Cabela's 2004 Annual Report Download - page 85

CABELA'S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(Dollar Amounts in Thousands Except Share and Per Share Amounts)
estimated by discounting future cash Öows using a rate that reÖects the risks commensurate with similar
types of instruments. For the Class B certiÑcates, the fair value approximates the book value of the
underlying receivables. These retained interests (interest-only strip, cash reserve account and Class B
certiÑcates) are measured like investments in debt securities classiÑed as trading under SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
Inventories Ì Inventories are stated at the lower of cost or market. Cost is determined using the
last-in, Ñrst-out method (dollar value, link-chain) for all inventories except for those inventories owned by
Van Dyke Supply Company, and Wild Wings, LLC, subsidiaries of the Company, which use the Ñrst-in,
Ñrst-out method. If all inventories had been valued using the Ñrst-in, Ñrst-out method, which approximates
replacement cost, the stated value would have been greater by $0 and $48 as of the Ñscal years ended
2004 and 2003, respectively. All inventories are in one inventory class and are classiÑed as Ñnished goods.
A provision for shrink is estimated, based on historical cycle count adjustments and periodic physical
inventories. The allowance for damaged goods from returns is based upon historical experience. Inventory
is adjusted for obsolete or slow moving inventory based on inventory aging reports and, in some cases, by
speciÑc identiÑcation of slow moving or obsolete inventory. Provisions for inventory losses included within
cost of merchandise sales were approximately $1,862, $4,756, and $2,362 for Ñscal years ended 2004, 2003
and 2002, respectively.
Accounting for Vendor Allowances Ì Vendor allowances include allowances, rebates and cooperative
advertising funds received from vendors. These funds are determined for each Ñscal year and the majority
is based on various quantitative contract terms. Amounts expected to be received from vendors relating to
purchase of merchandise inventories are recognized as a reduction of costs of goods sold as the
merchandise is sold. Amounts that represent a reimbursement of costs incurred, such as advertising, are
recorded as a reduction to the related expense in the period that the related expense is incurred. Fair value
of expenses reimbursed is determined using actual costs incurred, such as print and production costs for
media or catalog advertising. Reimbursements received from vendors that exceed related expenses are
classiÑed as a reduction of merchandise costs of goods sold when the merchandise is sold.
The Company records an estimate of earned allowances based on the latest projected purchase
volumes. Historical program results, current purchase volumes, and inventory projections are reviewed
when establishing the estimate for earned allowances, and a reserve based on historical adjustments is
recorded as a reduction to the total estimated allowance.
Deferred Catalog Costs and Advertising Ì The Company expenses the production cost of advertising
as the advertising takes place, except for catalog advertising costs, which are capitalized and amortized
over the expected period of future beneÑts.
Catalog advertising consists primarily of catalogs for the Company's products. The capitalized costs of
the advertising are amortized over a four to twelve month period following the mailing of the catalogs.
At Ñscal year ends 2004 and 2003, $26,592 and $26,928, respectively, of catalog costs were included
in prepaid expenses in the accompanying consolidated balance sheets. Advertising expense was $157,623,
$146,062 and $129,090 for the Ñscal years ended 2004, 2003 and 2002, respectively. Advertising vendor
allowances recorded as a reduction to advertising expense, included in the amounts above were
approximately $3,290, $4,044 and $2,254 for the Ñscal years ended 2004, 2003, and 2002, respectively.
Store Preopening Expenses Ì Non-capital costs associated with the opening of new stores are
expensed as incurred.
Property and Equipment Ì Property and equipment are stated at cost. Depreciation and amortization
are provided for in amounts suÇcient to relate the cost of depreciable assets to operations over their
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