 12 months.
The Company files income tax returns in the United States, Canada, Hong Kong, and various states. The tax
years 2007 through 2009 remain open to examination by major taxing jurisdictions to which Cabela’s is subject.
18. COMMITMENTS AND CONTINGENCIES
On March 5, 2010, WFB received a preliminary report related to a compliance examination conducted in the
second quarter of 2009 from the FDIC. WFB received the final version of this report from the FDIC on May 19,
2010. The FDIC’s findings were that certain WFB practices regarding the assessment of overlimit fees, late fees,
and penalty interest charges and contacting delinquent cardholders at their place of employment were improper
because such practices were unfair and/or deceptive under applicable law. The FDIC has indicated that it intends to