Module 11 – Adjusting Accounting Information. Wilbur Benitez April 7, 2014. Cabela’s overview. Was founded in 1961 and has been a leader in outdoor gear since Leading retailer in hunting, fishing and outdoor gear Went public in June 2004 Market Cap of 4.8B
Cabela’s overview Was founded in 1961 and has been a leader in outdoor gear since Leading retailer in hunting, fishing and outdoor gear Went public in June 2004 Market Cap of 4.8B Total revenues of 3.6M in 2013 Two main segments Merchandise sales and financial services Currently seeking to expand with smaller stores Traditionally has operated using large “Legacy” stores
Current expansion Current retail segment consists of 50 stores 2013: Seven next generation stores were opened New stores are more productive and generate higher returns on invested capital 12.5% increase in retail space (5.8 million square feet in 2013) Future plans 2014: fourteen next generation stores are scheduled to open 2015: three next generation stores have been announced
Industry Risk Decline in discretionary consumer spending (non-essential goods) Unseasonal weather conditions Difficult economic conditions Consumer spending, oil prices, unemployment rates, etc. Cyber security breaches (Target) Decreased consumer confidence Political and economic uncertainty in foreign countries Many vendors are located in countries such as China, Mexico and various Eastern Asian and European countries Political unrest, wars, work stoppages etc. Current and future government regulations (firearms) Laws and regulations related to hunting and fishing licenses State and Federal regulations related to items such as firearms and ammunition
Inventory Method Different inventory costing methods make comparability difficult LIFO FIFO
Cabela’s Inventory Method 2. CHANGE IN ACCOUNTING PRINCIPLES Inventories: Prior to fiscal 2007, cost was determined using the last-in, first-out (“LIFO”) method for all inventories except for a limited amount of inventory totaling $18,200 owned by Van Dyke Supply Company, Inc. and Wild Wings, LLC, wholly-owned subsidiaries of the Company, which used the first-in, first-out (“FIFO”) method. Effective December 31, 2006, the beginning of the Company’s 2007 fiscal year, management elected to change the Company’s method of valuing inventories from the LIFO method to the FIFO method.Due to merchandise unit cost increases for new and higher-priced product lines offered by the Company, and because of the market volatility for certain materials in the manufacture of other product lines (primarily firearms and ammunition), management believes that this change is preferable as the FIFO method better represents our inventory balances at current cost. Further, the adoption of the FIFO method enhances the comparability of the Company’s consolidated financial statements by changing to the predominant method utilized in the Company’s industry and conforms all of its inventories to the same accounting method.
Operating Leases Most common off-balance sheet financing If company is growing and adding assets financed with operating leases, the level of income will continue to remain higher during growth Cabela’s expansion: Currently majority of stores are owned No information is provided regarding new stores (owned or leased)
Capital and Operating Obligations
Discount Factor Computation
Operating lease PV
Adjustments Equity should not change
Special Purpose Entity 2009: Recently adopted amendments to accounting standards will require us to consolidate previous and future securitization transactions, which will have a significant impact on our consolidated financial statements, and could cause us to reallocate capital from our Retail and Direct businesses to meet the capital needs of our Financial Services business. We have evaluated the provisions of these two statements and believe that their application will result in the consolidation of the Cabela’sMaster Credit Card Trust and related entities (collectively referred to as the “Trust”) For example, if the Trust was consolidated using the carrying amounts of Trust assets and liabilities as of June 27, 2009, total assets would increase approximately $1.9 billion, total liabilities would increase approximately $2 billion, and approximately $100 million, after tax, would be recorded as a decrease to retained earnings and other comprehensive income. These standards will be effective for us at the beginning of our 2010 fiscal year.
Share – Based Compensation ESO are used as a means to compensate employees and to better align interest Often creates lack of comparability Adjustments can be computed by utilizing a 7 step process
Financial Statement Information
Financial Statement Information
Step 7 Adjustment capture estimates of the compensation owed to Cabela’s as a result of share-based compensation This is an omission as a result of accounting recognize overhang adjust EPAT for value of grant and tax effect adjust NFL for changes in value of overhang