Cabela's 2005 Annual Report Download - page 34

Our failure to obtain or negotiate economic development packages with local and state governments
could cause us to significantly alter our destination retail store strategy or format and/or delay the
construction of one or more of our destination retail stores and could adversely affect our revenue, cash
flows and profitability.
We have received economic development packages from many of the local and state governments where our
destination retail stores are located. In some locations, we have experienced an increased amount of government
and citizen resistance and critical review of pending and existing economic development packages. This
resistance and critical review may cause local and state government officials in future locations to deny or limit
economic development packages that might otherwise be available to us. The failure to obtain similar economic
development packages in the future for any of these reasons could cause us to significantly alter our destination
retail store strategy or format. As a result, we could be forced to invest less capital in our stores which could have
an adverse effect on our ability to construct the stores as attractive tourist and entertainment shopping
destinations, possibly leading to a decrease in revenue or revenue growth. In addition, the failure to obtain similar
economic development packages for stores built in the future would have an adverse impact on our cash flows
and on the return on investment in these stores.
The failure of properties to generate sufficient taxes to amortize 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.
We often purchase economic development bonds issued by state or local governmental entities in
connection with the development of our destination retail stores. The proceeds of these bonds are then used to
fund the construction and equipping of new destination retail stores and related infrastructure development. The
repayments of principal and interest on these bonds are typically tied to sales, property or lodging taxes generated
from the related destination retail store and, in some cases, from other businesses in the surrounding area, over
periods which range between 20 and 30 years. 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. At the time we purchase these bonds, we make estimates of the discounted
future cash flow streams they are expected to generate in the form of interest and principal payments. Because
these cash flows are based primarily on future property or sales tax collections at our destination retail stores and
other facilities (which in many cases may not be operating at the time we make our estimates), these estimates
are inherently subjective and the probability of ultimate realization is highly uncertain. If sufficient tax revenue is
not generated by the subject properties, we will not receive the full amount of the expected payments due under
the bonds, which would have an adverse impact on our cash flows and profitability.
Our failure to comply with the terms of current economic development agreements could result in our
repayment of grant money or other adverse consequences that would affect our cash flows and
profitability.
The economic development packages which we have received in connection with the construction of our
current stores have, in some instances, contained forfeiture provisions and other remedies in the event we do not
fully comply with the terms of the economic development agreements. Among the terms which could trigger these
remedies are the failure to maintain certain employment and wage levels, failure to timely open and operate a
destination retail store and failure to develop property adjacent to a destination retail store. As of the end of fiscal
2005, the total amount of grant funding subject to repayment pursuant to a specific contractual remedy was
$16.6 million. Portions of seven of our destination retail stores, such as wildlife displays and museums, are subject
to forfeiture provisions. In addition, there are 30.3 acres of undeveloped property subject to forfeiture. We expect to
forfeit 15.3 acres of this undeveloped property as a result of not developing or selling this property during the
agreed upon time period. Other remedies that have been included in some economic development agreements are
loss of priority to tax payments supporting the repayment of bonds held by us. Where specific remedies are not set
forth, the local governments would be entitled to pursue general contract remedies. A default by us under these
economic development agreements could have an adverse effect on our cash flows and profitability.
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