Cabela's 2012 Annual Report Download - page 109

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99
CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Except Share and Per Share Amounts)
As of December 29, 2012, cash and cash equivalents held by our foreign subsidiaries totaled $28,360. Our
intent is to permanently reinvest a portion of these funds outside the United States for capital expansion and to
repatriate a portion of these funds. Based on our current projected capital needs and the current amount of cash
and cash equivalents held by our foreign subsidiaries, we do not anticipate incurring any material tax costs beyond
our accrued tax position in connection with any repatriation, but we may be required to accrue for unanticipated
additional tax costs in the future if our expectations or the amount of cash held by our foreign subsidiaries change.
The Company paid $15,000 and $38,418 as a deposit for federal taxes related to prior period uncertain tax
positions in 2012 and 2011, respectively. The deposit is classified as a current asset netted within income taxes
receivable and deferred income taxes in the consolidated balance sheet.
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:
2012 2011 2010
Unrecognized tax benefits, beginning of year $ 37,608 $ 43,198 $ 2,989
Gross decreases related to prior period tax positions (2,369) (12,705) (1,660)
Gross increases related to prior period tax positions 49 855 33,669
Gross increases related to current period tax positions 4,964 6,260 8,200
Gross decreases related to current period tax positions (1,000) - -
Unrecognized tax benefits, end of year $ 39,252 $ 37,608 $ 43,198
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 a net
credit to interest expense of $592 and $3,684 in 2012 and 2010, respectively. The Company recorded net interest
expense of $798 in 2011. The net credits in 2012 and 2010 were due to the gross decrease of certain unrecognized
tax benefits. No penalties were accrued. The liability for estimated interest on unrecognized tax benefits totaling
$5,696 and $6,290 at the end of 2012 and 2011, 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 $5,727.
The Internal Revenue Service (“IRS”) commenced its examination of the Company’s 2007 and 2008 tax
years in early 2010. The IRS also commenced examination of the Company’s 2009 and 2010 tax years in early
2012. Later in 2012, the IRS issued a revenue agent report summarizing its determination of the adjustments
required to the 2007 and 2008 income tax returns. The Company disagrees with the adjustments made by the IRS
in their revenue agent report and has filed an appeal. The Company does not expect the appeals process for the
2007 and 2008 tax years or the examination and related appeal for the 2009 and 2010 tax years 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 2011 remain open to examination by major taxing jurisdictions to which Cabela’s is subject.