Cabela's 2012 Annual Report Download - page 121

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CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Except Share and Per Share Amounts)
The Company’s recurring financial instruments classified as Level 3 for valuation purposes consists of
economic development bonds. The table below presents changes in fair value of the economic development bonds
measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended:
2012 2011 2010
Balance, beginning of year $ 86,563 $ 104,231 $ 108,491
Total gains or losses:
Included in earnings - realized - 13 -
Included in accumulated other comprehensive
income (loss) - unrealized 5,814 9,078 (1,084)
Valuation adjustments (5,030) (24,314) -
Purchases, issuances, and settlements:
Purchases - 601 -
Issuances - - -
Settlements (2,306) (3,046) (3,176)
Total (2,306) (2,445) (3,176)
Balance, end of year $ 85,041 $ 86,563 $ 104,231
Fair values of the Company’s economic development bonds were estimated using discounted cash flow
projection estimates. These estimates are based on available market interest rates and the estimated amounts
and timing of expected future payments to be received from municipalities under tax development zones, which
the Company considers to be unobservable inputs (Level 3). 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. In 2012 and 2011, the Company determined that the fair
value of the bonds was below carrying value, with the decline in fair value deemed to be other than temporary,
which resulted in fair value adjustments totaling $5,030 and $24,314 at the end of 2012 and 2011, respectively.
Accordingly, deferred grant income was reduced by $5,030 and $24,314 for the respective years due to other than
temporary impairment losses of the same amounts that were recognized on the economic development bonds.
These reductions in deferred grant income resulted in increases in depreciation expense of $1,309 and $6,538 in
2012 and 2011, respectively, which have been included in impairment and restructuring charges in the consolidated
statements of income. At the end of 2010, none of the bonds with a fair value below carrying value were deemed to
have other than a temporary impairment.
Long-lived assets other than goodwill and other intangible assets, which generally are tested separately
for impairment on an annual basis, are evaluated for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. The calculation for an impairment loss compares the
carrying value of the asset to that asset’s estimated fair value, which may be based on estimated future discounted
cash flows or unobservable market prices. We recognize an impairment loss if the asset’s carrying value exceeds
its estimated fair value. Frequently our impairment loss calculations contain multiple uncertainties because they
require management to make assumptions and to apply judgment to estimate future cash flows and asset fair
values, including forecasting cash flows under different scenarios. We have consistently applied our accounting
methodologies that we use to assess impairment loss. However, if actual results are not consistent with our
estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses
that could be material.