Cabela's 2007 Annual Report Download - page 20

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financial performance. In addition, abnormally warm weather conditions during the fourth quarter can reduce sales
of many of the products normally sold during this time period and inclement weather can reduce store traffic or cause
us to temporarily close stores causing a reduction in revenue. Because a substantial portion of our operating income
is derived from our fourth quarter revenue, a shortfall in expected fourth quarter revenue would cause our annual
operating results to suffer significantly.
If we lose key management or are unable to attract and retain the talent required for our business, our
operating results could suffer.
Our future success depends to a significant degree on the skills, experience and efforts of Dennis Highby,
our President and Chief Executive Officer, and other key personnel including our senior executive management
and merchandising teams. With the exception of our Chairman, Richard N. Cabela, and our Vice Chairman, James
W. Cabela, none of our senior management or directors has employment agreements other than our Management
Change of Control Severance Agreements. We do not carry key-man life insurance on any of our executives or
key management personnel. In addition, our corporate headquarters is located in a sparsely populated rural area
which may make it difficult to attract and retain qualified individuals for key management positions. The loss of the
services of any of these individuals or the inability to attract and retain qualified individuals for our key management
positions could cause our operating results to suffer.
Our business depends on our ability to meet our labor needs, and if we are unable to do so, our retail store
expansion strategy may be delayed and our revenue growth may suffer.
Our success depends on hiring, training, managing, and retaining quality managers, sales associates, and
employees in our retail stores and customer care centers. Our corporate headquarters, distribution centers, return
center, and some of our retail stores are located in sparsely populated rural areas. It may be difficult to attract and
retain qualified personnel, especially management and technical personnel, in these areas. Competition for qualified
management and technical employees could require us to pay higher wages or grant above market levels of stock
compensation to attract a sufficient number of employees. If we are unable to attract and retain qualified personnel
as needed, the implementation of our retail store expansion strategy may be delayed and our revenue growth may
suffer.
Our historic sales tax collection policy for our Direct business may subject us to liabilities for unpaid
sales taxes on past Direct business sales.
Many states have attempted to require that out-of-state direct marketers, whose only contacts with the state are
solicitations and delivery to their residents of products purchased through the mail or the Internet, collect sales taxes
on the sale of these products. In addition, a private litigant, purportedly on behalf of various states, has initiated
litigation against several out-of-state direct marketers alleging that the failure to collect and remit sales tax violates
various state false claims laws. The U.S. Supreme Court has held that states, absent congressional legislation, may
not impose tax collection obligations on out-of-state direct marketers unless the out-of-state direct marketer has
nexus with the state. Nexus generally is created by the physical presence of the direct marketer, its agents or its
property within the state. Our sales tax collection policy for our Direct business is to collect and remit sales tax in
states where our Direct business has established nexus. Prior to the opening of a retail store, we historically sought
a private letter ruling from the state in which the store would be located as to whether our Direct business would
have nexus with that state as a result of the store opening. Some states have enacted legislation that requires sales
tax collection by direct marketers with no physical presence in that state. In some instances, the legislation assumes
nexus exists because of the physical presence of an affiliated entity engaged in the same line of business. We may
receive future assessments from states for unpaid sales taxes on prior Direct business sales. In addition, a competitor
has commenced an action against us alleging that our failure to collect and remit sales tax in certain states constitutes
unfair competition. We presently intend to vigorously contest any future sales tax assessments and this action, but
we may not prevail. If we do not prevail, we could be held liable for sales taxes on prior Direct business sales which
could be substantial.