Cabela's 2012 Annual Report Download - page 92

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CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Except Share and Per Share Amounts)
and restructuring charges in the consolidated statements of income. There were no impairment losses in 2010.
At the end of 2012 and 2011, the cumulative amount of impairment adjustments that were made to deferred grant
income, which has been recorded as a reduction of property and equipment, was $38,656 and $33,626, respectively.
These impairment adjustments made to deferred grant income resulted from events or changes in circumstances
that indicated the amount of deferred grant income may not be recovered or realized in cash through collection,
sales, or other proceeds from the economic development bonds. The Company may agree to guarantee deficiencies
in tax collections which fund the repayment of economic development bonds. The Company did not guarantee any
economic development bonds that it owned at the end of 2012, 2011 or 2010.
Land grants typically include land associated with the retail store and may include other land for sale and
further development. Land grants are recognized at the fair value of the land on date of grant. Deferred grant
income on land grants is recognized as a reduction to depreciation expense over the estimated life of the related
assets of the developments. In 2012, the Company received land grants with a fair value of $2,287. In 2011, the
Company did not receive any land under these grants.
Certain grants contain covenants the Company is required to comply with regarding minimum employment
levels, maintaining retail stores in certain locations, and maintaining office facilities in certain locations. For these
grants the Company recognizes grant revenue as the milestones associated with the grant are met. For 2012 and
2011, the Company was in compliance with the requirements under these grants.
Economic Development Bonds – Economic development bonds are related to the Company’s government
economic assistance arrangements relating to the construction of new retail stores or retail development. Economic
development bonds issued by state and local municipalities are classified as available-for-sale and recorded at
their fair value. Fair values of bonds are estimated using discounted cash flow projections based on available
market interest rates and management estimates including the estimated amounts and timing of expected future
tax payments to be received by the municipalities under development zones. These fair values do not reflect any
premium or discount that could result from offering these bonds for sale or through early redemption, or any
related income tax impact. Declines in the fair value of available-for-sale economic development bonds below cost
that are deemed to be other than temporary are reflected in earnings.
On a quarterly basis, the Company performs various procedures to analyze the amounts and timing of
projected cash flows to be received from its economic development bonds. The Company revalues each economic
development bond using discounted cash flow models based on available market interest rates (Level 2 inputs)
and management estimates, including the estimated amounts and timing of expected future tax payments (Level
3 inputs) to be received by the municipalities under tax increment financing districts. Projected cash flows are
derived from sales and property taxes. Due to the seasonal nature of the Company’s business, fourth quarter sales
are significant to projecting future cash flows under the economic development bonds. The Company evaluates
the impact of bond payments that have been received since the most recent quarterly evaluation, including those
subsequent to the end of the quarter. Typically, bond payments are received twice annually. The payments received
around the end of the fourth quarter provide the Company with additional facts for its fourth quarter projections.
The Company makes inquiries of local governments and/or economic development authorities for information on
any anticipated third-party development, specifically on land owned by the Company, but also on land not owned
by the Company in the tax increment financing development district, and to assess any current and potential
development where cash flows under the bonds may be impacted by additional development and the anticipated
development is material to the estimated and recorded carrying value based on projected cash flows. The Company
makes revisions to the cash flow estimates of each bond based on the information obtained. In those instances
where the expected cash flows are insufficient to recover the current carrying value of the bond, the Company
adjusts the carrying value of the individual bonds to their revised estimated fair value. The governmental entity
from which the Company purchases the bonds is not liable for repayment of principal and interest on the bonds to
the extent that the associated taxes are insufficient to fund principal and interest amounts under the bonds. Should