**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**Form 10-Q**


(Mark
      One)


x
            
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





For
                the quarterly period ended April 1,
                2006


or


o
            
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





Commission
      File Number: **1-32227**





**CABELA’S
      INCORPORATED**


(Exact
      name of registrant as specified in its charter)


**Delaware**
            
            **20-0486586**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer
              Identification
                Number)**One
                Cabela Drive, Sidney, Nebraska**
            
            **69160**(Address
                of principal executive offices)
            
            (Zip
                Code)





**(308)
      254-5505**


(Registrant’s
      telephone number, including area code)





**Not
      applicable**


(Former
      name, former address and former fiscal year, if changed since last
      report)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      the filing requirements for at least the past 90 days.


Yes x No o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
      (Check One):





Large
                accelerated filerx
            Accelerated
                filero
            Non-accelerated
                filero





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes o No x





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.





Common
      stock, $0.01 par value: 65,193,926 shares, including 8,073,205 shares of
      non-voting common stock, as of April 29, 2006.








CABELA’S
      INCORPORATED


FORM
      10-Q


QUARTERLY
      PERIOD ENDED APRIL 1, 2006


TABLE
      OF
      CONTENTS








PART
                I - FINANCIAL INFORMATION
            PageItem
                1.
            Financial
                Statements
            3Consolidated
                Balance Sheets
            3Consolidated
                Statements of Income
            4Consolidated
                Statements of Cash Flows
            5Notes
                to Consolidated Financial Statements
            6Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            18Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            33Item
                4.
            Controls
                and Procedures
            34PART
                II - OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            34Item
                1A.
            Risk
                Factors
            34Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            34Item
                3.
            Defaults
                Upon Senior Securities
            34Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            34Item
                5.
            Other
                Information
            35Item
                6.
            Exhibits
            35SIGNATURES
            36INDEX
                TO EXHIBITS
            37








**PART
      I - FINANCIAL INFORMATION**


**Item
      1.**  **Financial
      Statements.**





**CABELA'S
                INCORPORATED AND SUBSIDIARIES**
              **CONSOLIDATED
                BALANCE SHEETS**
              **(Dollar
                Amounts in Thousands Except Share and Per Share
                Amounts)**
              **(Unaudited)****ASSETS**
            
            **April
                1,**
              **2006**
            
            **December
                31,**
              **2005**CURRENT
                ASSETS:Cash
                and cash equivalents
            
            $
            96,700
            
            $
            86,923Accounts
                receivable, net of allowance for doubtful accounts of $1,597 at April
                1,
                2006 and $1,404
              at
                December 31, 2005
            
            
            35,005
            
            
            35,342Credit
                card loans held for sale (Note 3)
            
            
            113,175
            
            
            77,690Credit
                card loans receivable, net of allowance of $382 at April 1, 2006
                and $536
                at December 31, 2005(Note
                3)
            
            
            12,833
            
            
            11,968Inventories
            
            
            418,383
            
            
            396,635Prepaid
                expenses and deferred catalog costs
            
            
            38,584
            
            
            42,725Other
                current assets
            
            
            48,165
            
            
            42,744Total
                current assets
            
            
            762,845
            
            
            694,027PROPERTY
                AND EQUIPMENT, NET
            
            
            473,403
            
            
            459,622OTHER
                ASSETS:Intangible
                assets, net
            
            
            3,844
            
            
            3,617Land
                held for sale or development
            
            
            13,496
            
            
            12,599Retained
                interests in securitized loans (Note 3)
            
            
            32,571
            
            
            34,465Marketable
                securities
            
            
            156,981
            
            
            145,744Other
            
            
            15,693
            
            
            16,206Total
                other assets
            
            
            222,585
            
            
            212,631Total
                assets
            
            $
            1,458,833
            
            $
            1,366,280**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**CURRENT
                LIABILITIES:Accounts
                payable
            
            $
            122,517
            
            $
            162,305Unpresented
                checks net of bank balance
            
            
            11,074
            
            
            21,652Accrued
                expenses and other liabilities
            
            
            42,617
            
            
            55,941Gift
                certificates and credit card reward points
            
            
            110,214
            
            
            121,120Accrued
                employee compensation and benefits
            
            
            27,323
            
            
            60,247Time
                deposits
            
            
            52,121
            
            
            62,683Current
                maturities of long-term debt
            
            
            28,232
            
            
            29,049Income
                taxes payable
            
            
            14,462
            
            
            31,477Deferred
                income taxes
            
            
            6,071
            
            
            3,994Total
                current liabilities
            
            
            414,631
            
            
            548,468LONG-TERM
                LIABILITIES:Long-term
                debt, less current maturities
            
            
            305,021
            
            
            90,777Long-term
                time deposits
            
            
            52,110
            
            
            46,805Deferred
                compensation
            
            
            4,934
            
            
            7,169Deferred
                grant income
            
            
            12,050
            
            
            13,018Deferred
                income taxes
            
            
            19,289
            
            
            20,190Total
                long-term liabilities
            
            
            393,404
            
            
            177,959COMMITMENTS
                AND CONTINGENCIES (Note 10)STOCKHOLDERS’
                EQUITY: (Note 7)Common
                stock, $0.01 par value:Class
                A Voting, 245,000,000 shares authorized; 57,051,681 and 56,691,249
                shares
                issued
              and
                outstanding at April 1, 2006 and December 31, 2005,
                respectively
            
            
            571
            
            
            568Class
                B Non-voting, 245,000,000 shares authorized; 8,073,205 and 8,073,205
                shares issued
              and
                outstanding at April 1, 2006 and December 31, 2005,
                respectively
            
            
            80
            
            
            80Preferred
                stock, 10,000,000 shares authorized, no shares issued or
                outstanding
            
            
            -
            
            
            -Additional
                paid-in capital
            
            
            242,188
            
            
            239,868Retained
                earnings
            
            
            408,446
            
            
            399,363Accumulated
                other comprehensive income (loss)
            
            
            (487
            )
            
            (26
            )Total
                stockholders’ equity
            
            
            650,798
            
            
            639,853Total
                liabilities and stockholders’ equity
            
            $
            1,458,833
            
            $
            1,366,280See
                notes to unaudited consolidated financial
                statements.








3
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          of Contents





**CABELA'S
                INCORPORATED AND SUBSIDIARIES**
              **CONSOLIDATED
                STATEMENTS OF INCOME**
              **(Dollar
                Amounts in Thousands Except Per Share and Share
                Amounts)**
              **(Unaudited)****Three
                months ended****April
                1,**
              **2006**
            
            **April
                2,**
              **2005**REVENUE:Merchandise
                sales
            
            $
            374,214
            
            $
            327,873Financial
                services revenue
            
            
            28,534
            
            
            20,538Other
                revenue
            
            
            2,057
            
            
            2,178Total
                revenue
            
            
            404,805
            
            
            350,589COST
                OF REVENUE:Cost
                of merchandise sales
            
            
            241,883
            
            
            213,369Cost
                of other revenue
            
            
            406
            
            
            (8
            )Total
                cost of revenue (exclusive of depreciation and
                amortization)
            
            
            242,289
            
            
            213,361GROSS
                PROFIT
            
            
            162,516
            
            
            137,228SELLING,
                GENERAL AND ADMINISTRATIVE EXPENSES
            
            
            148,313
            
            
            126,205OPERATING
                INCOME
            
            
            14,203
            
            
            11,023OTHER
                INCOME (EXPENSE):Interest
                income
            
            
            401
            
            
            434Interest
                expense
            
            
            (3,344
            )
            
            (2,070
            )Other
                income, net
            
            
            2,977
            
            
            2,67334
            
            
            1,037INCOME
                BEFORE PROVISION FOR INCOME TAXES
            
            
            14,237
            
            
            12,060INCOME
                TAX EXPENSE
            
            
            5,154
            
            
            4,293NET
                INCOME
            
            $
            9,083
            
            $
            7,767EARNINGS
                PER SHARE:Basic
            
            $
            0.14
            
            $
            0.12Diluted
            
            $
            0.14
            
            $
            0.12WEIGHTED
                AVERAGE SHARES OUTSTANDING:Basic
            
            
            65,069,840
            
            
            64,588,079Diluted
            
            
            66,359,544
            
            
            66,296,472See
                notes to unaudited consolidated financial
                statements.





4
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          of Contents





**CABELA’S
                INCORPORATED AND SUBSIDIARIES**
              **CONSOLIDATED
                STATEMENTS OF CASH FLOWS**
              **(Dollar
                Amounts in Thousands)**
              **(Unaudited****Three
                months ended****April
                1,**
              **2006**
            
            **April
                2,**
              **2005**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            9,083
            
            $
            7,767Adjustments
                to reconcile net income to net cash flows from operating
                activities:Depreciation
            
            
            9,899
            
            
            7,771Amortization
            
            
            220
            
            
            352Stock
                based compensation
            
            
            803
            
            
            235Deferred
                income taxes
            
            
            1,437
            
            
            (56
            )Other
            
            
            432
            
            
            (300
            )Change
                in operating assets and liabilities:Accounts
                receivable
            
            
            638
            
            
            3,265Origination
                of credit card loans held for sale, net of collections
            
            
            (35,485
            )
            
            (38,201
            )Retained
                interests
            
            
            1,894
            
            
            1,444Inventories
            
            
            (21,748
            )
            
            (35,276
            )Prepaid
                expenses and deferred catalog costs
            
            
            4,009
            
            
            (4,039
            )Other
                current assets
            
            
            (5,422
            )
            
            (4,875
            )Land
                held for sale or development
            
            
            (80
            )
            
            (61
            )Accounts
                payable
            
            
            (59,438
            )
            
            (3,050
            )Accrued
                expenses and other liabilities
            
            
            (13,325
            )
            
            (15,013
            )Gift
                certificates and credit card reward points
            
            
            (10,906
            )
            
            (6,555
            )Accrued
                compensation and benefits
            
            
            (32,924
            )
            
            (28,913
            )Income
                taxes payable
            
            
            (17,022
            )
            
            (8,139
            )Deferred
                grant income
            
            
            (956
            )
            
            (120
            )Deferred
                compensation
            
            
            (2,235
            )
            
            732Net
                cash flows from operating activities
            
            
            (171,126
            )
            
            (123,032
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Capital
                expenditures
            
            
            (6,043
            )
            
            (46,474
            )Purchases
                of intangibles
            
            
            (447
            )
            
            -Purchases
                of marketable securities
            
            
            (12,288
            )
            
            (8,853
            )Change
                in credit card loans receivable
            
            
            (820
            )
            
            (1,248
            )Change
                in cash reserves for retained interests
            
            
            -
            
            
            750Maturities
                of marketable securities
            
            
            315
            
            
            393Other,
                net
            
            
            6
            
            
            434Net
                cash flows from investing activities
            
            
            (19,277
            )
            
            (54,998
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Advances
                on lines of credit
            
            
            126,724
            
            
            5,000Payments
                on lines of credit
            
            
            (125,663
            )
            
            (5,000
            )Change
                in unpresented checks net of bank balance
            
            
            (10,578
            )
            
            (21,381
            )Proceeds
                from issuance of long-term debt
            
            
            215,000
            
            
            -Payments
                on long-term debt
            
            
            (1,573
            )
            
            (1,089
            )Change
                in time deposits, net
            
            
            (5,257
            )
            
            (3,300
            )Excess
                tax benefits from exercise of stock options
            
            
            246
            
            
            -Proceeds
                from exercise of employee stock options and stock purchase
                plan
            
            
            1,281
            
            
            511Net
                cash flows from financing activities
            
            
            200,180
            
            
            (25,259
            )NET
                (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            9,777
            
            
            (203,289
            )CASH
                AND CASH EQUIVALENTS, Beginning of Year
            
            
            86,923
            
            
            248,184CASH
                AND CASH EQUIVALENTS, End of Period
            
            $
            96,700
            
            $
            44,895See
                notes to unaudited consolidated financial
                statements.


5
 Table
          of Contents


**CABELA’S
      INCORPORATED AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Dollar
      Amounts in Thousands Except Share and Per Share Amounts)**


**(Unaudited)**





**1.** **MANAGEMENT
      REPRESENTATIONS**





The
      consolidated financial statements included herein are unaudited and have been
      prepared by Cabela’s Incorporated and its wholly-owned subsidiaries (the
“Company”) pursuant to the rules and regulations of the United States Securities
      and Exchange Commission (“SEC”). Certain information and footnote disclosures
      normally included in financial statements prepared in accordance with accounting
      principles generally accepted in the United States of America have been
      condensed or omitted pursuant to such rules and regulations. The consolidated
      balance sheet of the Company as of December 31, 2005, was derived from the
      Company’s audited consolidated balance sheet as of that date. All other
      consolidated financial statements contained herein are unaudited and reflect
      all
      adjustments which are, in the opinion of management, necessary to summarize
      fairly the financial position of the Company and the results of the Company’s
      operations and cash flows for the periods presented. All of these adjustments
      are of a normal recurring nature. All significant intercompany balances and
      transactions have been eliminated in consolidation. Because of the seasonal
      nature of the Company’s operations, results of operations of any single
      reporting period should not be considered as indicative of results for a full
      year. These consolidated financial statements should be read in conjunction
      with
      the Company’s audited consolidated financial statements for the fiscal year
      ended 2005.





***Reclassifications*** -
      Certain reclassifications have been made to prior year financial statements
      and
      the notes to conform to the current year presentation. The Company has
      reclassified a portion of the retained interest related to its Financial
      Services business from investing activities to operating activities in the
      statement of cash flows. These changes did not impact the total net (decrease)
      increase in cash. There were no covenant calculations affected by this change
      in
      the presentation of the Company’s cash flow statement line items. The amounts
      were deemed to be immaterial to the Company’s financial statements.





***Recast
      -*** On
      March
      22, 2006, the Company changed the manner in which it reports and evaluates
      segment information. The Company changed the fee structure between its Financial
      Services segment and the Company’s other segments to more appropriately reflect
      current market conditions. This change was effective January 1, 2006. As
      required by Statement of Financial Accounting Standards No. 131 (“Statement
      131”), consolidated financial statements issued by the Company in the future
      will reflect modifications to its reportable segments resulting from these
      changes, including reclassification of all comparative prior period segment
      information. Accordingly, in this Form 10-Q, the Company is providing the
      required reclassified segment information related to prior periods.





**2.** **STOCK-BASED
      COMPENSATION**





Effective
      January 1, 2006, the Company adopted the provisions of Statement No. 123
      (revised 2004), “Share-Based Payment” (“Statement 123R”) which requires the
      measurement and recognition of compensation expense for all share-based payment
      awards made to employees and directors including employee stock option awards
      and employee stock purchases made under an employee stock purchase plan. The
      Company previously applied the provision of Accounting Principles Board (“APB”)
      Opinion No. 25, Accounting for Stock Issued to Employees and related
      interpretations and provided the required pro forma disclosures under Statement
      No. 123, “Accounting for Stock-Based Compensation.”





In
      March
      2004, the Company adopted the Cabela’s Incorporated 2004 Stock Plan (the “2004
      Plan”). The 2004 Plan provides for the grant of non-qualified stock options,
      incentive stock options, stock appreciation rights, restricted stock, restricted
      stock units and other stock-based awards to employees, directors and
      consultants. A maximum of 2,752,500 shares, subject to adjustment in the event
      of a stock split, consolidation or stock dividends, of the Company’s common
      stock are subject to awards under the 2004 Plan. Options granted under the
      2004
      Plan will have a term of no greater than ten years from the grant date and
      will
      become exercisable in accordance with the vesting schedule determined at the
      time the awards are granted. As of April 1, 2006, there were 1,907,446 shares
      subject to options under the 2004 Plan and 845,054 shares available for
      grant.


6
 Table
          of Contents





In
      March
      2004, the Company adopted an Employee Stock Purchase Plan (the “ESPP”), under
      which shares of common stock are available to be purchased by the Company’s
      employees. The maximum number of shares of common stock available for issuance
      under the ESPP is 1,835,000, subject to adjustment in the event of a stock
      split, consolidation or stock dividend. Employees are eligible to participate
      in
      the ESPP immediately upon hire. The employee’s purchase price is 85% of the fair
      market value of the stock on the date of purchase. There is no look back feature
      in this plan. Each year, employees may purchase shares having a fair market
      value of up to $25,000. As of April 1, 2006, 156,446 shares had been issued
      under the ESPP and 1,678,554 shares were available for issuance.





The
      Company’s 1997 Stock Option Plan (the “1997 Plan”) provided for the granting of
      incentive stock options and nonqualified stock options to purchase shares of
      the
      Company’s common stock to officers, directors and key employees. As of April 1,
      2006, there were 2,354,730 shares subject to options under the 1997 plan and
      there were no future shares available for grant under the 1997 Plan. During
      2003, the Company allowed employees to exercise options prior to vesting in
      exchange for a call option, as provided for in the 1997 Plan. At the end of
      fiscal year 2005, 238,546 shares had been exercised prior to vesting. There
      are
      18,350 shares remaining unvested as of April 1, 2006 with an estimated call
      value of approximately $71. These shares have been included in the tables below.





***Pro
      forma Information for Periods Prior to the Adoption of Statement
      123R:***





Because
      the Company went public in 2004, all options granted prior to 2004 will be
      accounted for in accordance with APB No. 25. The Company’s calculations are
      based on a single option valuation approach and forfeitures are recognized
      as
      they occur. The Company’s ESPP was deemed non-compensatory under the provisions
      of APB No. 25. Stock-based compensation costs were reflected in net income
      where
      the options granted under those plans had an exercise price that was less than
      the fair value of the underlying common stock on the date of grant. Previously
      reported amounts have not been restated.





The
      pro
      forma information for the three months ended April 1, 2006 and April 2, 2005
      was
      as follows:





**Three
                months ended****April
                1,**
              **2006**
            
            **April
                2,**
              **2005**Net
                income - as reported
            
            $
            9,083
            
            $
            7,767Add:
                Stock based employee compensation recognized, net of tax
            
            
            -
            
            
            151Deduct:
                Pro-forma stock-based employee compensation expense determined under
                fair
                value based method for shares granted prior to being a public Company,
                net
                of tax
            
            
            (63
            )Deduct:
                Pro-forma stock-based employee compensation expense determined under
                fair
                value based method for all shares granted as previously reported,
                net of
                tax
            
            
            -
            
            
            (698
            )Net
                income - pro forma
            
            $
            9,020
            
            $
            7,220Earnings
                per share:Basic
                - as reported
            
            $
            0.14
            
            $
            0.12Basic
                - proforma
            
            $
            0.14
            
            $
            0.11Diluted
                - as reported
            
            $
            0.14
            
            $
            0.12Diluted
                - proforma
            
            $
            0.13
            
            $
            0.11


7
 Table
          of Contents


***Impact
      of the Adoption of Statement 123R using the modified prospective transition
      method beginning January 1, 2006***





During
      the
      three-month period ended April 1, 2006, share-based compensation expense was
      recorded for awards granted since 2004 but not yet vested as of January 1,
      2006
      as if the fair value method required for pro forma disclosure under Statement
      No. 123 were in effect for expense recognition purposes, adjusted for estimated
      forfeitures. For these awards, the Company continues to recognize compensation
      expense using the accelerated amortization method. There have been no awards
      granted since the adoption of Statement 123R, but future compensation cost
      on
      new awards will be recognized using a straight-line amortization method.




The
      impact on results of continuing operations of recording share-based compensation
      for the three-month period ended April 1, 2006 was as follows:





**Three
                months ended April 1, 2006**
            
            **Total**Selling,
                general & administrative
            
            $
            733Impact
                of Statement 123R, net of tax
            
            $
            468Impact
                on consolidated net income per share:Basic
            
            $
            0.01Diluted
            
            $
            0.01





There
      was
      no share-based compensation capitalized in assets as of April 1, 2006. On
      January 6, 2006, a modification of shares resulted in a charge to compensation
      expense of $239 under Statement 123R.





For
      the three
      months ended April 1, 2006, the excess tax benefit realized from exercised
      stock
      options and similar awards was $246. As of April 1, 2006, the total unrecorded
      deferred share-based compensation balance for unvested shares that were issued
      after becoming a public company, net of expected forfeitures, was approximately
      $1,977, net of tax, which is expected to be amortized over a period of 2.75
      years.





Prior
      to the
      adoption of Statement 123R, the Company presented all tax benefits resulting
      from the exercise of stock options as operating cash inflows in the consolidated
      statements of cash flows, in accordance with the provisions of the Emerging
      Issues Task Force (“EITF”) Issue No 00-15. “Classification in the Statement of
      Cash Flows of the Income Tax Benefit Received by a Company upon Exercise of
      a
      Nonqualified Employee Stock Option.” Statement 123R requires the benefits of tax
      deductions in excess of the compensation cost recognized for those options
      to be
      classified as financing cash inflows rather than operating cash inflows, on
      a
      prospective basis. This amount is shown as “Excess tax benefit from exercise of
      stock options” on the consolidated statement of cash flows.





The
      Company has evaluated the cumulative effect of a change due to forfeitures
      as
      required by Statement 123R. Due to the small amount of grants the Company has
      expensed to date, the change in accounting related to forfeitures is immaterial.





***Valuation
      Assumptions***





The
      fair
      value of options granted on and subsequent to May 1, 2004 was estimated on
      the
      date of the grant using the Black-Scholes option pricing model with the
      following weighted-average assumptions: the expected stock price volatility
      was
      50%; the risk free interest at grant date ranged from 3.57% to 4.38% and the
      expected term was 4.5 years. Due to being a newly public company, the volatility
      factor was derived from using a historical volatility model combined with
      looking at peers in our market sector.





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***Share-Based
      Payment Award Activity***





The
      following table summarizes equity share-based payment award activity for the
      three months ended April 1, 2006:





**Three
                months ended April 1, 2006****Options**
              **Available**
              **for
                Grant**
            
            **Options**
              **Outstanding**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**Outstanding
                - beginning
            
            
            751,979
            
            
            4,695,748
            
            $
            12.36Granted
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            (333,707
            )
            
            5.23Forfeited(1)
            
            
            93,075
            
            
            (116,013
            )
            
            17.64Outstanding
                - ending
            
            
            845,054
            
            
            4,246,028
            
            $
            12.78





(1)
            Options
                forfeited under the 1997 Plan do not become available for grant under
                the
                2004 plan.





The
      stock
      options outstanding and exercisable for equity share-based payment awards as
      of
      April 1, 2006 were in the following exercise price ranges:





**Options
                Outstanding**
            
            **Options
                Exercisable****Exercise**
              **Price**
            
            **Shares**
            
            **Weighted**
              **Average**
              **Exercise
                Price**
            
            **Average**
              **Remaining**
              **Contractual
                Life**
            
            **Number**
            
            **Weighted**
              **Average**
              **Exercise
                Price**$0.00
                to $5.00
            
            
            509,212
            
            $
            3.83
            
            
            1.9
                years
            
            
            351,400
            
            $
            3.71$5.01
                to $10.00
            
            
            761,117
            
            
            8.25
            
            
            5.1
                years
            
            
            278,512
            
            
            8.27$10.01
                to $15.00
            
            
            1,615,083
            
            
            11.63
            
            
            5.2
                years
            
            
            663,631
            
            
            11.63$15.01
                to $20.00
            
            
            1,354,616
            
            
            20.00
            
            
            8.1
                years
            
            
            984,386
            
            
            20.00$20.01
                to $25.00
            
            
            2,000
            
            
            21.77
            
            
            8.8
                years
            
            
            2,000
            
            
            21.77$25.01
                to $30.00
            
            
            4,000
            
            
            27.26
            
            
            8.3
                years
            
            
            4,000
            
            
            27.264,246,028
            
            $
            12.78
            
            
            5.7
                years
            
            
            2,283,929
            
            $
            13.65





The
      aggregate
      pre-tax intrinsic value of $6,742 is based on the Company’s closing stock price
      of $20.52 at April 1, 2006, and represents the amount that would have been
      received by award holders had all award holders exercised their awards that
      were
      in-the-money as of that date. The total number of in-the-money awards
      exercisable as of April 1, 2006 was approximately 2,277,929. The aggregate
      intrinsic value of awards exercised during the three months ended April 1,
      2006
      was $1,243.





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**3.** **SALE
      OF CREDIT CARD LOANS**





The
      Company’s wholly-owned bank subsidiary, World’s Foremost Bank (“WFB”), sells a
      substantial portion of its credit card loans. WFB has established a master
      trust
      (the “Trust”) for the purpose of routinely selling and securitizing credit card
      loans. WFB retains the servicing and certain other interests, including
      interest-only strips, cash reserve accounts and Class B certificates. During
      the
      three months ended April 1, 2006 and April 2, 2005, WFB recognized gains on
      sale
      of $4,077 and $3,915, respectively, which are reflected as a component of credit
      card securitization income.





***Retained
      Interests:***




Retained
      interests in securitized loans, which are carried at fair value, consisted
      of
      the following at April 1, 2006 and December 31, 2005:





**April
                1,**
              **2006**
            
            **December
                31,**
              **2005**Cash
                reserve account
            
            $
            16,720
            
            $
            16,495Interest-only
                strip
            
            
            14,838
            
            
            15,567Class
                B certificates
            
            
            1,013
            
            
            2,403$
            32,571
            
            $
            34,465





Credit
      card loans held for sale and credit card loans receivable consisted of the
      following at April 1, 2006 and December 31, 2005:





**April
                1,**
              **2006**
            
            **December
                31,**
              **2005**Composition
                of credit card loans held for sale and credit card loans
                receivable:Loans
                serviced
            
            $
            1,261,998
            
            $
            1,340,820Loans
                securitized and sold to outside investors
            
            
            (1,133,000
            )
            
            (1,247,000
            )Securitized
                receivables with certificates owned by WFB which are classified
              as
                retained interests
            
            
            (1,013
            )
            
            (2,403
            )127,985
            
            
            91,417Less
                adjustment to market value and allowance for loan losses
            
            
            (1,977
            )
            
            (1,759
            )Total
            
            $
            126,008
            
            $
            89,658Delinquent
                loans in the managed credit card loan portfolioat
                April 1, 2006 and
              December
                31,
                2005:30-89
                days
            
            $
            7,013
            
            $
            6,85690
                days or more and still accruing
            
            $
            2,498
            
            $
            2,176





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**Three
                months ended****April
                1,**
              **2006**
            
            **April
                2,**
              **2005**Total
                net charge-offs on the managed credit card loan portfolio for the
                three
                months ended April 1, 2006 and April 2, 2005
            
            $
            5,624
            
            $
            5,325Quarterly
                average credit card loans:Managed
                credit card loans
            
            $
            1,253,948
            
            $
            1,006,261Securitized
                credit card loans including seller's interest
            
            $
            1,221,844
            
            $
            988,745Total
                net charge-offs as an annualized percentage of average managed
                loans
            
            
            1.79
            %
            
            2.12
            %





**4.** **DEBT**





On
      February 27, 2006, the Company issued $215,000 in unsecured notes, with
      principal payable in full in ten years and interest payments made semiannually
      at a rate of 5.99%. Covenants related to this agreement include the
      following:





·
            A
                consolidated adjusted net worth in an amount not less than the sum
                of (i)
                $350,000 plus (ii) 25% of positive consolidated net earnings on a
                cumulative basis for each fiscal year beginning with the fiscal year
                ended
                2005.·
            A
                fixed charge coverage ratio (the ratio of consolidated cash flow
                to
                consolidated fixed charges for each period of four consecutive fiscal
                quarters) of no less than 2.00 to 1.00 as of the last day of any
                fiscal
                quarter.·
            A
                consolidated funded debt to total funded capitalization of no more
                than
                60%.





The
      Company was in compliance with all covenants as of the end of the periods
      presented.





The
      Company
      is party to a credit agreement that provides for a $325,000 unsecured revolving
      credit facility that expires on June 30, 2010. The credit agreement permits
      the
      issuance of up to $150,000 in letters of credit and standby letters of credit,
      the nominal amount of which are applied against the overall credit limit
      available under the revolver. There were no principal amounts outstanding on
      the
      line of credit, and $70,054 outstanding on letters of credit and standby letters
      of credit, as of April 1, 2006. During the first quarter of fiscal 2006, the
      average principal amount outstanding on the line of credit was $12,943, and
      the
      weighted average interest rate on the line of credit was 5.43%.





The
      Company
      is party to inventory financing agreements that allow certain vendors providing
      boat merchandise to give the Company extended payment terms. The vendors are
      responsible for all interest payments for the financing period and the financing
      company holds a security interest in the specific boat inventory held by the
      Company. The Company’s revolving credit facility limits this security interest
      to $25,000. The Company records this boat merchandise in inventory with an
      offsetting liability in accounts payable. The loans and payments are reflected
      in the financing lines of credit in the Company’s cash flow statement. The
      extended payment terms to the vendor do not exceed one year. The outstanding
      liability was $2,504 as of April 1, 2006.





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WFB
      is
      party to an unsecured Federal Funds Sales Agreement with a financial
      institution. All federal funds transactions are on a daily origination and
      return basis. Daily interest charges are determined based on mutual agreement
      by
      the parties. The maximum amount of funds which can be borrowed is $25,000.
      There
      were no amounts outstanding as of April 1, 2006.





WFB
      is
      party to an unsecured Federal Funds Line of Credit agreement with a financial
      institution. The maximum amount of funds which can be borrowed is $40,000.
      The
      interest rate for the line of credit is based on the current federal funds
      rate . There
      were no amounts outstanding as of April 1, 2006.





**5.** **DERIVATIVES**





The
      Company is exposed to market risks including changes in currency exchange rates
      and interest rates. The Company may enter into various derivative transactions
      pursuant to established Company policies to manage volatility associated with
      these exposures.





***Foreign
      Currency Management*** - The
      Company may enter into forward exchange or option contracts for transactions
      denominated in a currency other than the applicable functional currency in
      order
      to reduce exposures related to changes in foreign currency exchange rates.
      This
      primarily relates to hedging against anticipated inventory
      purchases.





Hedges
      of
      anticipated inventory purchases are designated as cash flow hedges. The gains
      and losses associated with these hedges are deferred in accumulated other
      comprehensive income/(loss) until the anticipated transaction is consummated
      and
      are recognized in the income statement in the same period during which the
      hedged transactions affect earnings. Gains and losses on foreign currency
      derivatives for which the Company has not elected hedge accounting are recorded
      immediately in earnings. For the three months ended April 1, 2006 and April
      2,
      2005, there was no ineffectiveness associated with the Company’s foreign
      currency derivatives designated as cash flow hedges.





Generally,
      the Company hedges a portion of its anticipated inventory purchases for periods
      up to twelve months. As of April 1, 2006, the Company has hedged certain
      portions of its anticipated inventory purchases through April 2006.




The
      fair
      value of foreign currency derivative assets or liabilities is recognized within
      other current assets or other current liabilities. As of April 1, 2006 and
      December 31, 2005, the fair value of foreign currency derivative assets was
      $4
      and $0, respectively, and the fair value of foreign currency derivative
      liabilities was $0 and $11, respectively.





As
      of
      April 1, 2006 and December 31, 2005, the net deferred gain/(loss) recognized
      in
      accumulated other comprehensive income/(loss) was $10 and $(158), net of tax,
      respectively. The Company anticipates a gain of $2, net of tax, will be
      transferred out of accumulated other comprehensive income and recognized within
      earnings over the next twelve months. Gains of $3, and $62, net of tax, were
      transferred from accumulated other comprehensive income into cost of revenues
      for the three months ended April 1, 2006 and April 2, 2005,
      respectively.





***Interest
      Rate Management*** -
      On
      February 4, 2003, in connection with the Series 2003-1 term securitization,
      the
      Trust entered into a $300,000 notional swap agreement in order to manage
      interest rate exposure. The exposure is related to changes in cash flows from
      funding credit card loans, which include a high percentage of accounts with
      floating rate obligations that do not incur monthly finance charges. The swap
      converts the interest rate on the investor bonds from a floating rate basis
      with
      a spread over a benchmark note to a fixed rate of 3.699%. Since the Trust is
      not
      consolidated, the fair value of the swap is not reflected on the financial
      statements. Additionally, the Company entered into a swap with similar terms
      with the counter-party whereby the notional amount is zero unless the notional
      amount of the Trust’s swap falls below $300,000. The Company has not elected to
      designate this derivative as a hedge and, therefore, the derivative is marked
      to
      market through the statement of income. As of April 1, 2006, market value was
      determined to be zero. WFB pays Cabela’s a fee for the credit enhancement
      provided by this swap, which was $150 and $150 for the three months ended April
      1, 2006 and April 2, 2005, respectively.


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**6.** **EARNINGS
      PER SHARE**





Basic
      earnings per share (“EPS”) is computed by dividing net income by the weighted
      average number of shares of common stock outstanding during the period. Diluted
      earnings per share is computed by dividing net income by the sum of the weighted
      average number of shares outstanding plus all additional common shares that
      would have been outstanding if potentially dilutive common share equivalents
      had
      been issued. Options exercised prior to vesting have not been considered in
      the
      basic EPS calculation, but are considered in the computation of diluted EPS.
      There were 1,358,616 options outstanding that were considered anti-dilutive
      for
      the three months ended April 1, 2006. Since the adoption of Statement 123R,
      when
      calculating dilutive shares, the Company includes unamortized compensation
      cost
      in the proceeds under the treasury stock method for those shares which were
      outstanding and unvested as of January 1, 2006. The prior year numbers were
      not
      restated. The following table reconciles the number of shares utilized in the
      earnings per share calculations:





**Three
                months ended****April
                1,**
              **2006**
            
            **April
                2,**
              **2005**Weighted
                average number of shares:Common
                shares - basic
            
            
            65,069,840
            
            
            64,588,079Effect
                of dilutive securities:Stock
                options
            
            
            1,289,704
            
            
            1,708,393Common
                shares - diluted
            
            
            66,359,544
            
            
            66,296,472





**7.** **STOCKHOLDERS’
      EQUITY**





The
      authorized capital stock of the Company consists of 245,000,000 shares of Class
      A voting common stock, par value $0.01 per share; 245,000,000 shares of Class
      B
      non-voting common stock, par value $0.01 per share; and 10,000,000 shares of
      preferred stock, par value $0.01 per share. As of April 1, 2006, there were
      57,070,031 shares of Class A voting common stock outstanding, including 18,350
      shares of unvested early exercised options, and 8,073,205 shares of Class B
      non-voting common stock outstanding.





**8.** **COMPREHENSIVE
      INCOME**





**Three
                months ended****April
                1,**
              **2006**
            
            **April
                2,**
              **2005**Net
                income
            
            $
            9,083
            
            $
            7,767Change
                in net unrealized holding gain or (loss) on marketable securities,net
                of tax of $(270) and $(90) for the three month periods ended April
                1, 2006
                and April 2, 2005, respectively.
            
            
            (476
            )
            
            (163
            )Less:
                adjustment for net realized gain or (loss) on marketable securities,
                net
                of tax of $4 and $(9) for the three month periods ended April 1,
                2006 and
                April 2, 2005, respectively.
            
            
            6
            
            
            (17
            )Change
                in net unrealized holding gain or (loss) on derivatives, net of tax
                of $7
                and $(46) for the three month periods ended April 1, 2006 and April
                2,
                2005, respectively.
            
            
            12
            
            
            (83
            )Less:
                adjustment for reclassification of derivative included in net income,
                net
                of tax of $(1) and $(34) for the three month periods ended April
                1, 2006
                and April 2, 2005, respectively.
            
            
            (3
            )
            
            (62
            )Comprehensive
                income
            
            $
            8,622
            
            $
            7,442





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 Table
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**9.** **RELATED
      PARTY TRANSACTIONS**





The
      Company buys certain gift inventory from an affiliate of the Company’s Board
      Chairman, which is sold through various distribution channels. All activity
      is
      at arms-length rates. Invoices received from the Board Chairman’s affiliate were
      $0 and $25 in the three months ended April 1, 2006 and April 2, 2005,
      respectively.





The
      Company entered into an employee lease agreement with an affiliate of the
      Company’s Board Chairman dated January 1, 2005, pursuant to which such affiliate
      leases the services of certain Company employees. In the three months ended
      April 1, 2006 and April 2, 2005, total reimbursements for these expenses were
      $72 and $71, respectively.




**10.** **CONTINGENCIES**





***Litigation*** -
      The
      Company is engaged in various legal actions arising in the ordinary course
      of
      business. After taking into consideration the evaluation of such actions by
      legal counsel, management is of the opinion that the ultimate outcome will
      not
      have a material adverse effect on the Company’s financial position, results of
      operations or liquidity.





***Self-Insurance*** -
      The
      Company is self-insured for health claims up to $300 per individual. A liability
      of $3,333 and $4,201 has been estimated and recorded as of April 1, 2006, and
      December 31, 2005, respectively, for those claims submitted and for those
      incurred prior to the end of the quarter but not yet reported.





The
      Company is also self-insured for workers’ compensation claims up to $500 per
      individual. A liability of $2,829 and $2,533 has been estimated and recorded
      at
      April 1, 2006 and December 31, 2005, respectively, for those claims submitted
      and for those incurred prior to the end of the quarter but not yet reported.





The
      Company’s liabilities for health and workers’ compensation claims incurred but
      not reported are based upon internally developed calculations. These estimates
      are regularly evaluated for adequacy based on the most current information
      available, including historical claim payments, expected trends and industry
      factors.





**11.** **SEGMENT
      REPORTING**





The
      Company has three reportable segments, Direct, Retail and Financial Services.
      The Direct segment sells products through direct-mail catalogs and an e-commerce
      website (Cabelas.com); the Retail segment consists of destination retail stores
      in various sizes and formats; and the Financial Services segment issues
      co-branded credit cards. The reconciling amount or Other segment is primarily
      made up of land sales, employee discounts, corporate overhead and shared
      services. The Company’s executive management, being its chief operating decision
      makers, assesses the performance of each operating segment based on an operating
      income measure, which is net revenue less merchandise acquisition costs and
      certain directly identifiable and allocable operating costs as described below.
      For the Direct segment, these operating costs primarily consist of catalog
      costs, e-commerce advertising costs and order processing costs. For the Retail
      segment, these operating costs primarily consist of labor, advertising,
      depreciation and occupancy costs of our destination retail stores. For the
      Financial Services segment, operating costs primarily consist of advertising
      and
      marketing, third party services for processing credit card transactions,
      salaries and wages and other general and administrative costs. Corporate and
      other expenses consist of unallocated shared-service costs, general and
      administrative expenses, various small companies such as real estate
      development, travel and lodging, which are not aggregated with the other
      segments, and eliminations. Unallocated shared-service costs include receiving,
      distribution and storage costs of our inventory, merchandising and quality
      assurance costs, as well as corporate headquarters occupancy costs. General
      and
      administrative expenses include costs associated with general corporate
      management and shared departmental services such as management information
      systems, finance, human resources and legal.





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Segment
      assets are those directly used in or clearly allocable to an operating segment’s
      operations. For the Direct segment, these assets primarily include prepaid
      catalog costs, fixed assets and goodwill. Goodwill makes up $970 of assets
      in
      the Direct segment. For the Retail segment, these assets primarily include
      inventory in the stores, land, buildings, fixtures and leasehold improvements.
      For the Financial Services segment, these assets primarily include cash, credit
      card loans, buildings and fixtures. Corporate and other assets include corporate
      headquarters, merchandise inventory, and shared technology infrastructure as
      well as corporate cash and cash equivalents, prepaid expenses and $422 of
      investment in an equity method investee. Segment depreciation and amortization
      are correspondingly allocated to each segment. Corporate and other depreciation
      and amortization and capital expenditures are related to corporate headquarters,
      merchandise distribution and technology infrastructure. Unallocated assets
      include corporate cash and equivalents, inventory that could be shipped for
      sales to the Retail or Direct segment entities, the net book value of corporate
      facilities and related information systems, deferred income taxes and other
      corporate long-lived assets. The accounting policies of the segments, where
      applicable, are the same as those described in the summary of significant
      accounting policies in our annual financial statements. Intercompany revenue
      between the segments has been eliminated in the consolidations.





On
      March 22,
      2006, the Company changed the fee structure between its Financial Services
      segment and its other segments to more appropriately reflect current market
      conditions. This change was effective January 1, 2006. This updated fee
      structure includes (1) an increase in the fee paid by the Financial Services
      segment for originating a new credit card account, (2) an increase in the amount
      that the Financial Services segment pays for rewards earned by its cardholders
      and (3) an additional fee paid by the Financial Services segment for marketing
      equal to the amount by which the profitability of the Financial Services segment
      exceeds a 2% pre-tax return on the Financial Services segment’s average managed
      credit card loans. The segment information below reflects this change as if
      it
      had taken place in all periods presented.





**Three
                months ended April 1, 2006**
            
            **Direct**
            
            **Retail**
            
            **Financial**
              **Services**
            
            **Corporate**
              **Overhead**
              **and
                Other**
            
            **Total**Revenue
                from external
            
            $
            228,445
            
            $
            144,925
            
            $
            28,684
            
            $
            2,751
            
            $
            404,805Revenue
                from internal
            
            
            426
            
            
            418
            
            
            (150
            )
            
            (694
            )
            
            -Total
                revenue
            
            
            228,871
            
            
            145,343
            
            
            28,534
            
            
            2,057
            
            
            404,805Operating
                income (loss)
            
            
            33,004
            
            
            12,736
            
            
            7,035
            
            
            (38,572
            )
            
            14,203As
                a % of revenue
            
            
            14.4
            %
            
            8.8
            %
            
            24.7
            %
            
            N/A
            
            
            3.5
            %Depreciation
                and amortization
            
            
            1,131
            
            
            4,212
            
            
            220
            
            
            4,556
            
            
            10,119Assets
            
            
            379,283
            
            
            477,428
            
            
            244,386
            
            
            357,736
            
            
            1,458,833






**Three
                months ended April 2, 2005**
            
            **Direct**
            
            **Retail**
            
            **Financial**
              **Services**
            
            **Corporate**
              **Overhead**
              **and
                Other**
            
            **Total**Revenue
                from external
            
            $
            230,359
            
            $
            96,769
            
            $
            20,688
            
            $
            2,773
            
            $
            350,589Revenue
                from internal
            
            
            380
            
            
            365
            
            
            (150
            )
            
            (595
            )
            
            -Total
                revenue
            
            
            230,739
            
            
            97,134
            
            
            20,538
            
            
            2,178
            
            
            350,589Operating
                income (loss)
            
            
            31,350
            
            
            6,756
            
            
            5,218
            
            
            (32,301
            )
            
            11,023As
                a % of revenue
            
            
            13.6
            %
            
            7.0
            %
            
            25.4
            %
            
            N/A
            
            
            3.1
            %Depreciation
                and amortization
            
            
            1,440
            
            
            2,585
            
            
            373
            
            
            3,725
            
            
            8,123Assets
            
            
            292,183
            
            
            341,611
            
            
            210,633
            
            
            326,800
            
            
            1,171,227





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The
      components and amounts of net revenues for our Financial Services segment for
      the three months ended April 1, 2006 and April 2, 2005 were as
      follows:





**Three
                months ended****April
                1,**
              **2006**
            
            **April
                2,**
              **2005**Interest
                and fee income
            
            $
            6,485
            
            $
            4,105Interest
                expense
            
            
            (1,127
            )
            
            (823
            )Net
                interest income
            
            
            5,358
            
            
            3,282Non-interest
                income:Securitization
                income
            
            
            33,719
            
            
            25,783Other
                non-interest income
            
            
            8,711
            
            
            7,434Total
                non-interest income
            
            
            42,430
            
            
            33,217Less:
                Customer reward costs
            
            
            (19,254
            )
            
            (15,961
            )Financial
                services revenue
            
            $
            28,534
            
            $
            20,538





The
      Company’s products are principally marketed to individuals within the United
      States. Net sales realized from other geographic markets, primarily Canada,
      were
      collectively less than 1% of consolidated net sales in each reported period.
      No
      single customer accounted for ten percent or more of consolidated net sales.
      No
      single product or service accounts for a significant percentage of the Company’s
      consolidated revenue.




**12.** **SUPPLEMENTAL
      CASH FLOW INFORMATION**




The
        following table sets forth non-cash financing and investing activities and
        other
        cash flow information.





**Three
                months ended****April
                1,**
            
            **April
                2,****2006**
            
            **2005**Non-cash
                financing and investing activities:(1)Unpaid purchases of property and equipment included in accounts
                payable
            
            $
            18,589
            
            $
            21,830Other
                cash flow information:Interest
                paid, net of amounts capitalized
            
            $
            4,409
            
            $
            1,205Income
                taxes
            
            $
            20,453
            
            $
            12,490





(1)
            Amounts
                reported as unpaid purchases are recorded as purchases of property
                and
                equipment in the statement of cash flows in the period they are
                paid.





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**13.** **RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS**





On
      December 16, 2004, the FASB issued “Statement No. 123 (revised 2005),
      Share-Based Payment” (“Statement 123R”). Statement 123R requires the Company to
      recognize compensation expense for stock options and discounts under employee
      stock purchase plans granted to employees based on the estimated fair value
      of
      the equity instrument at the time of the grant. On March 29, 2005, the SEC
      issued Staff Accounting Bulletin No. 107 (“SAB 107”). SAB 107 provides the
      staff’s views regarding the valuation of share-based payment arrangements for
      public companies. SAB 107 does not modify any of the conclusions or requirements
      of Statement 123R. On November 10, 2005, the FASB issued FSP FAS 123R-3 which
      “Provides a Transition Election for Calculating the APIC Pool Under Statement
      123R.” Statement 123R APIC Pool - Statement 123R requires companies to calculate
      the pool of excess tax benefits available to absorb tax deficiencies recognized
      subsequent to the adoption of Statement 123R (the “APIC pool”). The FASB issued
      FSP FAS 123R-3 to provide an elective transition alternative to calculating
      the
      APIC pool. A company may take up to one year from the later of its initial
      adoption of Statement 123R or November 11, 2005, to make its election. The
      Company is currently evaluating the transition method for calculating the APIC
      Pool.





On
      July
      14, 2005, the FASB published an exposure draft entitled “Accounting for
      Uncertain Tax Positions -an interpretation of FASB Statement No. 109” (“the
      proposed interpretation”). The proposed interpretation establishes a probable
      recognition threshold. To recognize a benefit from a tax position, a company
      must conclude that the position is probable of being sustained upon audit based
      solely on the technical merits of the position. Once the probable recognition
      threshold is met, the best estimate of the amount that would be sustained on
      audit should be recognized. The FASB met in January 2006 and continues to
      deliberate over the issues in this interpretation. The FASB also has determined
      that the final interpretation would not be effective until the first fiscal
      year
      ending after December 15, 2006.





In
      August
      2005, the FASB issued proposed statements of financial accounting standards:
      “Accounting for Transfers of Financial Assets, an amendment of FASB Statement
      No. 140” and “Accounting for Servicing of Financial Assets, an amendment of FASB
      Statement No. 140.” The Company is currently reviewing the amendments to FASB
      Statement No. 140 and has not yet determined the impact on its financial
      statements.





In
      February 2006, the FASB issued Statement No. 155, “Accounting for Certain Hybrid
      Financial Instruments - an amendment to FASB Statements No. 133 and 140”
(“Statement 155”). Statement 155 eliminates the exemption from applying
      Statement 133 to interests in securitized financial assets so that similar
      instruments are accounted for similarly regardless of the form of the
      instruments. It also allows the Company to elect fair value measurement at
      acquisition, at issuance, or when a previously recognized financial instrument
      is subject to a remeasurement (new basis) event, on an instrument-by-instrument
      basis, in cases in which a derivative would otherwise have to be bifurcated.
      This statement is effective for all financial instruments acquired or issued
      after the beginning of an entity’s first fiscal year that begins after September
      15, 2006. The Company does not believe the adoption of Statement 155 will have
      a
      material impact on its financial statements.


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**Item
      2.** **Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.**





This
      report on Form 10-Q contains “forward-looking statements” that are based on our
      beliefs, assumptions and expectations of future events, taking into account
      the
      information currently available to us. All statements other than statements
      of
      current or historical fact contained in this report are forward-looking
      statements within the meaning of the Private Securities Litigation Reform Act.
      The words “believe,” “may,” “should,” “anticipate,” “estimate,” “expect,”
“intend,” “objective,” “seek,” “plan,” and similar statements are intended to
      identify forward-looking statements. Forward-looking statements involve risks
      and uncertainties that may cause our actual results, performance or financial
      condition to differ materially from the expectations of future results,
      performance or financial condition we express or imply in any forward-looking
      statements. These risks and uncertainties include, but are not limited to:
      the
      ability to negotiate favorable purchase, lease and/or economic development
      arrangements; expansion into new markets; market saturation due to new
      destination retail store openings; the rate of growth of general and
      administrative expenses associated with building a strengthened corporate
      infrastructure to support our growth initiatives; increasing competition in
      the
      outdoor segment of the sporting goods industry; the cost of our products; supply
      and delivery shortages or interruptions; adverse weather conditions, unseasonal
      weather conditions which impact the demand for our products; fluctuations in
      operating results; adverse economic conditions causing a decline in
      discretionary consumer spending; the cost of fuel increasing or remaining at
      current levels; delays in road construction and/or traffic planning around
      our
      new destination retail stores; road construction around our existing destination
      retail stores; labor shortages or increased labor costs; changes in consumer
      preferences and demographic trends; increased government regulation; inadequate
      protection of our intellectual property; decreased interchange fees received
      by
      our financial services business as a result of the current interchange
      litigation against VISA; other factors that we may not have currently identified
      or quantified; and other risks, relevant factors and uncertainties identified
      in
      our filings with the SEC (including the information set forth in the “Risk
      Factors” section of our Form 10-K for the fiscal year ended December 31, 2005
      (our “2005 Form 10-K”)), which filings are available at the SEC’s website at
      www.sec.gov. Given the risks and uncertainties surrounding forward-looking
      statements, you should not place undue reliance on these statements. Our
      forward-looking statements speak only as of the date of this report. Other
      than
      as required by law, we undertake no obligation to update or revise
      forward-looking statements, whether as a result of new information, future
      events or otherwise.





The
      following discussion and analysis of financial condition, results of operations,
      liquidity and capital resources should be read in conjunction with our audited
      consolidated financial statements and notes thereto included in our 2005 Form
      10-K, as filed with the SEC, and our unaudited interim consolidated financial
      statements and the notes thereto appearing elsewhere in this Form
      10-Q.





**Overview**





We
      are
      the world’s largest direct marketer, and a leading specialty retailer, of
      hunting, fishing, camping and related outdoor merchandise. We serve people
      who
      enjoy the outdoor lifestyle through our well-established direct business and
      our
      growing number of destination retail stores. Additionally, we benefit from
      our
      credit card operation, which offers us the opportunity to enhance our
      merchandising business revenue by reinforcing our brand and increasing customer
      loyalty. To best reflect our operations, we organize the financial reporting
      of
      our business into the following segments:





·
            Direct,
                which consists of our catalogs and website;·
            Retail,
                which consists of our destination retail stores;·
            Financial
                Services, which consists of our credit card business, which is managed
                and
                administered by our wholly-owned bank subsidiary, World's Foremost
                Bank;
                and·
            Other,
                which consists of aggregated non-merchandising outfitter services,
                our
                real estate land sales and our corporate and other expenses.





In
      the
      discussion below, where we refer to our "merchandising business" we are
      referring to our Direct and Retail segments, collectively. Where we refer to
      our
      "bank," we are referring to our Financial Services segment.


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**Revenue**





Revenue
      consists of sales of our products and services. Direct revenue includes sales
      from orders placed over the phone, by mail and through our website and includes
      customer shipping charges. Retail revenue includes all sales made at our
      destination retail stores and is driven by sales at new stores and changes
      in
      comparable store sales. A store is included in our comparable store sales base
      on the first day of the month following the fifteen month anniversary of its
      opening, completion of major remodeling, or expansion by greater than 25% of
      total square footage. Financial Services revenue includes securitization income,
      interest income and interchange and other fees net of reward program costs,
      interest expense and credit losses from our credit card operations. Other
      revenue consists primarily of land sales around our destination retail stores
      and our non-merchandising outfitter services.





**Cost
      of Revenue**





Cost
      of
      revenue for our merchandising business includes cost of merchandise, shipping
      costs, inventory shrink and other miscellaneous costs. However, it does not
      include occupancy costs, depreciation, direct labor or warehousing costs, which
      are included in selling, general and administrative expenses. Our Financial
      Services segment does not have costs classified as cost of revenue. Other cost
      of revenue includes the basis in land that we have sold.





**Gross
      Profit**





We
      define
      gross profit as the difference between revenue and cost of revenue. As we
      discuss below, we believe that operating income presents a more meaningful
      measure of our consolidated operating performance than gross profit because
      of
      the following factors:





·
            our
                Financial Services segment does not have costs classified as cost
                of
                revenue which results in a disproportionate gross profit contribution
                for
                this segment;·
            we
                do not include occupancy costs, depreciation, direct labor or warehousing
                costs in cost of revenue, which affects comparability to other retailers
                who may account differently for some or all of these costs;
                and·
            we
                have historically attempted to price our customer shipping charges
                to
                generally match our shipping expenses, which reduces gross profit
                as a
                percentage of Direct revenue.





**Selling,
      General and Administrative Expenses**





Selling,
      general and administrative expenses include directly identifiable operating
      costs and other expenses, as well as depreciation and amortization. For our
      Direct segment, these operating costs primarily consist of catalog development,
      production and circulation costs, Internet advertising costs and order
      processing costs. For our Retail segment, these costs primarily consist of
      payroll, store occupancy, utilities and advertising costs. For our Financial
      Services segment, these costs primarily consist of advertising costs, marketing
      fees, third party data processing costs associated with servicing accounts,
      payroll and other administrative fees. Our Other expenses include shared-service
      costs, general and administrative expenses and the costs of operating our
      various other small businesses described above which are not included in any
      of
      our segments. Shared-service costs include costs for services shared by two
      or
      more of our business segments (principally our Direct and Retail segments)
      and
      include receiving, distribution and storage costs, merchandising, quality
      assurance costs and corporate occupancy costs. General and administrative
      expenses include costs associated with general corporate management and shared
      departmental services such as management information systems, finance, human
      resources and legal.





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**Operating
      Income**





Operating
      income is defined as revenue less cost of revenue and selling, general and
      administrative expenses. Given the variety of segments we report and the
      different cost classifications inherent in each of their respective businesses,
      it is difficult to compare our consolidated results on the basis of gross
      profit. Consequently, we believe that operating income is the best metric to
      compare the performance and profitability of our segments to each other and
      to
      judge our consolidated performance because it includes all applicable revenue
      and cost items.





**Retail
      Expansion**





Significant
      amounts of cash will be needed in order to open new destination retail stores
      and implement our retail growth strategy. Depending upon the location and a
      variety of other factors, including store size and the amount of public
      improvements necessary, and based upon our prior experience, opening a single
      large-format destination retail store will require expenditures in the range
      of
      $30 to $50 million. This includes the cost of real estate, site work, public
      improvements such as utilities and roads, buildings, equipment, fixtures
      (including taxidermy) and inventory.





Historically,
      we have been able to negotiate economic development arrangements relating to
      the
      construction of a number of our new destination retail stores, including free
      land, monetary grants and the recapture of incremental sales, property or other
      taxes through economic development bonds, with many local and state governments.
      We are able to negotiate these agreements as we generally have located our
      destination retail stores in towns and municipalities that do not have a large
      base of commercial businesses. We attempt to design our destination retail
      stores to provide exciting tourist and entertainment shopping experiences for
      the entire family. We believe these factors increase the revenue for the state
      and local municipality where the destination retail store is located, making
      us
      a compelling partner for community development and expansion. Where appropriate,
      we intend to continue to utilize economic development arrangements with state
      and local governments to offset some of the construction costs and improve
      the
      return on investment on new stores.





The
      stores we opened in 2005, and a number of our stores announced for 2006 and
      2007, are located closer to larger populations. We believe this will help
      mitigate the possible impact of gasoline price increases on our Retail sales
      and
      provide additional convenience for our customers.





At
      the
      end of the first fiscal quarter we operated fourteen destination retail stores.
      During fiscal 2005, we increased our total retail square footage by 59% to
      2,097,840 total square feet with the opening of four new destination retail
      stores. For fiscal 2006, we currently plan to open four new destination retail
      stores which will add approximately 583,000 square feet, or 27.8%, to our retail
      square footage in fiscal 2006.





**Critical
      Accounting Policies**





Our
      consolidated financial statements have been prepared in accordance with
      accounting principles generally accepted in the United States of America. The
      preparation of these financial statements requires us to make estimates and
      judgments that affect the reported amounts of assets, liabilities, revenues
      and
      expenses and related disclosures of contingent assets and liabilities. The
      estimates and assumptions are evaluated on a periodic basis and are based on
      historical experience and various other factors that are believed to be
      reasonable under the circumstances. Actual results may differ significantly
      from
      these estimates.





Our
      critical accounting policies and use of estimates are discussed in our 2005
      Form
      10-K, as filed with the SEC, and should be read in conjunction with the annual
      financial statements and notes included in our 2005 Form 10-K.





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**Results
      of Operations**




Our
      first
      fiscal quarter ends on the Saturday closest to March 31. The three months ended
      April 1, 2006 and April 2, 2005 each consisted of 13 weeks. Our operating
      results for the three months ended April 1, 2006 and April 2, 2005, expressed
      as
      a percentage of revenue, were as follows:





**Three
                months ended****April
                1,**
              **2006**
            
            **April
                2,**
              **2005**Revenue
            
            
            100.0
            %
            
            100.0
            %Cost
                of revenue
            
            
            59.9
            %
            
            60.9
            %Gross
                profit
            
            
            40.1
            %
            
            39.1
            %Selling,
                general and administrative expenses
            
            
            36.6
            %
            
            36.0
            %Operating
                income
            
            
            3.5
            %
            
            3.1
            %Interest
                income
            
            
            0.1
            %
            
            0.1
            %Interest
                expense
            
            
            (0.8
            )%
            
            (0.6
            )%Other
                income (net)
            
            
            0.7
            %
            
            0.8
            %Total
                other income/(expense)
            
            
            0.0
            %
            
            0.3
            %Income
                before provision for income taxes
            
            
            3.5
            %
            
            3.4
            %Income
                tax expense
            
            
            1.3
            %
            
            1.2
            %Net
                income
            
            
            2.2
            %
            
            2.2
            %





**Segment
      Information**





On
      March 22,
      2006, we changed the fee structure between our Financial Services segment and
      our other segments to more appropriately reflect current market conditions.
      This
      change was effective January 1, 2006. This updated fee structure includes (1)
      an
      increase in the fee paid by the Financial Services segment for originating
      a new
      credit card account, (2) an increase in the amount that the Financial Services
      segment pays for rewards earned by its cardholders and (3) an additional fee
      paid by the Financial Services segment for marketing equal to the amount by
      which the profitability of the Financial Services segment exceeds a 2% pre-tax
      return on the Financial Services segment’s average managed credit card loans.
      The segment information presented in this Form 10-Q reflects this change as
      if
      it had taken place in all periods presented. The following table sets forth
      the
      revenue and operating income of each of our segments for the three months ended
      April 1, 2006 and April 2, 2005.


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**Three
                months ended****April
                1,**
              **2006**
            
            **April
                2,**
              **2005****(Dollars
                in thousands)**Direct
                revenue
            
            $
            228,871
            
            $
            230,739Retail
                revenue
            
            
            145,343
            
            
            97,134Financial
                services revenue
            
            
            28,534
            
            
            20,538Other
                revenue
            
            
            2,057
            
            
            2,178Total
                revenue
            
            $
            404,805
            
            $
            350,589Direct
                operating income
            
            $
            33,004
            
            $
            31,350Retail
                operating income
            
            
            12,736
            
            
            6,756Financial
                services operating income
            
            
            7,035
            
            
            5,218Other
                operating income (loss)
            
            
            (38,572
            )
            
            (32,301
            )Total
                operating income
            
            $
            14,203
            
            $
            11,023*As
                a Percentage of Total Revenue:*Direct
                revenue
            
            
            56.5
            %
            
            65.8
            %Retail
                revenue
            
            
            35.9
            %
            
            27.7
            %Financial
                services revenue
            
            
            7.1
            %
            
            5.9
            %Other
                revenue
            
            
            0.5
            %
            
            0.6
            %Total
                revenue
            
            
            100.0
            %
            
            100.0
            %*As
                a Percentage of Segment Revenue:*Direct
                operating income
            
            
            14.4
            %
            
            13.6
            %Retail
                operating income
            
            
            8.8
            %
            
            7.0
            %Financial
                services operating income
            
            
            24.7
            %
            
            25.4
            %Total
                operating income(1)
            
            
            3.5
            %
            
            3.1
            %





(1)
            The
                percentage set forth is a percentage of consolidated revenue rather
                than
                revenue by segment as it is based upon our consolidated operating
                income.
                A separate line item is not included for Other operating income as
                this
                amount is reflected in the total operating income amount, which reflects
                our consolidated operating results.





For
      credit card loans securitized and sold, the loans are removed from our balance
      sheet and the net earnings on these securitized assets after paying outside
      investors are reflected as a component of our securitization income on a GAAP
      basis. The following table summarizes the results of our Financial Services
      segment for the three months ended April 1, 2006 and April 2, 2005 on a GAAP
      basis with interest and fee income, interest expense and provision for loan
      losses for the credit card loans receivable we own reported in net interest
      income. Non-interest income on a GAAP basis includes servicing income, gains
      on
      sales of loans and income recognized on our retained interests for the entire
      securitized portfolio, as well as, interchange income on the entire managed
      portfolio.




22
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**Financial
                Services Revenue as reported**
            
            **Three
                months ended****in
                the Financial Statements:**
            
            **April
                1,**
              **2006**
            
            **April
                2,**
              **2005****(Dollars
                in thousands)**Interest
                and fee income
            
            $
            6,485
            
            $
            4,105Interest
                expense
            
            
            (1,127
            )
            
            (823
            )Net
                interest income
            
            
            5,358
            
            
            3,282Non-interest
                income:Securitization
                income(1)
            
            
            33,719
            
            
            25,783Other
                non-interest income
            
            
            8,711
            
            
            7,434Total
                non-interest income
            
            
            42,430
            
            
            33,217Less:
                Customer rewards costs
            
            
            (19,254
            )
            
            (15,961
            )Financial
                Services revenue
            
            $
            28,534
            
            $
            20,538





(1)
            For
                the three months ended April 1, 2006 and April 2, 2005, we recognized
                gains on sale of credit card loans of $4.1 million and $3.9 million,
                respectively, which are reflected as a component of securitization
                income.





Our
      “managed” credit card loans represent credit card loans receivable we own plus
      securitized credit card loans. Since the financial performance of the managed
      portfolio has a significant impact on the earnings we will receive from
      servicing the portfolio, we believe the following table on a “managed” basis is
      important information to analyze our revenue in the Financial Services segment.
      This non-GAAP presentation reflects the financial performance of the credit
      card
      loans receivable we own plus those that have been sold for the three months
      ended April 1, 2006 and April 2, 2005 and includes the effect of recording
      the
      retained interest at fair value. Interest income, interchange income (net of
      customer rewards) and fee income on both the owned and securitized portfolio
      are
      recorded in their respective line items. Interest paid to outside investors
      on
      the securitized credit card loans is included with other interest costs and
      included in interest expense. Credit losses on the entire managed portfolio
      are
      included in provision for loan losses. Although our financial statements are
      not
      presented in this manner, management reviews the performance of its managed
      portfolio in order to evaluate the effectiveness of its origination and
      collection activities, which ultimately affects the income we will receive
      for
      servicing the portfolio. The securitization of credit card loans primarily
      converts interest income, interchange income, credit card fees, credit losses
      and other income and expense related to the securitized loans into
      securitization income.




23
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**Managed
                Financial Services Revenue:**
            
            **Three
                months ended****April
                1,**
              **2006**
            
            **April
                2,**
              **2005****(Dollars
                in thousands except other data)**Interest
                income
            
            $
            32,914
            
            $
            22,869Interchange
                income, net of customer reward costs
            
            
            11,104
            
            
            7,311Other
                fee income
            
            
            5,163
            
            
            4,583Interest
                expense
            
            
            (14,027
            )
            
            (8,683
            )Provision
                for loan losses
            
            
            (5,862
            )
            
            (5,335
            )Other
            
            
            (758
            )
            
            (207
            )Managed
                Financial Services revenue
            
            $
            28,534
            
            $
            20,538***As
                a Percentage of Managed Credit Card Loans*****Managed
                Financial Services Revenue:**Interest
                income
            
            
            10.5
            %
            
            9.1
            %Interchange
                income, net of customer reward costs
            
            
            3.5
            %
            
            2.9
            %Other
                fee income
            
            
            1.7
            %
            
            1.9
            %Interest
                expense
            
            
            (4.5
            )%
            
            (3.5
            )%Provision
                for loan losses
            
            
            (1.9
            )%
            
            (2.1
            )%Other
            
            
            (0.2
            )%
            
            (0.1
            )%Managed
                Financial Services revenue
            
            
            9.1
            %
            
            8.2
            %Average
                reported credit card loans
            
            $
            122,860
            
            $
            99,260Average
                managed credit card loans
            
            $
            1,253,948
            
            $
            1,006,261





**Three
      Months Ended April 1, 2006 Compared to Three Months Ended April 2, 2005**




**Revenue**





Revenue
      increased by $54.2 million, or 15.5%, to $404.8 million in the three months
      ended April 1, 2006 from $350.6 million in the three months ended April 2,
      2005
      as we experienced revenue growth in our Retail and Financial Services segments.





*Direct
      Revenue* .
      Direct
      revenue decreased by $1.8 million, or 0.8%, to $228.9 million in the three
      months ended April 1, 2006 from $230.7 million in the three months ended April
      2, 2005. We had a strong promotional program in the first fiscal quarter of
      2005, which we did not repeat with as deep of discount incentive in the first
      fiscal quarter of 2006. This change in strategy increased our gross profit
      in
      the Direct segment but temporarily constrained our revenue growth. Internet
      visits increased 38.3% in the three months ended April 1, 2006 compared to
      the
      three months ended April 2, 2005 as we continue to utilize marketing
      programs and search optimization programs to increase traffic to our website.
      The product categories that contributed the largest dollar volume increases
      to
      our Direct revenue in the three months ended April 1, 2006 as compared to the
      three months ended April 2, 2005 included gifts, camping gear and hunting
      equipment.





*Retail
      Revenue* .
      Retail
      revenue increased by $48.2 million, or 49.6%, to $145.3 million in the three
      months ended April 1, 2006 from $97.1 million in the three months ended April
      2,
      2005 due to new store sales of $49.4 million. New store sales were partially
      offset by a slight decrease in comparable store sales of $0.3 million, or 0.3%,
      compared to the three months ended April 2, 2005. Sales at our Owatonna,
      Minnesota store continue to be impacted by our new store in Rogers, Minnesota,
      which was the primary reason our comparable store sales were down during the
      quarter. The product categories that contributed the largest dollar volume
      increases to our Retail revenue growth in the three months ended April 1, 2006
      as compared to the three months ended April 2, 2005 included hunting equipment,
      marine products and camping gear.


24
 Table
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*Financial
      Services Revenue* .
      Financial Services revenue increased by $8.0 million, or 38.9%, to $28.5 million
      in the three months ended April 1, 2006 from $20.5 million in the three months
      ended April 2, 2005. We measure the results of our Financial Services business
      on a managed basis as presented in the table on page 24. Interest income as
      measured on a managed basis increased $10.0 million. The increase in interest
      income is due to the increase in managed accounts and an increase in interest
      rates. Interchange income, net of reward costs, increased by $3.8 million.
      Interchange income is driven by net purchases, which increased by 22.8%, however
      it was offset by an increase in customer reward costs of 20.6%. The increases
      in
      interest income and interchange income were offset by an increase in interest
      expense of $5.3 million due to increased borrowings and an increase in interest
      rates. Compared to the three months ended April 2, 2005, the number of average
      active accounts grew by 17.9% to 810,212 and the average balance per active
      account grew by 5.7% to approximately $1,548.





**Gross
      Profit**





Gross
      profit increased by $25.3 million, or 18.4%, to $162.5 million in the three
      months ended April 1, 2006 from $137.2 million in the three months ended April
      2, 2005. Gross profit increased 1.0% as a percentage of revenue to 40.1% in
      the
      three months ended April 1, 2006 from 39.1% in the three months ended April
      2,
      2005. Gross profit as a percentage of revenue increased due to an increase
      in
      our Financial Services revenue, which did not have any corresponding increase
      in
      cost of revenue, and an increase in gross profit from our merchandising
      business.





*Merchandising
      Business.* The
      gross profit of our merchandising business increased by $17.8 million, or 15.6%,
      to $132.3 million in the three months ended April 1, 2006 from $114.5 million
      in
      the three months ended April 2, 2005. Gross profit increased by 0.5% as a
      percentage of merchandise revenue to 35.4% in the three months ended April
      1,
      2006 from 34.9% in the three months ended April 2, 2005. The improvement in
      our
      merchandising gross profit is primarily attributable to a reduction in sales
      discounts of $1.4 million, or 0.4% of merchandise revenue, with the remainder
      attributable to better merchandising practices.





**Selling,
      General and Administrative Expenses**





Selling,
      general and administrative expenses increased by $22.1 million, or
      17.5% *,* to
      $148.3 million in the three months ended April 1, 2006 from $126.2 million
      in
      the three months ended April 2, 2005. Selling, general and administrative
      expenses were 36.6% of revenue in the three months ended April 1, 2006 compared
      to 36.0% in the three months ended April 2, 2005. The most significant factors
      contributing to the increase in selling, general and administrative expenses
      included:





·
            Selling,
                general and administrative expenses attributed to shared services
                increased by $5.7 million over the prior period primarily as a result
                of
                increases in wages and related benefits of $3.3 million. In addition,
                depreciation increased by $0.8 million, equipment and software costs
                that
                do not meet our capitalization policy increased by $0.8 million and
                contract labor increased by $0.5 million. Increases in wages and
                benefits
                were primarily due to increases in personnel in our distribution
                centers
                as our merchandise revenue continues to grow. Depreciation increased
                due
                to two system upgrades implemented by the end of 2005 when these
                projects
                were placed in service. Equipment and software costs, along with
                contract
                labor, increased due to preliminary project costs related to system
                upgrades that do not meet our capitalization policy. Total Other
                selling,
                general and administrative costs as a percentage of consolidated
                revenue
                increased from 9.8% to 9.9%.·
            *Direct*selling,
                general and administrative expenses decreased by $1.8 million. This
                was
                primarily due to an increase in the marketing fee paid to the Direct
                segment from the Financial Services segment of $3.3 million, or 1.4%
                of
                Direct revenue. Catalog production costs increased by $1.7 million,
                or
                5.4%. Catalog costs increased to $33.2 million in the three months
                ended
                April 1, 2006 from $31.5 million in the three months ended April
                2, 2005.
                As a percentage of Direct revenue, catalog costs increased to 14.5%
                in the
                three months ended April 1, 2006 from 13.7% in the three months ended
                April 2, 2005. This increase in catalog costs as a percent of our
                Direct
                revenue was due to a reduction of promotional sales lift, which was
                stronger in the first quarter of fiscal 2005 compared to the first
                quarter
                of fiscal 2006, and an increase in postage costs.





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·
            *Retail*selling,
                general and administrative expenses comprised $12.0 million of the
                total
                increase in selling, general and administrative expense. We incurred
                new
                store operating costs of $12.3 million related to our new stores,
                which
                were not open in the comparable quarter of 2005. Total selling, general
                and administrative expenses in our comparable store base increased
                by $1.5
                million, or 1.6% as a percentage of comparable store sales, due to
                an
                increase in advertising. Corporate overhead costs decreased by $1.8
                million, or 1.3% of Retail revenue, compared to the first quarter of
                fiscal 2005 due to an increase in the marketing fee paid to the Retail
                segment from the Financial Services segment. Pre-opening costs were
                flat
                to the prior comparative quarter.·
            *Financial
                Services*selling,
                general and administrative expenses comprised $6.2 million of the
                total
                increase in selling, general and administrative expense. This was
                primarily due to increased marketing fees of $5.1 million paid to
                our
                other segments as a result of our changed fee structure. Advertising
                and
                promotional costs increased by $1.0 million due to increases in VISA
                assessments and new account acquisition costs. Third party services
                related to our credit card processing increased by $0.3 million as
                the
                number of credit card accounts and credit card transactions increased.
                Postage increased by $0.3 million due to rate increases and an increase
                in
                the number of credit card accounts. These increases were offset by
                a
                decrease in bad debt expense of $0.6 million. Bad debt expense decreased
                due to a reduction in counterfeit fraud.





**Operating
      Income**





Operating
      income increased by $3.2 million, or 28.8%, to $14.2 million in the three months
      ended April 1, 2006 from $11.0 million in the three months ended April 2, 2005.
      Operating income as a percentage of revenue increased to 3.5% in the three
      months ended April 1, 2006 from 3.1% in the three months ended April 2, 2005.
      This was primarily due to expanded revenue in our Retail and Financial
      Services segments and the reduction of sales discounts, which had a positive
      impact on our gross profit margin.





**Interest
      Expense**





Interest
      expense increased by $1.3 million to $3.3 million in the three months ended
      April 1, 2006 from $2.1 million in the three months ended April 2, 2005. The
      increase in interest expense was primarily due to an increase in borrowing
      related to the issuance $215 million in unsecured notes.





**Income
      Taxes**





Our
      effective tax rate was 36.2% in the three months ended April 1, 2006 as compared
      to 35.6% in the three months ended April 2, 2005. We expect our effective tax
      rate to continue to increase as we open stores in new states and incur
      additional state income taxes.





**Bank
      Asset Quality**





We
      securitize a majority of our credit card loans. On a quarterly basis, we
      transfer eligible credit card loans into a securitization trust. We are required
      to own at least a minimum twenty day average of 5% of the interests in the
      securitization trust. Therefore, these retained loans have the same
      characteristics as those loans sold to outside investors. Certain accounts
      are
      ineligible for securitization because they are delinquent at the time of sales
      to the trust, originated from sources other than Cabela's Club credit cards
      and
      various other requirements. The total amount of ineligible loans and receivables
      were $17.2 million and $14.1 million at April 1, 2006 and December 31, 2005,
      respectively. Of the $17.2 million outstanding at April 1, 2006, $13.2 million
      originated from sources other than Cabela’s Club credit cards.





The
      quality of our managed credit card loan portfolio at any time reflects, among
      other factors, the creditworthiness of the individual cardholders, general
      economic conditions, the success of our account management and collection
      activities, and the life cycle stage of the portfolio. Our financial results
      are
      sensitive to changes in delinquencies and net charge-offs of this portfolio.
      During periods of economic weakness, delinquencies and net charge-offs are
      more
      likely to increase. We have sought to manage this sensitivity by selecting
      a
      customer base that has historically shown itself to be very creditworthy based
      on charge-off levels, credit bureau scores, such as Fair Isaac & Company
      (FICO) scores, and behavior scores.


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**Delinquencies**





We
      consider the entire balance of an account, including any accrued interest and
      fees, delinquent if the minimum payment is not received by the payment due
      date.
      Our aging methodology is based on the number of completed billing cycles during
      which a customer has failed to make a required payment. Delinquencies not only
      have the potential to reduce earnings by increasing the unrealized loss
      recognized to reduce the loans to market value and reducing securitization
      income, but they also result in additional operating costs dedicated to
      resolving the delinquencies.





The
      following chart shows the percentage of our managed accounts that have been
      delinquent as of the ends of the periods presented.





**April
                  1,**
                **2006**
              
              **December
                  31,**
                **2005**
              
              **April
                  2,**
                **2005**Number
                  of days delinquentGreater
                  than 30 days
              
              0.75%
              
              0.67%
              
              0.78%Greater
                  than 60 days
              
              0.44%
              
              0.38%
              
              0.41%Greater
                  than 90 days
              
              0.20%
              
              0.16%
              
              0.19%





**Charge-offs**





Gross
      charge-offs reflect the uncollectible principal, interest and fees on a
      customer's account. Recoveries reflect the amounts collected on previously
      charged-off accounts. Most bankcard issuers charge off accounts at 180 days.
      We
      charge off accounts on the 24 th day of
      the month after an account becomes 115 days contractually delinquent, except
      in
      the case of cardholder bankruptcies and cardholder deaths. Cardholder
      bankruptcies are charged off 30 days after notification, and delinquencies
      caused by cardholder deaths are charged off on the 24 th day of
      the month after an account is 60 days contractually delinquent. As a result,
      our
      charge-off rates are not directly comparable to other participants in the
      bankcard industry. Our charge-off activity for the managed portfolio for the
      three months ended April 1, 2006 and April 2, 2005 is summarized below:





**Three
                months ended****April
                1,**
              **2006**
            
            **April
                2,**
              **2005****(Dollars
                in thousands)**Gross
                charge-offs
            
            $
            6,732
            
            $
            6,502Less:
                Recoveries
            
            
            (1,108
            )
            
            (1,177
            )Net
                charge-offs
            
            
            5,624
            
            
            5,325Net
                charge-offs as a percentage of average managed loans
            
            
            1.79
            %
            
            2.12
            %





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**Liquidity
      and Capital Resources**


**Overview**





Our
      merchandising business and our Financial Services segment have significantly
      different liquidity and capital needs. The primary cash requirements of our
      merchandising business relate to capital for new destination retail stores,
      purchases of economic development bonds related to the development of new
      destination retail stores, purchase of inventory, investments in our management
      information systems and other infrastructure, and other general working capital
      needs. We historically have met these requirements by generating cash from
      our
      merchandising business operations, borrowing under revolving credit facilities,
      issuing debt and equity securities, obtaining economic development grants from
      state and local governments in connection with developing our destination retail
      stores, collecting principal and interest payments on our economic development
      bonds and from the retirement of economic development bonds. The cash flow
      we
      generate from our merchandising business is seasonal, with our peak cash
      requirements for inventory occurring between May and November. While we have
      consistently generated overall positive annual cash flow from our operating
      activities, other sources of liquidity are generally required by our
      merchandising business during these peak cash use periods. These sources
      historically have included short-term borrowings under our revolving credit
      facility and access to debt markets, such as the private placement of long-term
      debt securities we completed in February 2006. While we generally have been
      able
      to manage our cash needs during peak periods, if any disruption occurred to
      our
      funding sources, or if we underestimated our cash needs, we would be unable
      to
      purchase inventory and otherwise conduct our merchandising business to its
      maximum effectiveness, which would result in reduced revenue and profits.





The
      primary cash requirements of our Financial Services segment relate to the
      generation of credit card loans and the purchase of points used in the Cabela’s
      Club VISA customer loyalty rewards program from our merchandising business.
      The
      bank obtains funds for these purposes through various financing activities,
      which include engaging in securitization transactions, borrowing under federal
      funds bank credit facilities, selling certificates of deposit and generating
      cash from operations. Our bank’s charter is limited to issuing credit cards and
      selling brokered certificates of deposit of $100,000 or more, and it does not
      accept demand deposits or make non-credit card loans. Consequently, our bank
      cannot lend money to Cabela’s Incorporated or our other affiliates. The bank is
      subject to capital requirements imposed by Nebraska banking law and the VISA
      membership rules, and its ability to pay dividends is limited by Nebraska and
      federal banking law.





We
      believe that we will have sufficient capital available from current cash on
      hand, operations, additional monetization of our economic development bonds,
      our
      revolving credit facility and other borrowing sources, including the private
      placement of debt we completed in February 2006, to fund our existing operations
      and growth plan for the next twelve to eighteen months.





**Operating,
      Investing and Financing activities**





Cash
      used
      by operating activities was $171.1 million in the three months ended April
      1,
      2006 as compared with $123.0 million in the three months ended April 2, 2005.
      The $48.1 million increase in cash used by operating activities was due to
      an
      increase in cash used for accounts payable of $56.4 million, an increase in
      cash
      used for gift certificates and credit card reward points of $4.4 million and
      an
      increase in cash used for accrued compensation and benefits of $4.0 million.
      These increases were partially offset by a reduction in cash used for inventory
      of $13.5 million and a reduction in cash used for prepaid expenses, primarily
      catalog costs, of $8.0 million. The increase in cash used for accounts payable
      was caused by a change in the payable to our third party processor at our bank
      of $26.9 million between the comparable periods. This change was due to timing
      of holidays close to the end of the year causing the number of days of
      transactions on credit cards to fluctuate. Changes in the amounts paid for
      inventory affected accounts payable by $18.9 million, and approximately $10.0
      million of the remaining change in payables was primarily related to timing
      of
      construction bills. We opened our Rogers, Minnesota store in October 2005
      compared to the opening of our Wheeling, West Virginia store in August 2004;
      therefore, we incurred less carryover of construction bills in the payable
      balance to be paid in the first quarter of 2005 as compared to the first quarter
      of 2006. Cash used for the redemption of gift certificates and credit card
      rewards increased as the increase in gift certificate purchases from the
      holidays were redeemed. Cash used for accrued compensation and benefits
      increased as the total accrued bonuses paid in March increased over the prior
      year. Cash used for inventory decreased by $13.5 million compared to the first
      three months of 2005 due in part to the effects of our new ordering system
      having an impact on reducing inventory levels at our stores and in part due
      to
      the timing of seasonal merchandise receipts.





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Cash
      used
      in investing activities was $19.3 million in the three months ended April 1,
      2006 as compared with $55.0 million in the three months ended April 2, 2005.
      The
      $35.7 million decrease in cash used for investing activities was primarily
      due
      to a $40.4 million decrease in capital expenditures, which was offset by a
      $3.4 million increase in purchases of marketable securities related to building
      our four new destination retail stores. The decrease in capital expenditures
      is
      related to the timing of our new destination retail store openings. In fiscal
      2005, two of our new stores were opened in the first half of the year. In fiscal
      2006, all of our new stores will be opened in the second half of the year.





Cash
      provided by financing activities was $200.2 million in the three months ended
      April 1, 2006 as compared to cash used of $25.3 million in the three months
      ended April 2, 2005. The $225.5 million increase in cash provided by financing
      activities was due to the issuance of $215.0 million of notes in a private
      placement in February 2006 and a reduction in cash used for financing due to
      a
      change in unpresented checks net of bank balance of $10.8 million. The change
      in
      unpresented checks net of bank balance is primarily a function of timing in
      when
      checks are processed in our accounts payable department.





As
      of
      April 1, 2006, we had material cash commitments in the amount of $147.6 million
      for fiscal 2006 and $204.8 million for fiscal 2007 for estimated capital
      expenditures and the purchase of future economic development bonds in connection
      with the construction and development of new destination retail stores. In
      addition, we are obligated to fund the remaining $14.8 million of economic
      development bonds and construction costs related to the expansion of our
      distribution center in Wheeling, West Virginia throughout fiscal 2006. We are
      also committed to fund $17.4 million of economic development bonds related
      to
      our fiscal 2005 stores.  When the bonds are funded we will be reimbursed
      for the qualifying construction costs we have incurred.





We
      have
      announced plans for retail site locations in Reno, Nevada, Gonzales, Louisiana,
      Hazelwood, Missouri, East Hartford, Connecticut, Adairsville, Georgia and
      Montreal, Canada for which material commitments were not signed as of April
      1,
      2006. These locations are still being negotiated and will be subject to
      customary conditions to closing. We expect the total cost of each of these
      destination retail stores, including the cost of economic development bonds,
      to
      fall in the estimated range of $30 to $50 million each. We expect to incur
      the
      majority of the costs for these locations in 2007 and 2008.





**Grants
      and Economic Development Bonds**





*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 ten 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 April 1, 2006 and December 31, 2005, the total amount
      of
      grant funding subject to a specific contractual remedy was $15.2 million and
      $16.6 million, respectively. 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
      provisions. 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 period.
      The 15.3 acres expected to be forfeited has no basis and therefore the
      forfeiture will not create an income statement impact.





*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


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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 balance sheet as “available for sale” marketable securities and
      value them based upon management’s projections of the amount of tax revenue that
      will 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 balance sheet. As of April 1, 2006
      and December 31, 2005, we carried $155.7 million and $144.5 million,
      respectively, of economic development bonds on our balance sheet.





The
      negotiation of these economic development arrangements has been important to
      our
      destination retail store expansion in the past, and we believe it will continue
      to be an important factor to our ability to execute our destination retail
      store
      expansion strategy because we believe they will 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 could be adversely affected.





**Securitization
      of Credit Card Loans**





We
      have
      been, and will continue to be, particularly reliant on funding from
      securitization transactions for our Financial Services segment. A failure to
      renew existing facilities or to add additional capacity on favorable terms
      as it
      becomes necessary could increase our financing costs and potentially limit
      our
      ability to grow our Financial Services business. Unfavorable conditions in
      the
      asset-backed securities markets generally, including the unavailability of
      commercial bank liquidity support or credit enhancements, such as financial
      guaranty insurance, could have a similar effect.




Furthermore,
      poor performance of our securitized credit card loans, including increased
      delinquencies and credit losses, lower payment rates or a decrease in excess
      spreads below certain thresholds, could result in a downgrade or withdrawal
      of
      the ratings on the outstanding securities issued in our securitization
      transactions, cause early amortization of these securities or result in higher
      required credit enhancement levels. This could jeopardize our ability to
      complete other term securitization transactions on acceptable terms, decrease
      our liquidity and force us to rely on other potentially more expensive funding
      sources, to the extent available, which would decrease our profitability. The
      total amount and maturities for our credit card securitizations as of April
      1,
      2006 were as follows:





**Series**
            
            **Type**
            
            **Initial******
              **Amount**
            
            **Certificate**
              **Rate**
            
            **Expected
                Final**Series
                2001-2
            
            Term
            
            $250,000
            
            Floating
            
            November
                2006Series
                2003-1
            
            Term
            
            $300,000
            
            Fixed
            
            January
                2008Series
                2003-2
            
            Variable
            
            $300,000
            
            Floating
            
            June
                2006Series
                2004-I
            
            Term
            
            $75,000
            
            Fixed
            
            March
                2009Series
                2004-II
            
            Term
            
            $175,000
            
            Floating
            
            March
                2009Series
                2005-I
            
            Term
            
            $140,000
            
            Fixed
            
            October
                2010Series
                2005-I
            
            Term
            
            $110,000
            
            Floating
            
            October
                2010





**Certificates
      of Deposit**





We
      utilize certificates of deposit to partially finance the operating activities
      of
      our bank. Our bank issues certificates of deposit in a minimum amount of
      $100,000 in various maturities. As of April 1, 2006, we had $104.2 million
      of
      certificates of deposit outstanding with maturities ranging from April 2006
      to
      June 2015 and with a weighted average effective annual fixed rate of 4.28%.
      Certificate of deposit borrowings are subject to regulatory capital
      requirements.





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**Credit
      Facility and other Indebtedness**





We
      are
      party to a credit agreement that provides for a $325 million unsecured revolving
      credit facility and expires on June 30, 2010. During the term of the facility,
      we are required to pay a facility fee, which ranges from 0.100% to 0.250%.
      We
      may elect to take advances at interest rates calculated at U.S. Bank National
      Association’s prime rate (or, if greater, the average rate on the federal funds
      rate in effect for the day plus one-half of one percent) or the Eurodollar
      rate
      of interest plus a margin, which adjusts, based upon certain financial ratios
      achieved and ranges from 0.650% to 1.350%. The credit agreement permits the
      issuance of up to $150 million in letters of credit and standby letters of
      credit, the nominal amount of which are applied against the overall credit
      limit
      available under the revolver. The credit facility may be increased to $450
      million upon our request and with the consent of the banks party to the credit
      agreement. There were no principal borrowings outstanding under the credit
      facility, and $70.1 million outstanding on letters of credit and standby letters
      of credit, at April 1, 2006. During the first fiscal quarter of 2006, the
      average principal amount outstanding on the line of credit was $12.9 million,
      and the weighted average interest rate on the line of credit was 5.43%. Our
      total remaining borrowing capacity under the credit facility as of April 1,
      2006, after subtracting outstanding letters of credit and standby letters of
      credit of $70.1 million, was $254.9 million. The credit agreement requires
      that
      we comply with several financial and other covenants, including requirements
      that we maintain the following financial ratios as set forth in the credit
      agreement:





·
            A
                fixed charge coverage ratio of no less than 1.50 to 1.00 as of the
                last
                day of any fiscal quarter. The fixed charge coverage ratio is defined
                as
                (a) EBITR minus the sum of any cash dividends, tax expenses paid
                in cash,
                in each case for the twelve month period ending on the last day of
                the
                fiscal quarter, and to the extent not included, or previously included,
                in
                the calculation of EBITR, any cash payments with respect to contingent
                obligations, to (b) the sum of interest expense, all required principal
                payments with respect to coverage indebtedness and operating lease
                obligations, in each case for the twelve month period ending on the
                last
                day of the fiscal quarter. Our credit agreement defines EBITR as
                net
                income before deductions for income taxes, interest expense and operating
                lease obligations.·
            A
                cash flow leverage ratio of no more than 3.00 to 1.00 as of the last
                day
                of any fiscal quarter for the twelve month period ending on that
                day. The
                cash flow leverage ratio is defined as adjusted coverage indebtedness
                (average indebtedness of the Company on a consolidated basis for
                the
                preceding four fiscal quarters determined in accordance with GAAP
                excluding: (a) liabilities of WFB, (b) long term deferred compensation,
                (c) long term deferred taxes, (d) any current liabilities (other
                than
                coverage indebtedness), and (e) deferred grant income) to EBITDA.
                Our
                credit agreement defines EBITDA as net income before deductions for
                income
                taxes, interest expense, depreciation and amortization, all as determined
                on a consolidated basis in accordance with GAAP.·
            A
                minimum tangible net worth of no less than $350,000 plus 50% of positive
                consolidated net income on a cumulative basis for each fiscal year
                beginning with the fiscal year ended 2005 as of the last day of any
                fiscal
                quarter. Tangible net worth is equity less intangible
                assets.





In
      addition, the credit agreement contains cross default provisions to other
      outstanding debt. In the event we fail to comply with these covenants, a default
      is triggered. In the event of default, all outstanding letters of credit and
      all
      principal and outstanding interest would immediately become due and
      payable.





In
      addition, our credit agreement includes a limitation that we may not pay
      dividends to our stockholders in excess of 50% of our prior year's consolidated
      EBITDA and a provision that permits acceleration by the lenders in the event
      there is a "change in control." Based upon this EBITDA calculation for fiscal
      2005, dividends would not be permissible in fiscal 2006 in excess of $80.3
      million. Our credit agreement defines a "change in control" to mean any of
      the
      following circumstances: (a) we cease to own, directly or indirectly, 100%
      of
      the shares of each class of the voting stock or other equity interest of each
      other borrower that has or has had total assets in excess of $10.0 million;
      (b)
      the acquisition or ownership, directly or indirectly, beneficially or of record,
      by any person or group (within the meaning of the Securities Exchange Act of
      1934 and the rules of the Securities and Exchange Commission there under as
      in
      effect on July 15, 2005), of equity interests representing more than 25% of
      the
      aggregate ordinary voting power represented by our issued and outstanding equity
      interests (other than equity interests held by Richard N. Cabela or James W.
      Cabela or a group controlled by Richard N. Cabela or James W. Cabela); or (c)
      occupation of a majority of the seats (other than vacant seats) on our board
      of
      directors by persons who were neither (i) nominated by our board of directors
      nor (ii) appointed by directors so nominated. Our credit agreement provides
      that
      all loans or deposits from us or any of our subsidiaries to our bank cannot
      exceed $75.0 million in the aggregate at any time when loans are outstanding
      under the revolving credit facility.


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In
      addition to our credit facility, we have accessed the private placement debt
      markets. On February 27, 2006, we issued $215.0 million in unsecured notes,
      with
      principal payable in full in ten years and interest payments made semiannually
      at a rate of 5.99%. A closing fee of $365,000 was paid at closing. Covenants
      related to this agreement include the following:





·
            A
                consolidated adjusted net worth in an amount not less than the sum
                of (i)
                $350 million plus (ii) 25% of positive consolidated net earnings
                on a
                cumulative basis for each fiscal year beginning with the fiscal year
                ended
                2005.·
            A
                fixed charge coverage ratio (the ratio of consolidated cash flow
                to
                consolidated fixed charges for each period of four consecutive fiscal
                quarters) of no less than 2.00 to 1.00 as of the last day of any
                fiscal
                quarter.·
            A
                consolidated funded debt to total funded capitalization of no more
                than
                60%.





In
      September 2002, we issued $125.0 million in senior unsecured notes bearing
      interest at a fixed rate of 4.95%, repayable in five annual installments of
      $25.0 million beginning on September 5, 2005. The aggregate principal balance
      on
      these notes as of April 1, 2006 was $100.0 million. These notes require that
      we
      comply with several financial and other covenants, including requirements that
      we maintain the following financial ratios as set forth in the note purchase
      agreements:





·
            A
                consolidated adjusted net worth in an amount not less than the sum
                of (i)
                $150 million plus (ii) 25% of positive consolidated net earnings
                on a
                cumulative basis for each fiscal year beginning with the fiscal year
                ended
                2002.·
            A
                fixed charge coverage ratio (the ratio of consolidated cash flow
                to
                consolidated fixed charges for each period of four consecutive fiscal
                quarters) of no less than 2.00 to 1.00 as of the last day of any
                fiscal
                quarter.





In
      addition, we agreed to a limitation that our subsidiaries, excluding the bank,
      and we may not create, issue, assume, guarantee or otherwise assume funded
      debt
      in excess of 60% of consolidated total capitalization.





As
      of
      April 1, 2006, we were in compliance with all of the covenants under our credit
      agreement and unsecured notes. We may or may not engage in future long-term
      borrowing transactions to fund our operations or our growth plans. Whether
      or
      not we undertake such borrowings will depend on a variety of factors, including
      prevailing interest rates, our retail growth plans, our financial strength,
      alternative sources and costs of funding and our management's assessment of
      potential returns on investment that may be realized from the proceeds of such
      borrowings.





**Off-Balance
      Sheet Arrangements**





*Operating
      leases -* We
      lease
      various items of office equipment and buildings, all of which are recorded
      in
      our selling, general and administrative expenses.





*Credit
      Card Limits -* The
      bank
      bears off-balance sheet risk in the normal course of its business. One form
      of
      this risk is through the bank's commitment to extend credit to cardholders
      up to
      the maximum amount of their credit limits. The aggregate of such potential
      funding requirements totaled $7.8 billion and $7.5 billion as of April 1, 2006
      and December 31, 2005, respectively, which amounts were in addition to existing
      balances cardholders had at such dates. These funding obligations are not
      included on our consolidated balance sheet. While the bank has not experienced,
      and does not anticipate that it will experience, a significant draw down of
      unfunded credit lines by customers, a significant draw down would create a
      cash
      need at the bank which likely could not be met by our available cash and funding
      sources. The bank has the right to reduce or cancel these available lines of
      credit at any time.






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*Securitizations
      -* All
      of
      the bank's securitization transactions have been accounted for as sale
      transactions and the credit card loans relating to those pools of assets are
      not
      reflected on our consolidated balance sheet.





**Seasonality**





Our
      business is seasonal in nature and interim results may not be indicative of
      results for the full year. Due to holiday buying patterns, and hunting and
      fishing season openings across the country, merchandise sales are typically
      higher in the third and fourth quarters than in the first and second quarters.
      We anticipate our sales will continue to be seasonal in nature.





**Item
      3.** **Quantitative
      and Qualitative Disclosures About Market Risk.**





We
      are
      exposed to interest rate risk through our bank's operations and, to a lesser
      extent, through our merchandising operations. We also are exposed to foreign
      currency risk through our merchandising operations.





**Financial
      Services Interest Rate Risk**





Interest
      rate risk refers to changes in earnings or the net present value of assets
      and
      off-balance sheet positions less liabilities (termed "economic value of equity")
      due to interest rate changes. To the extent that interest income collected
      on
      managed loans and interest expense do not respond equally to changes in interest
      rates, or that rates do not change uniformly, securitization earnings and
      economic value of equity could be affected. Our net interest income on managed
      credit card loans is affected primarily by changes in short term interest rate
      indices such as LIBOR and prime rate. The variable rate credit card loans are
      indexed to the prime rate. Securitization certificates and notes are indexed
      to
      LIBOR-based rates of interest and are periodically repriced. Certificate of
      deposits are priced at the current prevailing market rate at the time of
      issuance. We manage and mitigate our interest rate sensitivity through several
      techniques, but primarily by modifying the contract terms with our cardholders,
      including interest rates charged, in response to changing market conditions.
      Additional techniques we use include managing the maturity, repricing and
      distribution of assets and liabilities by issuing fixed rate securitization
      certificates and notes and by entering into interest rate swaps to hedge our
      fixed rate exposure from interest strips. ** The
      table
      below shows the mix of account balances at each interest rate at each period
      presented.




**April
                  1,**
                **2006**
              **December
                  31,**
                **2005**
              **April
                  2,**
                **2005***As
                  a percentage of total balances outstanding*Balances
                  carrying interest rate based upon the national prime lending
                  rate.
              61.9%
              58.0%
              61.4%Balances
                  carrying an interest rate of 9.99%.
              2.8%
              3.0%
              2.7%Balances
                  carrying an interest rate of 0.00%
              0.1%
              0.1%
              0.0%Balances
                  not carrying interest because their previous month's balance was
                  paid in
                  full.
              35.2%
              38.9%
              35.9%





Charges
      on the credit cards issued by our Financial Services segment are priced at
      a
      margin over the defined national prime lending rate, subject to certain interest
      rate floors, except purchases of Cabela’s merchandise, certain other charges and
      balance transfer programs, which are financed at a fixed interest rate of 9.99%.
      No interest is charged if the account is paid in full within 20 days of the
      billing cycle.





Management
      has performed an interest rate gap analysis to measure the effects of the timing
      of the repricing of our interest sensitive assets and liabilities. Based on
      this
      analysis, we believe that if there had been an immediate 100 basis point, or
      1.0%, increase in the market rates for which our assets and liabilities are
      indexed during the next twelve months, our projected operating results would
      not
      be materially affected. Management also has performed a projected interest
      rate
      gap analysis for the same future twelve month period to measure the effects
      of a
      change in the spread between the prime interest rate and the LIBOR interest
      rate. Based on this analysis, we believe that an immediate 50 basis point,
      or
      0.5%, decrease or increase in this spread would cause a decrease or increase
      of
      $4.0 million to $4.2 million on the projected pre-tax income of our Financial
      Services segment over the next twelve months, which could have a material effect
      on our operating results.


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**Merchandising
      Interest Rate Risk**





One
      of
      our economic development bond agreements is priced at a variable interest rate
      with its base rate tied to prime rate and adjusted annually in November. Changes
      in the prime rate from November 2004 to November 2005 increased our interest
      income by approximately $0.4 million. The change in rate at November 2005 will
      increase interest income in 2006 by approximately $1.3 million. Interest rate
      changes on our variable rate bonds could have a material impact on our pre-tax
      income.





The
      interest payable on our line of credit is based on variable interest rates
      and
      therefore affected by changes in market interest rates. If interest rates on
      existing variable rate debt rose 1%, our results from operations and cash flows
      would not be materially affected.





**Foreign
      Currency Risk**





We
      purchase a significant amount of inventory from vendors outside of the U.S.
      in
      transactions that are primarily U.S. dollar transactions. A small percentage
      of
      our international purchase transactions are in currencies other than the U.S.
      dollar. Any currency risks related to these transactions are immaterial to
      us. A
      decline in the relative value of the U.S. dollar to other foreign currencies
      could, however, lead to increased merchandise costs.





**Item
      4.** **Controls
      and Procedures** .





Under
      the
      direction of our Chief Executive Officer and Chief Financial Officer, we
      evaluated our disclosure controls and procedures and internal control over
      financial reporting and concluded that (i) our disclosure controls and
      procedures were effective as of April 1, 2006, and (ii) no change in internal
      control over financial reporting occurred during the quarter ended April 1,
      2006, that has materially affected, or is reasonably likely to materially
      affect, such internal control over financial reporting.











**PART
      II - OTHER INFORMATION**





**Item
      1** **.** **Legal
      Proceedings.**





We
      are
      party to certain lawsuits in the ordinary course of our business. The subject
      matter of these proceedings primarily includes commercial disputes, employment
      issues and product liability lawsuits. We do not believe that the ultimate
      dispositions of these proceedings, individually or in the aggregate, will have
      a
      material adverse effect on our consolidated financial position, results of
      operations or liquidity .





**Item
      1****A** **.** **Risk
      Factors.**





There
      have been no material changes from the risk factors disclosed in the “Risk
      Factors” section of our Annual Report on Form 10-K for the fiscal year ended
      December 31, 2005.




**Item
      2.** **Unregistered
      Sales of Equity Securities and Use of Proceeds.**





Not
      applicable.





**Item
      3.** **Defaults
      Upon Senior Securities.**





Not
      applicable.





**Item
      4.** **Submission
      of Matters to Vote of Security Holders.**





Not
      applicable.





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**Item
      5.** **Other
      Information.**





Not
      applicable.





**Item
      6. Exhibits.**





(a)
            Exhibits.




Exhibit
              Number
            Description31.1
            Certification
                of CEO Pursuant to Rule 13a-14(a) under the Exchange
                Act31.2
            Certification
                of CFO Pursuant to Rule 13a-14(a) under the Exchange
                Act32
            Certifications
                Pursuant to 18 U.S.C. Section 1350





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SIGNATURES





Pursuant
      to
      the requirements of the Securities Exchange Act of 1934, the registrant has
      duly
      caused this report to be signed on its behalf by the undersigned thereunto
      duly
      authorized.








CABELA'S
                INCORPORATEDDated:
                May 5, 2006
            By:
            /s/
                Dennis HighbyDennis
                HighbyPresident
                and Chief Executive OfficerDated:
                May 5, 2006
            By:
            /s/
                Ralph W. CastnerRalph
                W. CastnerVice
                President and Chief Financial
                Officer











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EXHIBIT
      INDEX





Exhibit
              Number
            Description31.1
            Certification
                of CEO Pursuant to Rule 13a-14(a) under the Exchange
                Act31.2
            Certification
                of CFO Pursuant to Rule 13a-14(a) under the Exchange
                Act32
            Certifications
                Pursuant to 18 U.S.C. Section 1350








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