Cabela's 2005 Annual Report Download - page 84

CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollar Amounts in Thousands Except Share and Per Share Amounts)
In December 2004, the Company disposed of its investment in Great Wolf Lodge, LLC, and recorded a gain in
other income of $2,532. The Company had reflected its 17.5% investment in Great Wolf Lodge, LLC at cost due
to the preferred nature of its investment, which did not provide for sharing in the earnings and losses, and was
adjusted only for other-than-temporary declines in fair value. Distributions received in excess of earnings,
subsequent to the date of investment, were considered a return on investment and were recorded as a reduction of
the cost of the investment. Distributions received from Great Wolf Lodge, LLC were $995 and $182 for the fiscal
years ended 2004 and 2003, respectively.
Government Economic Assistance—In conjunction with the Company’s expansion into new communities,
the Company often receives economic assistance from the local governmental unit in order to encourage
economic expansion in the local government’s area. This assistance typically comes through the use of proceeds
from the sale of economic development bonds and grants. The bond proceeds and grants are made available to
fund the purchase of land (where not donated), construction of the retail facility and infrastructure improvements.
The economic development bonds issued to fund the project, in certain cases, will be repaid by sales taxes
generated by the Company’s facilities, while in other cases the economic development bonds are repaid through
property taxes generated within a designated tax area. The government grants have been recorded as deferred
grant income and have been classified as a reduction to the cost basis of the applicable property and equipment.
The deferred grant income is amortized to earnings, as a reduction of depreciation expense over the average
useful life of the project.
In order to facilitate the transaction, the Company generally agrees to purchase these economic development
bonds, and in one case, has agreed to guarantee any deficiency. In the one case the Company has agreed to
guarantee the deficiency of an economic development bond, the term of the bond and the guarantee is through
October 2014. Each period the Company estimates the remaining amount of the governmental grant to be
received associated with the project. If it is determined that the Company will not receive the full amount
remaining, the Company will adjust the deferred grant income to appropriately reflect the change in estimate and
the Company will immediately record a cumulative additional depreciation charge that would have been
recognized to date as expense, in the absence of the grant. As of the fiscal years ended 2005 and 2004, the
Company has guaranteed total outstanding economic development bonds of $4,205 and $4,430, respectively. As
of December 31, 2005, it does not appear that any payments which might be required by the Company under
these guarantees would have a material impact on the Company’s financial statements.
Additionally, in connection with these arrangements, local governments at times donate land to the
Company. Land grants typically include the land where the retail store is constructed as well as other land which
is divided into parcels for future sale and development. The Company records the fair value of the land granted
with a corresponding credit to deferred grant income that is classified as a reduction to the basis of the land. The
deferred grant income is recognized as grant income over the life of the related assets constructed upon it. As
parcels of land are sold any appreciation or decline in the value of the land is recognized at the time of sale. Land
received by the Company under government economic assistance totaled $0, $14,384 and $1,201 for the fiscal
years ended 2005, 2004 and 2003, respectively.
In certain cases, the Company has agreed to guarantee any deficiency in tax proceeds that are used for debt
service of the economic development bonds. In those situations, the Company records the obligation as debt on
its balance sheet in accordance with EITF 91-10, Accounting for Special Assessments and Tax Increment
Financing Entities. Such amounts are recorded in long-term debt (See Note 8).
As a condition of the receipt of certain grants, the Company is required to comply with certain covenants.
The most restrictive of these covenants are to maintain certain employment levels, maintain retail stores in
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