Cabela's 2006 Annual Report Download - page 51

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Grants. Under various grant programs, state or local governments provide funding for certain costs associated
with developing and opening a new destination retail store. We generally have received grant funding in exchange
for commitments, such as assurance of agreed employment and wage levels at our destination retail stores or that the
destination retail store will remain open, made by us to the state or local government providing the funding. The
commitments typically phase out over approximately five to 10 years. If we fail to maintain the commitments during
the applicable period, the funds we received may have to be repaid or other adverse consequences may arise, which
could affect our cash flows and profitability. As of December 30, 2006 and December 31, 2005, the total amount of
grant funding subject to a specific contractual remedy was $14.4 million and $16.6 million, respectively.
Economic Development Bonds. Through economic development bonds, the state or local government sells
bonds to provide funding for land acquisition, readying the site, building infrastructure and related eligible expenses
associated with the construction and equipping of our destination retail stores. Generally, we have been the sole
purchaser of these bonds. The bond proceeds that are received by the governmental entity are then used to fund
the construction and equipping of new destination retail stores and related infrastructure development. While
purchasing these bonds involves an initial cash outlay by us in connection with a new store, some or all of these
costs can be recaptured through the repayments of the bonds. The payments of principal and interest on the bonds
are typically tied to sales, property or lodging taxes generated from the store and, in some cases, from businesses
in the surrounding area, over periods which range between 20 and 30 years. In addition, some of the bonds that
we have purchased may be repurchased for par value by the governmental entity prior to the maturity date of the
bonds. However, the governmental entity from which we purchase the bonds is not otherwise liable for repayment
of principal and interest on the bonds to the extent that the associated taxes are insufficient to pay the bonds. In
one location, the bonds will become subordinated to other bonds associated with the development if we fail to
continue to operate the store over a prescribed period. After purchasing the bonds, we typically carry them on our
consolidated balance sheet as “available for sale” marketable securities and value them based upon management’s
projections of the amount of tax revenue expected to be generated to support principal and interest payments on
the bonds. We have limited experience in valuing these bonds and, because of the unique features of each project,
there is no independent market data for valuation of these types of bonds. If sufficient tax revenue is not generated
by the subject properties, we will not receive scheduled payments and will be unable to realize the full value of
the bonds carried on our consolidated balance sheet. See “—Critical Accounting Policies and Use of Estimates –
Economic Development Bonds” and “Risk Factors –Risks Related to our Merchandising Business—The failure
of properties to generate sufficient taxes to amortize the economic development bonds owned by us that relate
to the development of such properties would have an adverse impact on our cash flows and profitability.” As of
December 30, 2006 and December 31, 2005, we carried $116.2 million and $144.5 million, respectively, of economic
development bonds on our consolidated balance sheet.
The negotiation of these economic development arrangements has been important to our destination retail store
expansion in the past, and we believe these arrangements will continue to be an important factor in our destination
retail store expansion strategy because they allow us to avoid or recapture a portion of the costs involved with
opening a new store. If similar packages are unavailable in the future or the terms are not as favorable to us, our
return on investment in new stores would be adversely affected.
Securitization of Credit Card Loans
Our Financial Services segment historically has funded most of its growth in credit card loans through an
asset securitization program. Asset securitization is a practice commonly used by credit card issuers to fund credit
card loans at attractive rates. The bank enters into asset securitization transactions, which involve the two-tier sale
of a pool of credit card loans from the bank to a wholly owned special purpose entity, and from that wholly owned
special purpose entity to a second special purpose entity that is organized as a trust. The trust is administered by
an independent trustee. Because the trust qualifies as a “qualified special purpose entity” within the meaning of
Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities (“FAS 140”), its assets and liabilities are not consolidated in our balance sheet in
accordance with FAS 140.
The trust issues to outside investors various forms of certificates and notes each of which has an undivided
interest in the assets of the trust. The trust pays to the holders of the certificates and notes a portion of future
scheduled cash flows under preset terms and conditions, the receipt of which is dependent upon cash flows generated
by the underlying performance of the assets of the trust.