Cabela's 2007 Annual Report Download - page 65

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CABELA’S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Except Share and Per Share Amounts)
grants are recognized as deferred grant income as a reduction to the costs, or recognized fair value in the case of land
grants, of the associated property and equipment. Deferred grant income is amortized to earnings, as a reduction of
depreciation expense, over the average estimated useful life of the associated assets.
Deferred grant income estimates, and their associated present value, are updated quarterly. These estimates
are determined when estimation of the fair value of associated economic development bonds are performed if there
are related bond investments. When it is determined that recorded amounts will not be recovered through projected
discounted cash flows, an adjustment is made to reduce deferred grant income, and accumulated amortization on the
deferred grant at that point in time is reversed as an increase to depreciation expense.
We may agree to guarantee deficiencies in tax collections which fund the repayment of economic development
bonds. We guaranteed an economic development bond totaling $3,695 and $3,960 at the end of years 2007 and 2006,
respectively. As of December 29, 2007, cash flow projections reflect that any payments required by us under these
guarantees would not have a material impact on our financial position, results of operations, or liquidity.
Land grants typically include land associated with the retail store and may include other land for sale and
further development. Land grants are recognized at the fair value of the land on date of grant. Deferred grant income
on land grants is recognized as a reduction to depreciation expense over the estimated life of the related assets of the
developments. In 2007, we received land under land grants with a fair value of $19,000.
Certain grants contain covenants we are required to comply with regarding minimum employment levels,
maintaining retail stores in certain locations, and maintaining office facilities in certain locations. For these grants
we recognize grant revenue as the milestones associated with the grant are met. For 2007 and 2006, we were in
compliance with all material requirements under these grants.
Economic Development Bonds – Economic development bonds (“bonds”) issued by state and local
municipalities that management has the intent and ability to hold to maturity are classified as held-to-maturity
and recorded at amortized cost. Other bonds are classified as available-for-sale and valued at their fair value. Fair
values of bonds are estimated using discounted cash flow projections based on available market interest rates and
management estimates including the estimated amounts and timing of expected future tax payments to be received
by the municipalities under development zones. 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 held-to-maturity and available-for-sale economic development bonds below cost that are deemed to
be other than temporary are reflected in earnings.
Credit Card and Loyalty Rewards Programs – Cabela’s CLUB Visa cardholders receive Cabela’s points based
on the dollar amounts of transactions through WFB issued credit cards which may be redeemed for Cabela’s products
and services. Points may also be awarded for special promotions for the acquisition and retention of accounts. The
dollar amount of related points are accrued as earned by the cardholder and recorded as a reduction in Financial
Services revenue. In addition to the WFB issued credit cards, customers receive points for purchases at Cabela’s
from various loyalty programs. The dollar amount of unredeemed credit card points and loyalty points was $70,955
and $57,159 at the end of 2007 and 2006, respectively. The total cost incurred of all credit card rewards and loyalty
programs was $109,619, $90,096, and $72,992 for 2007, 2006 and 2005, respectively.
Income Taxes – The Company files consolidated federal and state income tax returns with its wholly-owned
subsidiaries. The consolidated group follows a policy of requiring each entity to provide for income taxes in an amount
equal to the income taxes that would have been incurred if each were filing separately. We recognize deferred income
tax assets and liabilities for the expected future tax consequences of temporary differences between the financial
statement carrying amounts and the tax bases of our assets and liabilities. We establish valuation allowances if we
believe it is more likely than not that some or all of our deferred tax assets will not be realized.