Cabela's 2012 Annual Report Download - page 55

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Long-lived assets of the Company are evaluated for possible impairment (i) whenever changes in
circumstances may indicate that the carrying value of an asset may not be recoverable and (ii) at least annually for
recurring fair value measurements and for those assets not subject to amortization. In 2012, 2011, and 2010, we
evaluated the recoverability of land held for sale, economic development bonds, property (including existing store
locations and future retail store sites), equipment, goodwill, and other intangible assets.
In December 2012, we received an appraisal report that updated the value from a previous appraisal on one
property held for sale. Results from the 2012 appraisal report concluded that the carrying value was higher than
the estimated fair value, resulting in an impairment loss. This 2012 appraisal was based on the sales comparison
approach to estimate the “as-is” fee simple market value of the subject property. This approach involved a process
in which a market value estimate was derived from analyzing the market for similar properties that have sold or
that are available for sale (Level 2 inputs). In the fourth quarter of 2012, we also impaired a second property held
for sale based on an arms-length sales contract of adjoining land anticipated to close in mid-2013 (Level 2 inputs).
In 2011, we wrote down the carrying value of certain land held for sale properties based on signed agreements
for their sale. We recognized impairment losses on land held for sale of $18 million and $5 million in 2012 and
2011, respectively.
In the fourth quarter of 2012, we received information on one project that the development will be delayed
thus reducing the amount expected to be received and delaying the timing of projected cash flows. Therefore, the
fair value of this economic development bond was determined to be below carrying value, with the decline in fair
value deemed to be other than temporary. In the fourth quarter of 2011, we received information on three projects
that development was either delayed or that actual tax revenues were lower than estimated, thus reducing the
amount expected to be received and delaying the timing of projected cash flows. Therefore, the discounted cash
flows indicated that the fair value of these three economic development bonds was below carrying value, with
the decline in fair value deemed to be other than temporary. These fair value adjustments totaling $5 million and
$24 million in 2012 and 2011, respectively, reduced the carrying value of the economic development bond portfolio
at the end of 2012 and 2011 and resulted in corresponding reductions in deferred grant income. These reductions in
deferred grant income resulted in increases in depreciation expense of $1 million and $7 million in 2012 and 2011,
respectively, which have been included in impairment and restructuring charges in the consolidated statements of
income. The discounted cash flow models for our other bonds did not result in other-than-temporary impairments.
In 2010, none of the bonds with a fair value below carrying value were deemed to have other than a temporary
impairment. At the end of 2012 and 2011, the total amount of impairment adjustments that were made to deferred
grant income, which has been recorded as a reduction of property and equipment, was $39 million and $34 million,
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.
In 2011, we incurred charges totaling $1 million for severance and related benefits primarily from
outplacement costs and a voluntary retirement plan. All impairment and restructuring charges were recorded to the
Corporate Overhead and Other segment.
Operating Income
Operating income is revenue less cost of revenue, selling, distribution, and administrative expenses, and
impairment and restructuring charges. Operating income for our merchandise business segments excludes
costs associated with operating expenses of distribution centers, procurement activities, and other corporate
overhead costs.