**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 July 2, 2005





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 an accelerated filer (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: 64,922,518 shares, including 8,073,205 shares
      of
      non-voting common stock, as of August 1, 2005.








CABELA’S
      INCORPORATED


FORM
      10-Q


QUARTERLY
      PERIOD ENDED JULY 2, 2005


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
            17Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            34Item
                4.
            Controls
                and Procedures
            35PART
                II - OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            36Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            36Item
                3.
            Defaults
                Upon Senior Securities
            36Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            36Item
                5.
            Other
                Information
            36Item
                6.
            Exhibits
            36SIGNATURES
            37INDEX
                TO EXHIBITS
            38





2





**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)****July
                2,**
            
            **January
                1,****ASSETS**
            
            **2005**
            
            **2005**CURRENT
                ASSETS:Cash
                and cash equivalents
            
            $
            71,068
            
            $
            248,184Accounts
                receivable, net of allowance for doubtful accounts of $1,143 at July
                2,
                2005, and $1,483 at
              January 1, 2005
            
            
            29,270
            
            
            33,524Credit
                card loans receivable held for sale (Note 3)
            
            
            59,463
            
            
            64,019Credit
                card loans receivable, net of allowance of $88 and $65 at July 2,
                2005 and
                January 1, 2005 (Note 3)
            
            
            8,189
            
            
            5,209Inventories
            
            
            411,016
            
            
            313,002Prepaid
                expenses and deferred catalog costs
            
            
            36,720
            
            
            31,294Deferred
                income taxes
            
            
            1,438
            
            
            2,240Other
                current assets
            
            
            38,059
            
            
            31,015Total
                current assets
            
            
            655,223
            
            
            728,487PROPERTY
                AND EQUIPMENT, NET
            
            
            438,916
            
            
            294,141OTHER
                ASSETS:Intangible
                assets, net
            
            
            3,991
            
            
            4,555Land
                held for sale or development
            
            
            10,527
            
            
            18,153Retained
                interests in securitized receivables (Note 3)
            
            
            31,062
            
            
            28,723Marketable
                securities
            
            
            163,066
            
            
            145,587Investment
                in equity method investee
            
            
            375
            
            
            830Other
            
            
            7,964
            
            
            7,755Total
                other assets
            
            
            216,985
            
            
            205,603Total
                assets
            
            $
            1,311,124
            
            $
            1,228,231**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**CURRENT
                LIABILITIES:Accounts
                payable
            
            $
            160,856
            
            $
            100,826Unpresented
                checks net of bank balance
            
            
            13,944
            
            
            34,653Accrued
                expenses and other liabilities
            
            
            37,896
            
            
            50,264Gift
                certificates and credit card reward points
            
            
            92,916
            
            
            97,242Accrued
                employee compensation and benefits
            
            
            32,177
            
            
            54,925Time
                deposits
            
            
            41,442
            
            
            48,953Revolving
                credit borrowings
            
            
            102,000
            
            
            -Current
                maturities of long-term debt
            
            
            28,731
            
            
            28,327Income
                taxes payable
            
            
            26,246
            
            
            38,551Total
                current liabilities
            
            
            536,208
            
            
            453,741LONG-TERM
                LIABILITIES:Long-term
                debt, less current maturities
            
            
            117,477
            
            
            119,825Long-term
                time deposits
            
            
            38,465
            
            
            51,706Deferred
                compensation
            
            
            9,847
            
            
            8,614Deferred
                grant income
            
            
            11,038
            
            
            11,366Deferred
                income taxes
            
            
            16,358
            
            
            16,625Total
                long-term liabilities
            
            
            193,185
            
            
            208,136COMMITMENTS
                AND CONTINGENCIES (Note 10)STOCKHOLDERS’
                EQUITY:Common
                stock, $0.01 par value:Class
                A Voting, 245,000,000 shares authorized; 56,592,690 and 56,494,975
                shares
                issued and
              outstanding at July 2, 2005 and January 1, 2005,
                respectively
            
            
            567
            
            
            566Class
                B Non-voting, 245,000,000 shares authorized; 8,073,205 and 8,073,205
                shares issued and
              outstanding at July 2, 2005 and January 1, 2005,
                respectively
            
            
            80
            
            
            80Preferred
                stock, 10,000,000 shares authorized, no shares issued or
                outstanding
            
            
            -
            
            
            -Additional
                paid-in capital
            
            
            238,157
            
            
            236,198Retained
                earnings
            
            
            340,576
            
            
            326,794Accumulated
                other comprehensive income
            
            
            2,351
            
            
            2,716Total
                stockholders’ equity
            
            
            581,731
            
            
            566,354Total
                liabilities and stockholders’ equity
            
            $
            1,311,124
            
            $
            1,228,231See
                notes to unaudited consolidated financial
                statements.








3
 Table
          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**
            
            **Six
                months ended****July
                2,**
            
            **July
                3,**
            
            **July
                2,**
            
            **July
                3,****2005**
            
            **2004**
            
            **2005**
            
            **2004**REVENUES:Merchandise
                sales
            
            $
            292,382
            
            $
            262,326
            
            $
            618,977
            
            $
            558,685Financial
                services revenue
            
            
            30,418
            
            
            14,986
            
            
            53,334
            
            
            31,433Other
                revenue
            
            
            21,072
            
            
            1,827
            
            
            22,150
            
            
            2,938Total
                revenues
            
            
            343,872
            
            
            279,139
            
            
            694,461
            
            
            593,056COST
                OF REVENUE:Cost
                of merchandise sales
            
            
            188,848
            
            
            170,823
            
            
            402,217
            
            
            357,796Cost
                of other revenue
            
            
            19,864
            
            
            1,463
            
            
            19,856
            
            
            3,165Total
                cost of revenue (exclusive of depreciation and
              amortization)
            
            
            208,712
            
            
            172,286
            
            
            422,073
            
            
            360,961Gross
                profit
            
            
            135,160
            
            
            106,853
            
            
            272,388
            
            
            232,095SELLING,
                GENERAL AND ADMINISTRATIVE EXPENSES
            
            
            126,338
            
            
            103,621
            
            
            252,543
            
            
            216,160OPERATING
                INCOME
            
            
            8,822
            
            
            3,232
            
            
            19,845
            
            
            15,935OTHER
                INCOME (EXPENSE):Interest
                income
            
            
            16
            
            
            23
            
            
            450
            
            
            137Interest
                expense
            
            
            (2,435
            )
            
            (2,025
            )
            
            (4,505
            )
            
            (4,045
            )Other
                income, net
            
            
            2,939
            
            
            1,750
            
            
            5,612
            
            
            3,330520
            
            
            (252
            )
            
            1,557
            
            
            (578
            )INCOME
                BEFORE PROVISION FOR INCOME TAXES
            
            
            9,342
            
            
            2,980
            
            
            21,402
            
            
            15,357INCOME
                TAX EXPENSE
            
            
            3,326
            
            
            993
            
            
            7,619
            
            
            5,324NET
                INCOME
            
            $
            6,016
            
            $
            1,987
            
            $
            13,783
            
            $
            10,033EARNINGS
                PER SHARE:Basic
            
            $
            0.09
            
            $
            0.03
            
            $
            0.21
            
            $
            0.17Diluted
            
            $
            0.09
            
            $
            0.03
            
            $
            0.21
            
            $
            0.17WEIGHTED
                AVERAGE SHARES OUTSTANDING:Basic
            
            
            64,648,768
            
            
            58,223,489
            
            
            64,618,424
            
            
            57,529,535Diluted
            
            
            66,267,571
            
            
            59,906,085
            
            
            66,282,574
            
            
            59,373,374


See
      notes
      to unaudited consolidated financial statements.


4
 Table
          of Contents





**CABELA’S
                INCORPORATED AND SUBSIDIARIES**
              **CONSOLIDATED
                STATEMENTS OF CASH FLOWS**
              **(Dollar
                Amounts in Thousands)**
              **(Unaudited)****Six
                Months Ended****July
                2,**
            
            **July
                3,****2005**
            
            **2004**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            13,783
            
            $
            10,033Adjustments
                to reconcile net income to net cash flows from operating
                activities:Depreciation
            
            
            15,621
            
            
            13,819Amortization
            
            
            564
            
            
            640Stock
                based compensation
            
            
            470
            
            
            418Equity
                in undistributed net (earnings) losses of equity method
                investee
            
            
            (129
            )
            
            (177
            )Deferred
                income taxes
            
            
            736
            
            
            (992
            )Other
            
            
            1,012
            
            
            766Change
                in operating assets and liabilities:Accounts
                receivable
            
            
            3,338
            
            
            3,612Origination
                of credit card loans held for sale, net of collections
            
            
            4,556
            
            
            (52,550
            )Inventories
            
            
            (98,014
            )
            
            (55,593
            )Prepaid
                expenses
            
            
            (5,426
            )
            
            (1,912
            )Other
                current assets
            
            
            (7,279
            )
            
            6,124Land
                held for sale or development
            
            
            7,626
            
            
            411Accounts
                payable
            
            
            13,453
            
            
            (5,810
            )Accrued
                expenses and other liabilities
            
            
            (12,481
            )
            
            (13,108
            )Gift
                certificates and credit card reward points
            
            
            (4,326
            )
            
            (2,594
            )Accrued
                compensation and benefits
            
            
            (22,748
            )
            
            (30,844
            )Income
                taxes payable
            
            
            (12,195
            )
            
            (7,114
            )Deferred
                grant income
            
            
            (328
            )
            
            224Deferred
                compensation
            
            
            1,233
            
            
            1,518Net
                cash flows from operating activities
            
            
            (100,534
            )
            
            (133,129
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Capital
                expenditures
            
            
            (113,994
            )
            
            (19,306
            )Purchases
                of marketable securities
            
            
            (19,525
            )
            
            (33,564
            )Change
                in credit card loans receivable
            
            
            (3,111
            )
            
            -Change
                in retained interests
            
            
            (2,339
            )
            
            (653
            )Maturities
                of marketable securities
            
            
            1,828
            
            
            1,487Other
            
            
            584
            
            
            1,195Net
                cash flows from investing activities
            
            
            (136,557
            )
            
            (50,841
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Advances
                on line of credit
            
            
            149,713
            
            
            53,106Payments
                on line of credit
            
            
            (47,713
            )
            
            (53,106
            )Proceeds
                from issuance of long-term debt
            
            
            -
            
            
            99Payments
                on long-term debt
            
            
            (1,944
            )
            
            (1,676
            )Change
                in unpresented checks net of bank balance
            
            
            (20,709
            )
            
            (20,573
            )Change
                in time deposits, net
            
            
            (20,752
            )
            
            2,795Net
                (decrease) increase in employee savings plan
            
            
            -
            
            
            (1,083
            )Issuance
                of common stock for initial public offering, net of transaction costs
                of
                $2,281
            
            
            -
            
            
            115,281Issuance
                of common stock pursuant to employee benefit plans
            
            
            1,380
            
            
            9,490Repurchase
                of common stock
            
            
            -
            
            
            (1,273
            )Net
                cash flows from financing activities
            
            
            59,975
            
            
            103,060NET
                DECREASE IN CASH AND CASH EQUIVALENTS
            
            
            (177,116
            )
            
            (80,910
            )CASH
                AND CASH EQUIVALENTS, Beginning of Year
            
            
            248,184
            
            
            192,581CASH
                AND CASH EQUIVALENTS, End of Period
            
            $
            71,068
            
            $
            111,671See
                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 January 1, 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 2004.





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





The
      Company follows Accounting Principles Board (“APB”) Opinion No. 25, *Accounting
      for Stock Issued to Employees* and
      related interpretations. The Company has adopted the disclosure-only provisions
      of SFAS No. 123, *Accounting
      for Stock-Based Compensation* ,
      as
      amended by SFAS No. 148, *Accounting
      for Stock-Based Compensation - Transition and Disclosure* .
      Under
      SFAS No. 123, the fair value of stock option awards to employees is calculated
      through the use of option pricing models, even though such models were developed
      to estimate the fair value of freely tradable, fully transferable options
      without vesting restrictions, which differ from the Company’s stock option
      awards. These models also require subjective assumptions, including future
      stock
      price volatility and expected time to exercise, which affect the calculated
      values. The Company’s calculations are based on a single option valuation
      approach and forfeitures are recognized as they occur. Stock-based compensation
      costs are reflected in net income where the options granted under those plans
      had an exercise price that is less than the fair value of the underlying common
      stock on the date of grant.





For
      purposes of pro forma disclosures, the estimated fair value of the options
      granted is amortized to expense over the options’ vesting period. On April 14,
      2005, 678,000 options were granted that vested immediately. The Company’s pro
      forma net income and earnings per share for the three months and six months
      ended July 2, 2005 and July 3, 2004 were as follows:





**Three
                Months Ended**
            
            **Six
                Months Ended****July
                2,**
            
            **July
                3,**
            
            **July
                2,**
            
            **July
                3,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Net
                income - as reported
            
            $
            6,016
            
            $
            1,987
            
            $
            13,783
            
            $
            10,033Add:
                Stock based employee compensation recognized, net of tax
            
            
            152
            
            
            272
            
            
            303
            
            
            272Deduct:
                Total stock-based employee compensation
              expense
                determined under fair value based method
              for
                all awards, net of tax
            
            
            (4,730
            )
            
            (1,004
            )
            
            (5,428
            )
            
            (1,161
            )Net
                income - pro forma
            
            $
            1,438
            
            $
            1,255
            
            $
            8,658
            
            $
            9,144Earnings
                per share:Basic
                - as reported
            
            $
            0.09
            
            $
            0.03
            
            $
            0.21
            
            $
            0.17Basic
                - proforma
            
            $
            0.02
            
            $
            0.02
            
            $
            0.13
            
            $
            0.16Diluted
                - as reported
            
            $
            0.09
            
            $
            0.03
            
            $
            0.21
            
            $
            0.17Diluted
                - proforma
            
            $
            0.02
            
            $
            0.02
            
            $
            0.13
            
            $
            0.15


6
 Table
          of Contents


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 3.99% and the
      expected term was 4.5 years. Prior to the May 1, 2004 option grants, the Company
      used a binomial model and did not include a volatility factor.





**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 and six months ended July 2, 2005 and July 3, 2004, WFB recognized
      gains on sale of $3,796, $1,129, $7,711 and $2,833, respectively, which are
      reflected as a component of credit card securitization income.





***Retained
      Interests -*** Retained
      interests in securitized receivables, which are carried at fair value, consisted
      of the following at July 2, 2005 and January 1, 2005:





**July
                2,**
            
            **January
                1,****2005**
            
            **2005**Cash
                reserve account
            
            $
            15,742
            
            $
            16,158Interest-only
                strip
            
            
            12,648
            
            
            10,003Class
                B certificates
            
            
            2,672
            
            
            2,562$
            31,062
            
            $
            28,723





Credit
      card loans held for sale and credit card loans receivable consisted of the
      following at July 2, 2005 and January 1, 2005:





**July
                2,**
            
            **January
                1,****2005**
            
            **2005**Composition
                of credit card loans held for sale and credit card loans
                receivable:Loans
                serviced
            
            $
            1,090,887
            
            $
            1,083,120Loans
                securitized
            
            
            (1,019,000
            )
            
            (1,010,000
            )Securitized
                receivables with certificates owned by WFB
            
            
            (2,672
            )
            
            (2,562
            )69,215
            
            
            70,558Less
                adjustment to market value and allowance for loan losses
            
            
            (1,563
            )
            
            (1,330
            )$
            67,652
            
            $
            69,228Delinquent
                loans in the managed credit card loan portfolio at July 2, 2005
              and January 1, 2005:30-89
                days
            
            $
            5,020
            
            $
            5,59190
                days or more and still accruing
            
            $
            1,498
            
            $
            2,098








7
 Table
          of Contents





**Three
                Months Ended**
            
            **Six
                Months Ended****July
                2,**
            
            **July
                3,**
            
            **July
                2,**
            
            **July
                3,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Total
                net charge-offs on the managed credit card loan portfolio for the
                three
                months and six months ended July 2, 2005 and July 3, 2004
            
            $
            5,833
            
            $
            4,775
            
            $
            11,158
            
            $
            9,585Quarterly
                average credit card loans:Managed
                credit card loans
            
            $
            1,038,465
            
            $
            852,828
            
            $
            1,022,452
            
            $
            840,471Securitized
                credit card loans including seller's interest
            
            
            1,020,025
            
            
            842,086
            
            
            1,004,472
            
            
            830,785Total
                net charge-offs as an annualized percentage of average managed
                loans
            
            
            2.25
            %
            
            2.24
            %
            
            2.18
            %
            
            2.28
            %





**4.**  **DEBT**





During
      the three and six months ended July 2, 2005, the Company had an unsecured
      revolving credit agreement with several banks for $230,000. This credit
      agreement was amended and restated on July 15, 2005, and the details of the
      new
      credit agreement are discussed in footnote 14 below. The agreement in place
      throughout the six months ended July 2, 2005 provided for a London Interbank
      Offered Rates (“LIBOR”) based rate of interest plus a spread, which adjusted
      based upon certain financial ratios achieved by the Company and ranged between
      0.80% to 1.425%. During the term of the facility, the Company was required
      to
      pay a facility fee, which ranged from 0.125% to 0.25%. The credit agreement
      permitted the issuance of up to $100,000 in letters of credit and standby
      letters of credit, which were applied against  the
      overall credit limit available under the revolver. There was $102,000
      outstanding on the line of credit, and $71,406 outstanding on letters of credit
      and standby letters of credit, at July 2, 2005. The weighted average interest
      rate on the line of credit was 4.33% during the three months ended July 2,
      2005.
      The agreement contained several provisions that, among other things, required
      the maintenance of certain financial ratios and net worth, and limited the
      payment of dividends. The significant financial ratios and net worth
      requirements in the credit agreement were as follows:





·
            A
                current consolidated assets to current consolidated liabilities ratio
                of
                no less than 1.15 to 1.00 as of the last day of any fiscal
                year;





·
            A
                fixed charge coverage ratio (the ratio of the sum of consolidated
                EBITDA
                plus certain rental expenses to the sum of consolidated cash interest
                expense plus certain rental expenses) of no less than 2.00 to 1.00
                as of
                the last day of any fiscal quarter;





·
            A
                cash flow leverage ratio of no more than 2.50 to 1.00 as of the last
                day
                of any fiscal quarter; and





·
            A
                minimum tangible net worth of no less than $300,000 plus 50% of positive
                consolidated net earnings on a cumulative basis for each fiscal year
                beginning with fiscal year ended 2004 as of the last day of any fiscal
                quarter. Tangible net worth is equity less intangible
                assets.





In
      addition, the credit agreement contained cross default provisions to other
      outstanding debt. In the event the Company failed to comply with these covenants
      and the failure to comply extended beyond 30 days, a default was triggered.
      In
      the event of default, all outstanding letters of credit and all principal and
      outstanding interest would immediately become due and payable.





8
 Table
          of Contents


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





On
      October 7, 2004, WFB entered into 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. The interest rate for the line of credit is based on the
      current Federal funds rate. There were no amounts outstanding as of July 2,
      2005.





On
      October 8, 2004, WFB entered into an unsecured Federal Funds Line of Credit
      agreement with a financial institution. All Federal Funds transactions are
      on a
      daily origination and return basis. 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 July 2, 2005.





**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 and six months ended July 2, 2005 and July 3, 2004, there was
      ineffectiveness associated with the Company’s foreign currency derivatives
      designated as cash flow hedges of $113 before taxes. The Company did not
      discontinue any contracts in the three months ended July 2, 2005, but
      discontinued one contract in the six months ended July 2, 2005 for which a
      small
      gain of less than one thousand dollars was recorded in earnings.





Generally,
      the Company hedges a portion of its anticipated inventory purchases for periods
      up to twelve months. As of July 2, 2005, the Company has hedged certain portions
      of its anticipated inventory purchases through December 2005.





The
      fair
      value of foreign currency derivative assets or liabilities is recognized within
      other current assets or other current liabilities. As of July 2, 2005 and
      January 1, 2005, the fair value of foreign currency derivative assets was $0
      and
      $235, respectively, and the fair value of foreign currency derivative
      liabilities was $113 and $0, respectively.





As
      of
      July 2, 2005 and January 1, 2005, the net deferred loss recognized in
      accumulated other comprehensive income/(loss) was $(224) and $(205), net of
      tax,
      respectively. The Company anticipates a loss of $73, net of tax, will be
      transferred out of accumulated other comprehensive income and recognized within
      earnings over the next twelve months. Gains or losses of $55, $(21), $(7) and
      $(177), net of tax, were transferred from accumulated other comprehensive income
      into cost of revenues for the three months and six months ended July 2, 2005
      and
      July 3, 2004, respectively.





***Interest
      Rate Management*** -
      On
      February 4, 2003, in connection with the Series 2003-1 term securitization,
      the
      securitization 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 July 2, 2005, market value was
      determined to be zero. WFB pays Cabela’s a fee for the credit enhancement
      provided by this swap, which was $152, $151, $302 and $303, for the three months
      and six months ended July 2, 2005 and July 3, 2004, respectively.





9
 Table
          of Contents


**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 6,000 options outstanding that were considered anti-dilutive for
      the
      three months and six months ended July 2, 2005. The following table reconciles
      the number of shares utilized in the earnings per share calculations:





**Three
                Months Ended**
            
            **Six
                Months Ended****July
                2,**
            
            **July
                3,**
            
            **July
                2,**
            
            **July
                3,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Weighted
                average number of shares:Common
                shares - basic
            
            
            64,648,768
            
            
            58,223,489
            
            
            64,618,424
            
            
            57,529,535Effect
                of dilutive securities:Stock
                options
            
            
            1,618,803
            
            
            1,682,596
            
            
            1,664,150
            
            
            1,843,839Common
                shares - diluted
            
            
            66,267,571
            
            
            59,906,085
            
            
            66,282,574
            
            
            59,373,374





**7.**
            **STOCKHOLDERS’
                EQUITY**





In
      March
      2004, the Company adopted the Cabela’s Incorporated 2004 Stock Plan. The 2004
      Stock 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.
      Subject to adjustment in the event of a stock split, consolidation or stock
      dividend, a maximum of 2,752,500 shares of common stock may be subject to awards
      under the 2004 Stock Plan. During any three-year period, no one person will
      be
      able to receive more than 734,000 options and/or stock appreciation rights.
      For
      awards subject to performance requirements no one person will be able to receive
      more than 734,000 shares during any performance period of 36 months, with
      proportionate adjustment for shorter or longer periods not to exceed five years.
      The options 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. If incentive stock options are granted
      to a
“ten percent holder,” then the options will have a term of no greater than five
      years from the grant date. A “ten percent holder” is defined as a person who
      owns stock possessing more than 10% of the total combined voting power of all
      classes of capital stock of the Company. As of July 2, 2005, there were
      2,015,036 shares of common stock subject to outstanding options under this
      plan
      and 724,619 shares of common stock available for future awards.





In
      March
      2004, the Company adopted an Employee Stock Purchase Plan, 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 plan
      is 1,835,000, subject to adjustment in the event of a stock split,
      consolidation, or stock dividends of the Company’s common stock. Employees who
      own more than 5% of the combined voting power of all classes of the Company’s
      stock or stock of a subsidiary cannot participate in the plan. The right to
      purchase stock under this plan became effective upon the completion of the
      Company’s initial public offering. As of July 2, 2005, 80,087 shares had been
      issued under the Stock Purchase Plan and 1,754,913 were available for
      issuance.





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 July 2, 2005, there were
      56,831,236 shares of Class A voting common stock outstanding, including 238,546
      shares of unvested early exercised options, and 8,073,205 shares of Class B
      non-voting common stock outstanding.





10
 Table
          of Contents


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





**Three
                Months Ended**
            
            **Six
                Months Ended****July
                2,**
            
            **July
                3,**
            
            **July
                2,**
            
            **July
                3,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Net
                income
            
            $
            6,016
            
            $
            1,987
            
            $
            13,783
            
            $
            10,033Change
                in net unrealized holding gain or (loss) on marketable securities,
                net of
                tax of $30 and $971 for the three month periods and $(60) and $971
                for the
                six month periods ended July 2, 2005 and July 3, 2004,
                respectively.
            
            
            55
            
            
            1,765
            
            
            (108
            )
            
            1,765Less:
                adjustment for net realized gain or (loss) on marketable securities,
                net
                of tax of $(8) and $38 for the three month periods and $(17) and
                $38 for
                the six month periods ended July 2, 2005 and July 3, 2004,
                respectively.
            
            
            (16
            )
            
            68
            
            
            (33
            )
            
            68Change
                in net unrealized holding gain or (loss) on derivatives, net of tax
                of
                $(74) and $(27) for the three month periods and $(120) and $(68)
                for the
                six month periods ended July 2, 2005 and July 3, 2004,
                respectively.
            
            
            (134
            )
            
            (48
            )
            
            (217
            )
            
            (122
            )Less:
                adjustment for reclassification of derivative included in net income,
                net
                of tax of $30 and $(11) for the three month periods and $(4) and
                $(97) for
                the six month periods ended July 2, 2005 and July 3, 2004,
                respectively.
            
            
            55
            
            
            (21
            )
            
            (7
            )
            
            (177
            )Comprehensive
                income
            
            $
            5,976
            
            $
            3,751
            
            $
            13,418
            
            $
            11,567





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





A
      prior
      member of the Company’s board of directors is an attorney with a firm that the
      Company utilizes in the course of its legal needs throughout the year. All
      activity is at arms-length rates and reviewed and approved by a Vice President
      prior to payment. Fees paid to this board member’s firm totaled $126 through
      March 2, 2004, when this director resigned from the board effective
      March 2, 2004.





A
      prior
      member of the Company’s board of directors, who is now an emeritus director, is
      an attorney with a firm that the Company utilizes in the course of its legal
      needs throughout the year. All activity is at arms-length rates and reviewed
      and
      approved by a Vice President prior to payment. Fees paid to this individual’s
      firm totaled $6, $40, $6 and $40 in the three months and six months ended July
      2, 2005 and July 3, 2004, respectively.





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 and six months ended July 2, 2005,
      respectively.





The
      Company entered into an employee and office space lease agreement with the
      Company’s Board Chairman, dated January 1, 2004, pursuant to which he leases the
      services of certain Company employees and associated office space from the
      Company. This agreement terminated on December 31, 2004. The Company entered
      into a new 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 and six months ended
      July 2, 2005 and July 3, 2004, total reimbursements for these expenses were
      $81,
      $53, $152 and $111, respectively.





11
 Table
          of Contents


**10.**
            **CONTINGENCIES**





***Litigation*** - The
      Company is engaged in various legal actions arising in the ordinary course
      of
      business. After taking into consideration legal counsel’s evaluation of such
      actions, management is of the opinion that the ultimate outcome of these actions
      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 $4,290 and $4,168 has been estimated and recorded at July 2, 2005 and January
      1, 2005, respectively, for those claims incurred prior to the end of the
      respective periods but not yet reported.





The
      Company is also self-insured for workers compensation claims up to $500 per
      individual. A liability of $2,009 and $1,913 has been estimated and recorded
      at
      July 2, 2005 and January 1, 2005, respectively





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 twelve 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 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 promotion, 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 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.





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 distribution inventory, and shared technology
      infrastructure as well as corporate cash and cash equivalents, prepaid expenses
      and $375 of investment in equity method investee. Segment depreciation and
      amortization and capital expenditures 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 revenues between the segments have
      been eliminated in the consolidations.





12
 Table
          of Contents





**Three
                Months Ended July 2, 2005**
            
            **Direct**
            
            **Retail**
            
            **Financial**
              **Services**
            
            **Corporate**
              **Overhead**
              **and
                Other**
            
            **Total****(Dollars
                in thousands)**Revenue
                from external
            
            $
            182,949
            
            $
            108,756
            
            $
            30,570
            
            $
            21,597
            
            $
            343,872Revenue
                from internal
            
            
            283
            
            
            394
            
            
            (152
            )
            
            (525
            )
            
            -Total
                revenue
            
            
            183,232
            
            
            109,150
            
            
            30,418
            
            
            21,072
            
            
            343,872Operating
                income (loss)
            
            
            23,233
            
            
            5,451
            
            
            17,295
            
            
            (37,157
            )
            
            8,822As
                a % of revenue
            
            
            12.7
            %
            
            5.0
            %
            
            56.9
            %
            
            N/A
            
            
            2.6
            %Depreciation
                and amortization
            
            
            1,358
            
            
            2,741
            
            
            243
            
            
            3,720
            
            
            8,062Assets
            
            
            294,459
            
            
            456,289
            
            
            204,249
            
            
            356,127
            
            
            1,311,124





**Three
                Months Ended July 3, 2004**
            
            **Direct**
            
            **Retail**
            
            **Financial**
              **Services**
            
            **Corporate**
              **Overhead**
              **and
                Other**
            
            **Total****(Dollars
                in thousands)**Revenue
                from external
            
            $
            165,545
            
            $
            96,090
            
            $
            15,137
            
            $
            2,367
            
            $
            279,139Revenue
                from internal
            
            
            324
            
            
            367
            
            
            (151
            )
            
            (540
            )
            
            -Total
                revenue
            
            
            165,869
            
            
            96,457
            
            
            14,986
            
            
            1,827
            
            
            279,139Operating
                income (loss)
            
            
            18,361
            
            
            7,572
            
            
            3,949
            
            
            (26,650
            )
            
            3,232As
                a % of revenue
            
            
            11.1
            %
            
            7.9
            %
            
            26.4
            %
            
            N/A
            
            
            1.2
            %Depreciation
                and amortization
            
            
            1,336
            
            
            2,538
            
            
            333
            
            
            3,066
            
            
            7,273Assets
            
            
            227,836
            
            
            261,260
            
            
            172,856
            
            
            359,170
            
            
            1,021,122





**Six
                Months Ended July 2, 2005**
            
            **Direct**
            
            **Retail**
            
            **Financial**
              **Services**
            
            **Corporate**
              **Overhead**
              **and
                Other**
            
            **Total****(Dollars
                in thousands)**Revenue
                from external
            
            $
            411,950
            
            $
            205,605
            
            $
            53,636
            
            $
            23,270
            
            $
            694,461Revenue
                from internal
            
            
            663
            
            
            759
            
            
            (302
            )
            
            (1,120
            )
            
            -Total
                revenue
            
            
            412,613
            
            
            206,364
            
            
            53,334
            
            
            22,150
            
            
            694,461Operating
                income (loss)
            
            
            51,772
            
            
            10,146
            
            
            28,684
            
            
            (70,757
            )
            
            19,845As
                a % of revenue
            
            
            12.5
            %
            
            4.9
            %
            
            53.8
            %
            
            N/A
            
            
            2.9
            %Depreciation
                and amortization
            
            
            2,798
            
            
            5,326
            
            
            616
            
            
            7,445
            
            
            16,185Assets
            
            
            294,459
            
            
            456,289
            
            
            204,249
            
            
            356,127
            
            
            1,311,124


13
 Table
          of Contents





**Six
                Months Ended July 3, 2004**
            
            **Direct**
            
            **Retail**
            
            **Financial**
              **Services**
            
            **Corporate**
              **Overhead**
              **and
                Other**
            
            **Total****(Dollars
                in thousands)**Revenue
                from external
            
            $
            371,050
            
            $
            186,232
            
            $
            31,736
            
            $
            4,038
            
            $
            593,056Revenue
                from internal
            
            
            643
            
            
            760
            
            
            (303
            )
            
            (1,100
            )
            
            -Total
                revenue
            
            
            371,693
            
            
            186,992
            
            
            31,433
            
            
            2,938
            
            
            593,056Operating
                income (loss)
            
            
            48,537
            
            
            18,918
            
            
            10,599
            
            
            (62,119
            )
            
            15,935As
                a % of revenue
            
            
            13.1
            %
            
            10.1
            %
            
            33.7
            %
            
            N/A
            
            
            2.7
            %Depreciation
                and amortization
            
            
            2,645
            
            
            5,075
            
            
            692
            
            
            6,047
            
            
            14,459Assets
            
            
            227,835
            
            
            261,260
            
            
            172,856
            
            
            359,171
            
            
            1,021,122





The
      components and amounts of net revenues for our Financial Services segment for
      the three and six month periods ended July 2, 2005 and July 3, 2004 were as
      follows:





**Three
                Months Ended**
            
            **Six
                Months Ended****July
                2,**
            
            **July
                3,**
            
            **July
                2,**
            
            **July
                3,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Interest
                and fee income
            
            $
            4,445
            
            $
            2,628
            
            $
            8,550
            
            $
            5,011Interest
                expense
            
            
            (790
            )
            
            (764
            )
            
            (1,613
            )
            
            (1,526
            )Net
                interest income
            
            
            3,655
            
            
            1,864
            
            
            6,937
            
            
            3,485Non-interest
                income:Securitization
                income
            
            
            33,136
            
            
            20,221
            
            
            58,919
            
            
            40,371Other
                non-interest income
            
            
            7,137
            
            
            5,715
            
            
            14,571
            
            
            11,268Total
                non-interest income
            
            
            40,273
            
            
            25,936
            
            
            73,490
            
            
            51,639Less:
                Customer reward costs
            
            
            (13,510
            )
            
            (12,814
            )
            
            (27,093
            )
            
            (23,691
            )Financial
                services revenue
            
            $
            30,418
            
            $
            14,986
            
            $
            53,334
            
            $
            31,433





The
      Company’s products are principally marketed to individuals within the United
      States. Net sales realized from other geographic markets, primarily Canada,
      have
      collectively been less than 2% 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.





14
 Table
          of Contents


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





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





**Six
                Months Ended****July
                2,**
            
            **July
                3,****2005**
            
            **2004**Non-cash
                financing and investing activities:Unpaid
                purchases of property and equipment included in accounts payable
                (1)
            
            $
            46,576
            
            $
            -Other
                cash flow information:Interest
                paid, net of amounts capitalized
            
            $
            4,111
            
            $
            5,672Income
                taxes
            
            $
            19,012
            
            $
            14,738





(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.





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





At
      the
      March 17-18, 2004 EITF meeting the Task Force reached a consensus on Issue
      No.
      03-1, *The
      Meaning of Other-Than-Temporary Impairment and Its Application to Certain
      Investments.* Issue
      03-1 provides guidance for determining when an investment is
      other-than-temporarily impaired that is incremental to the consideration in
      this
      Issue- specifically, whether an investor has the ability and intent to hold
      an
      investment until recovery. In addition, Issue 03-1 contains disclosure
      requirements that provide useful information about impairments that have not
      been recognized as other-than-temporary for investments within the scope of
      this
      Issue. The guidance for evaluating whether an investment is
      other-than-temporarily impaired should be applied in other-than-temporary
      impairment evaluations made in reporting periods beginning after June 15, 2004.
      The disclosures are effective in annual financial statements for fiscal years
      ending after December 15, 2003, for investments accounted for under SFAS No.
      115 *Accounting
      for Certain Investments in Debt and Equity Securities* and SFAS
      No. 124 *Accounting
      for Certain Investments Held by Not-for-Profit Organizations* .
      For all
      other investments within the scope of this Issue, the disclosures are effective
      in annual financial statements for fiscal years ending after June 15, 2004.
      The
      additional disclosure for cost method investments are effective for fiscal
      years
      ending after June 15, 2004. Comparative information for periods prior to initial
      application is not required. The adoption of this Issue did not have a material
      impact on the Company’s financial position, results of operations or cash flows.
      In September 2004, the FASB issued Staff Position 03-1-1 which deferred the
      effective date for the measurement and recognition guidance contained in
      paragraphs 10-20 of Issue 03-1. This delay does not suspend the requirement
      to
      recognize other-than-temporary impairments as required by existing authoritative
      literature. The delay of the effective date for paragraphs 10-20 of Issue 03-1
      will be superseded concurrent with the final issuance of FSB EITF Issue 03-1a.





On
      December 16, 2004, the FASB issued Statement No. 153, *Exchanges
      of Non-monetary Assets* ,
      an
      amendment of APB Opinion No. 29. This statement was a result of an effort by
      the
      FASB and the IASB to improve financial reporting by eliminating certain narrow
      differences between their existing accounting standards. One such difference
      was
      the exception from fair value measurement in APB Opinion No. 29, Accounting
      for
      Non-monetary Transactions, for non-monetary exchanges of similar productive
      assets. Statement 153 replaces this exception with a general exception from
      fair
      value measurement for exchanges of non-monetary assets that do not have
      commercial substance. A non-monetary exchange has commercial substance if the
      future cash flows of the entity are expected to change significantly as a result
      of the exchange. This statement shall be applied prospectively and is effective
      for non-monetary asset exchanges occurring in fiscal periods beginning after
      June 15, 2005. Earlier application is permitted for non-monetary asset exchanges
      occurring in fiscal periods beginning after the date of issuance of this
      Statement. The adoption of FASB No. 153 will not have a significant impact
      on
      the Company’s financial position, results of operations or cash
      flows.





15
 Table
          of Contents


On
      December 16, 2004, the FASB issued Statement No. 123 (revised 2004), *Share-Based
      Payment* (“Statement No. 123(R)”). Statement No. 123(R) requires all entities to
      recognize compensation expense in an amount equal to the fair value of the
      share-based payments (e.g., stock options and restricted stock) granted to
      employees or by incurring liabilities to an employee or other supplier (a)
      in
      amounts based, at least in part, on the price of the entity’s shares or other
      equity instruments or (b) that require or may require settlement by issuing
      the
      entity’s equity shares or other equity instruments. This Statement is a revision
      of FASB Statement No. 123, Accounting for Stock-Based Compensation. This
      Statement supersedes APB Opinion No. 25, Accounting for Stock Issued to
      Employees, and its related implementation guidance. This Statement was to be
      effective for public entities that do not file as small business issuers as
      of
      the beginning of the first interim or annual reporting period that begins after
      June 15, 2005. On April 14, 2005, the SEC announced the amendment of Rule
      4-01(a) of Regulation S-X that amends the compliance dates for FASB’s Statement
      No. 123(R). The SEC’s new rule allows companies to implement Statement No.
      123(R) at the beginning of their next fiscal year, instead of the next reporting
      period, that begins after June 15, 2005. The Company will evaluate the impact
      of
      this timing change on its financial statements for 2006.





On
      February 7, 2005, the SEC staff issued a letter clarifying the SEC’s position on
      application of accounting principles generally accepted in the United States
      for
      certain lease accounting rules. The letter addressed the SEC’s view of proper
      accounting for the amortization of leasehold improvements, rent holidays and
      escalations, and landlord or tenant incentives. The Company has evaluated the
      SEC’s clarification of lease accounting and the Company believes that it has
      accounted for its limited number of lease agreements appropriately.





On
      March
      29, 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”). SAB 107
      provides interpretations expressing the views of the SEC staff regarding the
      interaction between Statement No. 123(R) and certain SEC rules and regulations,
      and 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 No. 123(R).





On
      May
      30, 2005, the FASB issued Statement 154, *Change
      in Accounting Principle* (“Statement 154”), which changes the requirements for the accounting and
      reporting of a change in accounting principle. Statement 154 applies to all
      voluntary changes in accounting principle as well as to changes required by
      an
      accounting pronouncement that does not include specific transition provisions.
      Statement 154 eliminates the requirement in APB Opinion No. 20, *Accounting
      Changes* ,
      to
      include the cumulative effect of changes in accounting principle in the income
      statement in the period of changes. Instead, to enhance the comparability of
      prior period financial statements, Statement 154 requires that changes in
      accounting principle to be retrospectively applied. Under retrospective
      application, the new accounting principle is applied as of the beginning of
      the
      first period presented as if that principle had always been used. The cumulative
      effect of the change is reflected in the carrying value of assets and
      liabilities as of the first period presented and the offsetting adjustments
      are
      recorded to opening retained earnings. Each period presented is adjusted to
      reflect the period-specific effects of applying the changes. Statement 154
      is
      effective for accounting changes and corrections of errors made in fiscal years
      beginning after December 15, 2005. Early adoption is permitted for accounting
      changes and corrections of errors made in fiscal years beginning after the
      date
      the Statement was issued. The Statement does not change the transition
      provisions of any existing accounting pronouncements, including those that
      are
      in a transition phase as of the effective date of the Statement.





**14.**
            **SUBSEQUENT
                EVENTS**





On
      July
      15, 2005, the Company amended and restated its credit agreement with several
      banks. The amended and restated credit agreement provides for a $325 million
      unsecured revolving credit facility and expires on June 30, 2010. In addition,
      the credit agreement was amended to eliminate certain limitations with regard
      to
      the temporary pay down of revolving loans. During the term of the facility,
      the
      Company is required to pay a facility fee, which ranges from 0.100% to 0.250%.
      The Company 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 by the Company 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 the request of the Company and the consent
      of
      the banks party to the credit agreement. The agreement requires that the Company
      comply with several financial and other covenants, including requirements that
      it maintain the following financial ratios as set forth in the credit
      agreement:





16
 Table
          of Contents


·
            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 the last
                day
                of the fiscal quarter; and





·
            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 the Company fails 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.




On
      August 3, 2005, the local government in Kansas City
      retired $56,909 in economic development bonds the Company owned related to
      its
      Kansas City store.  These economic development bonds were classified
      as
      marketable securities available for sale.





**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. The words
“believe,”“may,”“should,”“anticipate,”“estimate,”“expect,”“intend,”“objective,”“seek,”“plan,”“will,”
      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 or
      unseasonal weather conditions which impact the demand for our products;
      fluctuations in operating results; adverse economic conditions; increased fuel
      prices; road construction around our 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; other factors that we may not have currently identified
      or quantified; and other risks, relevant factors and uncertainties identified
      in
      the “Factors Affecting Future Results” section of our Form 10-K for the fiscal
      year ended January 1, 2005 (our “2004 Form 10-K”), which is 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 2004 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 nation's largest direct marketer, and a leading specialty retailer, of
      hunting, fishing, camping and related outdoor merchandise. Since our founding
      in
      1961, Cabela’s â has
      grown to become one of the most well-known outdoor recreation brands in the
      United States. Through our well-established direct business and our growing
      number of destination retail stores, we believe we offer the widest and most
      distinctive selection of high quality outdoor products at competitive prices
      while providing superior customer service. Our multi-channel retail model -
      catalog, Internet and destination retail stores - strategically positions us
      to
      meet our customers’ ever-growing needs. Our extensive product offering consists
      of approximately 245,000 stock keeping units, or SKUs, and includes hunting,
      fishing, marine and camping merchandise, casual and outdoor apparel and
      footwear, optics, vehicle accessories, gifts and home furnishings with an
      outdoor theme. Our co-branded credit card provides revenue from credit and
      interchange fees and 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 three segments:





17
 Table
          of Contents


·
            Direct,
                which consists of our catalogs and
                website;





·
            Retail,
                which consists of our destination retail stores; and





·
            Financial
                Services, which consists of our credit card business, which is managed
                and
                administered by our wholly-owned bank subsidiary, World's Foremost
                Bank
                (“WFB”).





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
      the
“bank,” we are referring to our Financial Services segment.





We
      also
      operate various other small businesses, which are not included within these
      segments but which we believe are an extension of our overall business strategy
      and enable us to offer additional products and services to our customers that
      further develop and leverage our brand and expertise. These businesses are
      aggregated under the category “Other” in this discussion and include a travel
      agency specializing in big-game hunting, wing shooting, fishing and trekking
      trips and a developer of real estate adjacent to some of our destination retail
      stores. Corporate and other expenses, consisting of unallocated shared-service
      costs and general and administrative expenses, also are included in the “Other”
      category. Unallocated shared-service costs 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.





**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 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.





**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.





**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.





18
 Table
          of Contents


**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, 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.





**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 Opportunities**





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
      $40 to $80 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. 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. We also will seek to improve our Retail segment’s operating
      performance through investments in new systems, including product analysis
      software, which we believe will help us analyze and expand our product margins,
      and store associate scheduling analysis tools, which we believe will help
      increase our labor efficiencies as we expand into new markets.





We
      currently operate twelve destination retail stores. We intend to open
      large-format destination retail stores in Lehi, Utah and Rogers, Minnesota
      in
      2005 in addition to the destination retail stores we opened in Fort Worth,
      Texas
      and Buda, Texas in the second fiscal quarter of 2005. These four large-format
      destination retail stores will add approximately 750,000 square feet, or 57%,
      to
      our retail square footage in 2005.





**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 2004
      Form
      10-K, as filed with the SEC, and should be read in conjunction with the annual
      financial statements and notes included in our 2004 Form 10-K.


19
 Table
          of Contents


**Results
      of Operations**





Our
      second fiscal quarter ends on the Saturday closest to June 30. The three months
      ended July 2, 2005 and July 3, 2004 each consisted of 13 weeks, and the six
      months then ended each had 26 weeks. Our operating results for the three months
      and six months ended July 2, 2005 and July 3, 2004, expressed as a percentage
      of
      revenue, were as follows:





**Three
                Months Ended**
            
            **Six
                Months Ended****July
                2,**
            
            **July
                3,**
            
            **July
                2,**
            
            **July
                3,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Revenue
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %Cost
                of revenue
            
            
            60.7
            %
            
            61.7
            %
            
            60.8
            %
            
            60.9
            %Gross
                profit
            
            
            39.3
            %
            
            38.3
            %
            
            39.2
            %
            
            39.1
            %Selling,
                general and administrative expenses
            
            
            36.7
            %
            
            37.1
            %
            
            36.4
            %
            
            36.4
            %Operating
                income
            
            
            2.6
            %
            
            1.2
            %
            
            2.8
            %
            
            2.7
            %Interest
                income
            
            
            0.0
            %
            
            0.0
            %
            
            0.1
            %
            
            0.0
            %Interest
                expense
            
            
            (0.7
            )%
            
            (0.7
            )%
            
            (0.6
            )%
            
            (0.7
            )%Other
                income (net)
            
            
            0.9
            %
            
            0.6
            %
            
            0.8
            %
            
            0.6
            %Total
                other income/(expense)
            
            
            0.2
            %
            
            (0.1
            )%
            
            0.3
            %
            
            (0.1
            )%Income
                before provision for income taxes
            
            
            2.8
            %
            
            1.1
            %
            
            3.1
            %
            
            2.6
            %Income
                tax expense
            
            
            1.0
            %
            
            0.4
            %
            
            1.1
            %
            
            0.9
            %Net
                income
            
            
            1.8
            %
            
            0.7
            %
            
            2.0
            %
            
            1.7
            %





**Segment
      Information**





The
      following table sets forth the revenue and operating income of each of our
      segments for the three months and six months ended July 2, 2005 and July 3,
      2004.





**Three
                Months Ended**
            
            **Six
                Months Ended****July
                2,**
            
            **July
                3,**
            
            **July
                2,**
            
            **July
                3,****2005**
            
            **2004**
            
            **2005**
            
            **2004****(Dollars
                in thousands)**Direct
                revenue
            
            $
            183,232
            
            $
            165,869
            
            $
            412,613
            
            $
            371,693Retail
                revenue
            
            
            109,150
            
            
            96,457
            
            
            206,364
            
            
            186,992Financial
                services revenue
            
            
            30,418
            
            
            14,986
            
            
            53,334
            
            
            31,433Other
                revenue
            
            
            21,072
            
            
            1,827
            
            
            22,150
            
            
            2,938Total
                revenue
            
            $
            343,872
            
            $
            279,139
            
            $
            694,461
            
            $
            593,056Direct
                operating income
            
            $
            23,233
            
            $
            18,361
            
            $
            51,772
            
            $
            48,537Retail
                operating income
            
            
            5,451
            
            
            7,572
            
            
            10,146
            
            
            18,918Financial
                services operating income
            
            
            17,295
            
            
            3,949
            
            
            28,684
            
            
            10,599Other
                operating income (loss)
            
            
            (37,157
            )
            
            (26,650
            )
            
            (70,757
            )
            
            (62,119
            )Total
                operating income
            
            $
            8,822
            
            $
            3,232
            
            $
            19,845
            
            $
            15,935*As
                a Percentage of Total Revenue:*Direct
                revenue
            
            
            53.3
            %
            
            59.4
            %
            
            59.4
            %
            
            62.7
            %Retail
                revenue
            
            
            31.7
            %
            
            34.6
            %
            
            29.7
            %
            
            31.5
            %Financial
                services revenue
            
            
            8.9
            %
            
            5.3
            %
            
            7.7
            %
            
            5.3
            %Other
                revenue
            
            
            6.1
            %
            
            0.7
            %
            
            3.2
            %
            
            0.5
            %Total
                revenue
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %*As
                a Percentage of Segment Revenue:*Direct
                operating income
            
            
            12.7
            %
            
            11.1
            %
            
            12.5
            %
            
            13.1
            %Retail
                operating income
            
            
            5.0
            %
            
            7.9
            %
            
            4.9
            %
            
            10.1
            %Financial
                services operating income
            
            
            56.9
            %
            
            26.4
            %
            
            53.8
            %
            
            33.7
            %Total
                operating income (1)
            
            
            2.6
            %
            
            1.2
            %
            
            2.9
            %
            
            2.7
            %





(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.


20
 Table
          of Contents


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 and six months ended July 2, 2005 and July 3,
      2004
      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 retained interests for the entire
      securitized portfolio, as well as, interchange income on the entire managed
      portfolio.





**Financial
                Services Revenue as reported in the Financial
                Statements:**
            
            **Three
                Months Ended**
            
            **Six
                Months Ended****July
                2,**
            
            **July
                3,**
            
            **July
                2,**
            
            **July
                3,****2005**
            
            **2004**
            
            **2005**
            
            **2004****(Dollars
                in thousands)**Interest
                and fee income
            
            $
            4,445
            
            $
            2,628
            
            $
            8,550
            
            $
            5,011Interest
                expense
            
            
            (790
            )
            
            (764
            )
            
            (1,613
            )
            
            (1,526
            )Net
                interest income
            
            
            3,655
            
            
            1,864
            
            
            6,937
            
            
            3,485Non-interest
                income:Securitization
                income (1)
            
            
            33,136
            
            
            20,221
            
            
            58,919
            
            
            40,371Other
                non-interest income
            
            
            7,137
            
            
            5,715
            
            
            14,571
            
            
            11,268Total
                non-interest income
            
            
            40,273
            
            
            25,936
            
            
            73,490
            
            
            51,639Less:
                Customer rewards costs
            
            
            (13,510
            )
            
            (12,814
            )
            
            (27,093
            )
            
            (23,691
            )Financial
                Services revenue
            
            $
            30,418
            
            $
            14,986
            
            $
            53,334
            
            $
            31,433





(1)
            For
                the three months and six months ended July 2, 2005 and July 3, 2004,
                we
                recognized gains on sale of credit card loans of $3.8 million, $1.1
                million, $7.7 million and $2.8 million, respectively, which are reflected
                as a component of securitization
                income.





Our
      “managed” credit card loans represent credit card loans 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
      and
      six months ended July 2, 2005 and July 3, 2004 and includes the effect of
      recording the retained interests at fair value. Interest, interchange (net
      of
      customer rewards) and fee income on both the owned and securitized portfolio
      is
      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.





21
 Table
          of Contents





**Managed
                Financial Services Revenue:**
            
            **Three
                Months Ended**
            
            **Six
                Months Ended****July
                2,**
            
            **July
                3,**
            
            **July
                2,**
            
            **July
                3,****2005**
            
            **2004**
            
            **2005**
            
            **2004****(Dollars
                in thousands except other data)**Interest
                income
            
            $
            23,676
            
            $
            16,049
            
            $
            46,545
            
            $
            32,271Interchange
                income, net of customer reward costs
            
            
            14,873
            
            
            8,959
            
            
            24,562
            
            
            16,978Other
                fee income
            
            
            4,659
            
            
            3,553
            
            
            9,242
            
            
            7,202Interest
                expense
            
            
            (9,338
            )
            
            (6,377
            )
            
            (18,021
            )
            
            (12,067
            )Provision
                for loan losses
            
            
            (6,138
            )
            
            (5,125
            )
            
            (11,473
            )
            
            (9,935
            )Other
            
            
            2,686
            
            
            (2,073
            )
            
            2,479
            
            
            (3,016
            )Managed
                Financial Services revenue
            
            $
            30,418
            
            $
            14,986
            
            $
            53,334
            
            $
            31,433***As
                a Percentage of Managed Credit Card Loans*****Managed
                Financial Services Revenue:**Interest
                income
            
            
            9.1
            %
            
            7.5
            %
            
            9.1
            %
            
            7.7
            %Interchange
                income, net of customer reward costs
            
            
            5.7
            %
            
            4.2
            %
            
            4.8
            %
            
            4.0
            %Other
                fee income
            
            
            1.9
            %
            
            1.7
            %
            
            1.7
            %
            
            1.7
            %Interest
                expense
            
            
            (3.6
            )%
            
            (3.0
            )%
            
            (3.5
            )%
            
            (2.9
            )%Provision
                for loan losses
            
            
            (2.4
            )%
            
            (2.4
            )%
            
            (2.2
            )%
            
            (2.4
            )%Other
            
            
            1.0
            %
            
            (1.0
            )%
            
            0.5
            %
            
            (0.6
            )%Managed
                Financial Services revenue
            
            
            11.7
            %
            
            7.0
            %
            
            10.4
            %
            
            7.5
            %Average
                reported credit card loans
            
            $
            110,695
            
            $
            78,310
            
            $
            105,009
            
            $
            74,659Average
                managed credit card loans
            
            $
            1,038,465
            
            $
            852,828
            
            $
            1,022,452
            
            $
            840,471





**Three
      Months Ended July 2, 2005 Compared to Three Months Ended July 3, 2004**





**Revenue**





Revenue
      increased by $64.7 million, or 23.2%, to $343.9 million in the three months
      ended July 2, 2005 from $279.1 million in the three months ended July 3, 2004
      as
      we experienced revenue growth in each of our three segments. We sold a
      significant amount of land during the three months ended July 2, 2005, which
      was
      the primary contributor to an increase of $19.2 million in Other segment
      revenue.





*Direct
      Revenue* .
      Direct
      revenue increased by $17.4 million, or 10.5%, to $183.2 million in the three
      months ended July 2, 2005 from $165.9 million in the three months ended July
      3,
      2004 primarily due to growth in sales through our website and strong performance
      from our catalogs. Internet visits increased 23.6% in the three months ended
      July 2, 2005 compared to the three months ended July 3, 2004. The number of
      customer packages shipped increased by 15.1% in the three months ended July
      2,
      2005. We had stronger than anticipated response rates to our catalogs and
      attribute this in part to ongoing improvements in our catalog circulation plans
      and in part to the increase in fuel prices driving more customers to
      purchase from our Direct channel. The product categories that contributed the
      largest dollar volume increase to our Direct revenue growth in the three months
      ended July 2, 2005 as compared to the three months ended July 3, 2004, included
      gifts, archery and casual clothing.





*Retail
      Revenue* .
      Retail
      revenue increased by $12.7 million, or 13.2%, to $109.2 million in the three
      months ended July 2, 2005 from $96.5 million in the three months ended July
      3,
      2004 due to new store sales of $19.6 million. New store sales were partially
      offset by a decrease in comparable store sales of $5.7 million, or 6.0%,
      compared to the three months ended July 3, 2004. The inclusion of our Hamburg,
      Pennsylvania, store in our comparable store base, decreased comparable store
      sales an additional 280 basis points due to this store’s strong performance in
      2004 and increased competition in the vicinity of this store in 2005. We believe
      our destination retail store revenues were negatively impacted by the increase
      in fuel prices. The product categories that contributed the largest dollar
      volume increase to our Retail revenue growth in the three months ended July
      2,
      2005 as compared to the three months ended July 3, 2004, included gifts, marine
      and automotive.





22
 Table
          of Contents


*Financial
      Services Revenue* .
      Financial Services revenue increased by $15.4 million, or 103.0%, to $30.4
      million in the three months ended July 2, 2005 from $15.0 million in the three
      months ended July 3, 2004 primarily due to an increase in securitization income
      of $12.9 million and an increase in interest and fee income of $1.8 million.
      The
      three months ended July 3, 2004 included a $3.1 million loss from a term
      securitization transaction. We did not have any new term securitization
      transactions in the three months ended July 2, 2005. Interchange income is
      included in securitization income and is primarily driven by our customers’
      Cabela’s Club® VISA credit card net purchases. VISA net purchases increased by
      22.0% over the three months ended July 3, 2004. Increases in the interchange
      rates have also increased interchange income. VISA increased the interchange
      rates in the three months ended July 2, 2005 compared to the three months ended
      July 3, 2004, which accounted for an increase in interchange income of $1.8
      million. Customer reward costs, which are netted against Financial Services
      revenue, generally increase at the same rate as VISA net purchases. However,
      in
      the three months ended July 2, 2005, customer reward costs increased only $0.7
      million, or 5.4%, over the three months ended July 3, 2004. The decrease in
      the
      growth rate of customer reward costs as compared to VISA net purchases was
      caused by changes in some of our promotional event campaigns, the implementation
      of instant credit and a cost sharing program implemented with our retail stores,
      whereby our retail stores cover a larger portion of the customer reward costs
      for special events. The instant credit program was implemented in our
      destination retail stores in the three months ended July 2, 2005. It allows
      customers to find out within minutes if they are approved for credit. Changes
      in
      our customer rewards program implemented in connection with instant credit
      have
      reduced the customer rewards costs related to the acquisition of new accounts.
      Compared to the three months ended July 3, 2004, the number of average active
      accounts grew by 16.6% to 699,114 and the average balance per active account
      grew by 4.5% to approximately $1,485.





**Gross
      Profit**





Gross
      profit increased by $28.3 million, or 26.5%, to $135.2 million in the three
      months ended July 2, 2005 from $106.9 million in the three months ended July
      3,
      2004. Gross profit increased 1% as a percentage of revenue to 39.3% in the
      three
      months ended July 2, 2005 from 38.3% in the three months ended July 3, 2004.
      Gross profit margin increased primarily as a result of an increase in Financial
      Services revenue, which did not have any corresponding increase in cost of
      revenue.





*Merchandising
      Business.* The
      gross profit of our merchandising business increased by $12.0 million, or 13.1%,
      to $103.5 million in the three months ended July 2, 2005 from $91.5 million
      in
      the three months ended July 3, 2004. Gross profit increased 0.5% as a percentage
      of merchandise revenue to 35.4% in the three months ended July 2, 2005 from
      34.9% in the three months ended July 3, 2004. The increase was primarily
      attributable to improved merchandising practices and was offset by increased
      shipping expenses in our Direct business and increased inbound freight expenses
      due to increases in fuel prices. When we have a grand opening at a new store
      we
      generally experience a higher gross profit margin. The excitement surrounding
      the grand opening attracts customers - as opposed to promotional or sales
      events. In addition, our vendors support new store grand openings with special
      buy merchandise, which increases our gross profit margin over the period the
      merchandise is sold. We opened two stores in the three months ended July 2,
      2005; however, the grand openings for those stores were not held until the
      subsequent period, so this impact has been minimized in the current period.
      Shipping expenses - the cost we pay to ship merchandise to our customers -
      increased for the Direct business, impacting our total merchandise gross profit
      margin by $1.0 million, or 0.3% of merchandise revenue. Inbound freight expenses
      - the cost we pay to have goods shipped to our distribution centers and retail
      stores - increased $1.3 million, or 0.4% of merchandise revenue, decreasing
      our
      merchandising gross profit margin. **





**Selling,
      General and Administrative Expenses**





Selling,
      general and administrative expenses increased by $22.7 million, or
      21.9% *,* to
      $126.3 million in the three months ended July 2, 2005 from $103.6 million in
      the
      three months ended July 3, 2004. Selling, general and administrative expenses
      were 36.7% of revenue in the three months ended July 2, 2005, compared to 37.1%
      in the three months ended July 3, 2004. 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 $11.3 million over the prior period primarily as a result
                of
                increases in salary and wages and related benefits, excluding health
                insurance, of $5.0 million. We added new employees, primarily in
                the
                distribution department, at our distribution center in Wheeling,
                West
                Virginia that opened in the third quarter of 2004. We experienced
                increased health claims activity, which increased our incurred but
                not
                paid self-insured health insurance estimate by $2.0 million compared
                to
                the three months ended July 3, 2004. Property taxes increased by
                $1.1
                million - primarily due to a credit for an estimated rebate on a
                state tax
                program recorded in the three months ended July 3, 2004. Non-capitalizable
                equipment and software costs increased by $0.9 million related to
                charges
                for hosting services for business interruption deterrence in our
                management information systems area. Depreciation increased $0.7
                million
                as we have the impact of our new distribution center in Wheeling,
                West
                Virginia in service that was not completed until the third fiscal
                quarter
                of 2004. Our professional fees increased $0.6 million over the comparable
                quarter primarily due to increased litigation costs and costs associated
                with being a public company.





23
 Table
          of Contents


·
            *Direct*selling,
                general and administrative expenses comprised $2.2 million of the
                total
                increase in selling, general and administrative expense and increased
                primarily as a result of an increase in salary and wages and related
                expenses of $1.2 million. We increased the number of employees in
                this
                segment during the current period, primarily in our promotions and
                brand
                management group. Catalog production costs increased only $0.8 million,
                or
                3.1%, on a 10.5% increase in Direct revenue. Catalog costs increased
                to
                $25.6 million in the three months ended July 2, 2005 from $24.8 million
                in
                the three months ended July 3, 2004. As a percentage of Direct revenue,
                catalog costs improved to 13.9% of Direct revenue in the three months
                ended July 2, 2005 from 14.9% of Direct revenue in the three months
                ended
                July 3, 2004. This improvement in catalog costs as a percent of our
                Direct
                revenue is due to the strong sales performance of our catalogs in
                the
                second quarter of 2005.





·
            *Retail*selling,
                general and administrative expenses comprised $7.1 million of the
                total
                increase in selling, general and administrative expense. We incurred
                new
                store operating costs of $4.6 million related to our Wheeling, West
                Virginia store and our two Texas stores, which were not open in the
                comparable quarter of 2004. We increased our retail expansion and
                pre-opening costs by $2.6 million during the three months ended July
                2,
                2005, as we opened two stores in Texas and are in the process of
                building
                two more stores expected to open in 2005, as compared to one store
                that
                opened in 2004. We increased our corporate retail overhead costs
                by $0.2
                million as we build our infrastructure to support our retail growth
                strategy. Total selling, general and administrative expenses in our
                comparable store base remained flat as a percentage of sales.





·
            *Financial
                Services*selling,
                general and administrative expenses comprised $2.1 million of the
                total
                increase in selling, general and administrative expense. This was
                primarily due to increased salary and wages, including related benefits
                of
                $1.0 million with the growth of the bank. Third party services increased
                by $0.5 million as the number of credit card transactions increased.
                Advertising costs increased by $0.5 million. Total Financial Services
                selling, general and administrative costs as a percentage of Financial
                Services revenue decreased from 73.7% of revenue to 43.1% of revenue.





**Operating
      Income**





Operating
      income increased by $5.6 million, or 173.0%, to $8.8 million in the three months
      ended July 2, 2005 from $3.2 million in the three months ended July 3, 2004
      due
      to the factors discussed above.





**Interest
      Expense**





Interest
      expense increased by $0.4 million to $2.4 million in the three months ended
      July
      2, 2005 from $2.0 million in the three months ended July 3, 2004. The increase
      in interest is due to an increase in borrowing on our revolving line of credit
      and an increase in interest recorded from a capital lease that was signed in
      the
      third quarter of 2004.





**Income
      Taxes**





Our
      effective tax rate was 35.6% in the three months ended July 2, 2005 as compared
      to 33.3% in the three months ended July 3, 2004. We expect to experience an
      increase in our effective tax rate as we open stores in new states and incur
      additional state income taxes.





**Six
      Months Ended July 2, 2005 Compared to Six Months Ended July 3,
      2004**





**Revenue**





Revenue
      increased by $101.4 million, or 17.1%, to $694.5 million in the six months
      ended
      July 2, 2005 from $593.1 million in the six months ended July 3, 2004 as we
      experienced revenue growth in each of our three segments. We sold a significant
      amount of land during the six months ended July 2, 2005, which was the primary
      contributor to an increase of $19.2 million in Other segment revenue.





24
 Table
          of Contents


*Direct
      Revenue* .
      Direct
      revenue increased by $40.9 million, or 11.0%, to $412.6 million in the six
      months ended July 2, 2005 from $371.7 million in the six months ended July
      3,
      2004 primarily due to growth in sales through our website and strong performance
      from our catalogs. Internet visits increased 21.9% in the six months ended
      July
      2, 2005 compared to the six months ended July 3, 2004. The number of customer
      packages shipped increased by 15.8% in the six months ended July 2, 2005. We
      had
      a stronger than anticipated response to a promotion in the first quarter of
      fiscal 2005. In addition, we continue to make improvements to our circulation
      plans. We also believe that the increase in fuel prices has driven more of
      our
      customers to order through our Direct channel. The product categories that
      contributed the largest dollar volume increase to our Direct revenue growth
      in
      the six months ended July 2, 2005 as compared to the six months ended July
      3,
      2004, included gifts, hunting equipment and archery.





*Retail
      Revenue* .
      Retail
      revenue increased by $19.4 million, or 10.4%, to $206.4 million in the six
      months ended July 2, 2005 from $187.0 million in the six months ended July
      3,
      2004 due to new store sales of $32.2 million. New store sales were partially
      offset by a decrease in comparable store sales of $11.3 million, or 6.1%,
      compared to the six months ended July 3, 2004. The inclusion of our Hamburg,
      Pennsylvania, store in our comparable store base, decreased our comparable
      store
      sales an additional 280 basis points due to this store’s strong performance in
      2004 and increased competition in the vicinity of this store in 2005. We also
      believe that the increase in fuel prices has negatively impacted our Retail
      revenues. We had more weather related store hour reductions during the first
      quarter of 2005 compared to the first quarter of 2004. The product categories
      that contributed the largest dollar volume increase to our Retail revenue growth
      in the six months ended July 2, 2005 as compared to the six months ended July
      3,
      2004, included hunting equipment, gifts and marine.





*Financial
      Services Revenue* .
      Financial Services revenue increased by $21.9 million, or 69.7%, to $53.3
      million in the six months ended July 2, 2005 from $31.4 million in the six
      months ended July 3, 2004 primarily due to an increase in securitization income
      of $18.5 million and an increase in interest and fee income of $3.5 million.
      The
      six months ended July 3, 2004 included a $3.1 million loss from a term
      securitization transaction. We did not have any new term securitization
      transactions in the six months ended July 2, 2005. Interchange income is
      included in securitization income and is primarily driven by our customers’
      Cabela’s Club® VISA credit card net purchases. Increases in the interchange
      rates have also increased interchange income. VISA net purchases increased
      by
      21.3 *%* over the
      six months ended July 3, 2004. VISA increased the interchange rates in the
      six
      months ended July 2, 2005 compared to the six months ended July 3, 2004, which
      accounted for an increase in interchange income of $2.3 million. Customer reward
      costs, which are netted against Financial Services revenue, generally increase
      at the same rate as VISA net purchases. However, in the six months ended July
      2,
      2005, customer reward costs increased only $3.4 million, or 14.4%, over the
      six
      months ended July 3, 2004. The decrease in the growth rate of customer reward
      costs as compared to VISA net purchases was caused by changes in some of our
      promotional event campaigns, the implementation of instant credit and a cost
      sharing program implemented with our retail stores, whereby our retail stores
      cover a larger portion of the customer reward costs for special events. The
      instant credit program was implemented in our destination retail stores in
      the
      three months ended July 2, 2005. It allows customers to find out within minutes
      if they are approved for credit. Changes in our customer rewards program
      implemented in connection with instant credit have reduced the customer rewards
      costs related to the acquisition of new accounts. Compared to the six months
      ended July 3, 2004, the number of average active accounts grew by 16.8% to
      693,241 and the average balance per active account grew by 4.2% to approximately
      $1,475.





**Gross
      Profit**





Gross
      profit increased by $40.3 million, or 17.4%, to $272.4 million in the six months
      ended July 2, 2005 from $232.1 million in the six months ended July 3, 2004.
      Gross profit increased by 0.1% as a percentage of revenue to 39.2% in the six
      months ended July 2, 2005 from 39.1% in the six months ended July 3, 2004.
      Gross
      profit margin increased primarily as a result of an increase in Financial
      Services revenue, which did not have any corresponding increase in cost of
      revenue. The increase from Financial Services revenue was partially offset
      by a
      year to date decrease in merchandising gross profit margin of 1.0%.





25
 Table
          of Contents


*Merchandising
      Business.* The
      gross profit of our merchandising business increased by $15.9 million, or 7.9%,
      to $216.8 million in the six months ended July 2, 2005 from $200.9 million
      in
      the six months ended July 3, 2004. Gross profit decreased by 1.0% as a
      percentage of merchandise revenue to 35.0% in the six months ended July 2,
      2005
      from 36.0% in the six months ended July 3, 2004. The decrease was primarily
      attributable to discounted sales of seasonal merchandise at our retail stores
      in
      the first three months of 2005, a difference in gross profit margin and volumes
      at our new stores, increased shipping expenses in our Direct business and
      increased inbound freight expenses due to increases in fuel prices. When we
      have
      a new store grand opening we generally experience a higher gross profit margin.
      The excitement surrounding the grand opening attracts customers - as opposed
      to
      promotional or sales events. In addition, our vendors support new store grand
      openings with special buy merchandise, which increases our gross profit margin
      over the period the merchandise is sold. Our Hamburg, Pennsylvania store was
      opened in September of 2003 and the excitement of the opening carried over
      to
      the first quarter of 2004. Our two Texas stores were opened in the second
      quarter of 2005; however, the grand openings for those two stores were held
      in
      July in the third quarter of 2005, so the impact of the margin lift was
      minimized. Shipping expenses - the cost we pay to ship merchandise to our
      customers - increased for the Direct business, impacting our total merchandise
      gross profit margin by $2.5 million, or 0.4% of merchandise revenue. Inbound
      freight expenses - the cost we pay to have goods shipped to our distribution
      centers and retail stores - increased $2.5 million, or 0.4% of merchandise
      revenue, decreasing our merchandise gross profit margin. **





**Selling,
      General and Administrative Expenses**





Selling,
      general and administrative expenses increased by $36.3 million, or
      16.8% *,* to
      $252.5 million in the six months ended July 2, 2005 from $216.2 million in
      the
      six months ended July 3, 2004. Selling, general and administrative expenses
      were
      flat as a percent of revenue at 36.4% in the six months ended July 2, 2005
      and
      July 3, 2004. 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 $11.1 million over the prior period primarily as a result
                of
                increases in salary and wages and related benefits of $9.4 million.
                We
                added new employees, primarily in the distribution department, at
                our
                distribution center in Wheeling, West Virginia that opened in the
                third
                quarter of 2004. Also related to the new distribution center and
                other
                investments in infrastructure, depreciation increased by $1.4 million
                in
                the six months ended July 2, 2005 compared to the six months ended
                July 3,
                2004.





·
            *Direct*selling,
                general and administrative expenses comprised $9.5 million of the
                total
                increase in selling, general and administrative expense and increased
                primarily as a result of an increase in catalog production costs
                of $2.9
                million, or 5.3%. Catalog costs increased to $57.1 million in the
                six
                months ended July 2, 2005 from $54.2 million in the six months ended
                July
                3, 2004. However, as a percentage of Direct revenue, catalog costs
                improved to 13.8% of Direct revenue in the six months ended July
                2, 2005
                from 14.6% of Direct revenue in the six months ended July 3, 2004.
                This
                improvement in catalog costs as a percent of our Direct revenue was
                primarily due to the strong sales performance of our catalogs in
                the first
                half of the year. Salary and wages, including related benefits, increased
                $3.1 million as the number of employees in some of our smaller
                subsidiaries and in our promotions and brand management group increased.
                Advertising increased by $1.9 million - primarily related to Internet
                sales commissions. Credit card discount fees increased by $1.0 million
                due
                to the increase in Internet credit card sales transactions, which
                carry a
                higher credit card discount rate.





·
            *Retail*selling,
                general and administrative expenses comprised $11.9 million of the
                total
                increase in selling, general and administrative expense. We incurred
                new
                store operating costs of $7.3 million related to our Wheeling, West
                Virginia store and two Texas stores which were not open in the comparable
                periods of 2004. We increased our retail expansion costs by $5.0
                million
                during the six months ended July 2, 2005, as we opened two new stores
                in
                Texas and are in the process of building two more stores expected
                to open
                in 2005, as compared to one new store that opened in 2004. We increased
                our corporate retail overhead costs by $0.5 million as we build our
                infrastructure to support our retail growth strategy. These increases
                in
                costs were partially offset by reductions in selling, general and
                administrative costs for stores in our comparable store base. Total
                comparable store selling general and administrative costs as a percentage
                of related revenue decreased by 0.5% as comparable store sales were
                down
                but costs were controlled.





26
 Table
          of Contents


·
            *Financial
                Services*selling,
                general and administrative expenses comprised $3.8 million of the
                total
                increase in selling, general and administrative expense. This was
                primarily due to increased salary and wages, including related benefits,
                of $1.7 million with the growth of the bank. Costs of bad debt expense
                increased by $1.2 million, primarily due to an increase in counterfeit
                fraud. Our bad debts relating to fraud are less than industry standards.
                Third party services increased by $0.6 million as the number of credit
                card transactions increased. Total Financial Services selling, general
                and
                administrative expenses as a percentage of Financial Services revenue
                decreased from 66.3% in the six months ended July 3, 2004 to 46.2%
                in the
                six months ended July 2, 2005.





**Operating
      Income**





Operating
      income increased by $3.9 million, or 24.5%, to $19.8 million in the six months
      ended July 2, 2005 from $15.9 million in the six months ended July 3, 2004
      due
      to the factors discussed above.





**Interest
      Expense**





Interest
      expense increased to $4.5 million in the six months ended July 2, 2005 from
      $4.0
      million in the six months ended July 3, 2004. The increase in interest is
      primarily due to an increase in borrowing on our revolving line of credit and
      an
      increase in interest recorded from a capital lease that was signed in the third
      quarter of 2004.





**Income
      Taxes**





Our
      effective tax rate was 35.6% in the six months ended July 2, 2005 as compared
      to
      34.7% in the six months ended July 3, 2004. We expect to experience an increase
      in our effective tax rate 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. This does
      not
      have any income statement impact until we issue a term debt instrument from
      our
      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 addition, originated from sources other than Cabela’s
      Club credit cards and various other requirements. The total amount of ineligible
      receivables we owned were $8.9 million and $6.1 million as of July 2, 2005
      and
      January 1, 2005, respectively. Of the $8.9 million in ineligible receivables
      outstanding at July 2, 2005, $8.3 million were 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.





**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.





**July
                2,**
            
            **January
                1,**
            
            **July
                3,****2005**
            
            **2005**
            
            **2004**Number
                of days delinquentGreater
                than 30 days
            
            
            0.59
            %
            
            0.71
            %
            
            0.77
            %Greater
                than 60 days
            
            
            0.34
            %
            
            0.41
            %
            
            0.39
            %Greater
                than 90 days
            
            
            0.14
            %
            
            0.19
            %
            
            0.17
            %








27
 Table
          of Contents





**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. We believe that most bankcard issuers charge off accounts
      at 180 days. We generally charge off accounts the month after an account becomes
      90 days contractually delinquent, except in the case of cardholder bankruptcies
      and cardholder deaths, which are charged off at the time of notification. 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 and six months ended July 2, 2005 and July 3, 2004 is
      summarized below:





**Three
                Months Ended**
            
            **Six
                Months Ended****July
                2,**
            
            **July
                3,**
            
            **July
                2,**
            
            **July
                3,****2005**
            
            **2004**
            
            **2005**
            
            **2004****(Dollars
                in thousands)**Gross
                charge-offs
            
            $
            6,820
            
            $
            5,683
            
            $
            13,322
            
            $
            11,253Recoveries
            
            
            987
            
            
            908
            
            
            2,164
            
            
            1,668Net
                charge-offs
            
            
            5,833
            
            
            4,775
            
            
            11,158
            
            
            9,585Net
                charge-offs as a percentage of average managed loans
            
            
            2.25
            %
            
            2.24
            %
            
            2.18
            %
            
            2.28
            %





**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 purchase of inventory, capital for new
      destination retail stores, purchases of economic development bonds related
      to
      the development of new destination retail stores, 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 and collecting principal and interest payments on our economic
      development bonds. The cash flow we generate from our merchandising business
      is
      seasonal, with our peak cash requirements for inventory occurring between August
      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 September 2002. 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 revenues
      and
      profits.





The
      primary cash requirements of our Financial Services segment relate to the
      generation of credit card loans and the purchase of rewards used in the 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
      agreement, selling certificates of deposit and generating cash from operations.
      Due to the limited nature of its state charter, the bank is prohibited from
      making commercial or residential loans. Consequently, it 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
      are
      focused on generating cash from our existing assets such as the sale of land
      around our destination retail stores and the possible monetization of our
      economic development bonds. We recently completed an amendment and restatement
      of our revolving credit facility which increased available funds for working
      capital borrowings. In addition, on August 3, 2005, the local government in
      Kansas City retired $56.9 million in bonds we owned related to our Kansas City
      store.





28
 Table
          of Contents


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





**Operating,
      Investing and Financing activities**





Cash
      used
      by operating activities was $100.5 million in the six months ended July 2,
      2005
      as compared with $133.1 million in the six months ended July 3, 2004. The $32.6
      million decrease in cash used by operating activities was due to an increase
      in
      cash provided primarily by proceeds from securitized credit cards of $57.1
      million, an increase in cash provided by accounts payable of $19.3 million,
      an
      increase in cash from accrued compensation of $8.1 million and an increase
      in
      cash from land sales net of land purchases of $7.2 million. The increases in
      cash provided from operations was partially offset by increases in cash used
      from operations from the growth in our inventory of $42.4 million, the growth
      in
      other current assets at our bank of $13.4 million and an increase in cash paid
      for income taxes of $5.1 million. We had a term securitization transaction
      in
      the first six months of 2004 that caused the difference in cash provided by
      proceeds from credit card loans. We had an increase in cash provided by accounts
      payable that we attribute to our increase in inventory. There was an increase
      in
      cash provided from the change in accrued compensation. This was due to a
      difference in timing of payroll tax payments in the first six months of 2004.
      We
      had an increase in cash used for inventory of $42.4 million primarily due to
      adding 31.5% more square footage to our Retail segment, buying inventory for
      the
      August opening of our Lehi, Utah store and buying inventory to support the
      increase in Direct sales. The increase in cash used for other current assets
      of
      $13.4 million was primarily a result of changes in other receivable and prepaid
      accounts in the Financial Services segment due to the growth in credit card
      accounts and managed receivables.





Cash
      used
      in investing activities was $136.6 million in the six months ended July 2,
      2005
      as compared with $50.8 million in the six months ended July 3, 2004. The $85.7
      million increase in cash used for investing activities in the period was due
      to
      a $94.7 million increase in capital expenditures related to building our four
      new destination retail stores. This was partially offset by a decrease in the
      use of cash for purchases of marketable securities of $14.0 million related
      to
      the four new destination retail stores. We expect the purchase of marketable
      securities to increase as we have completed the two Texas stores and our bond
      applications are in process. We also expect to collect economic development
      funds of $60.8 million related to the new stores in 2005.





Cash
      provided by financing activities was $60.0 million in the six months ended
      July
      2, 2005 as compared with $103.1 million in the six months ended July 3, 2004.
      The $43.1 million decrease in cash provided by financing activities was
      primarily due to an increase of $23.5 million in the maturities of time deposits
      paid by our bank. The remaining amount was the difference in cash received
      from
      our initial public offering in the six months ended July 3, 2004 of $115.3
      million compared to the cash borrowed and paid on our revolving line of credit
      of $102.0 million in the six months ended July 2, 2005.





As
      of
      July 2, 2005, we had remaining material cash commitments in the amount of $152.1
      million for fiscal 2005 and $120.4 million for fiscal 2006 and 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. We expect to receive approximately $60.8 million in economic
      development funds related to the same new stores that will partially offset
      our
      remaining commitments in 2005. In addition, we are obligated to fund the
      remaining $26.0 million of economic development bonds and construction costs
      related to the expansion of our distribution center in Wheeling, West Virginia
      throughout fiscal 2005 and 2006.





We
      have
      previously announced three new retail site locations in Gonzales, Louisiana,
      Reno, Nevada and Glendale, Arizona for which material commitments were not
      signed as of July 2, 2005. 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 $40 to $80 million each. We expect
      to
      incur costs for two of these locations in 2006 and one in 2007.





We
      expect
      to incur total capital expenditures in the range of $225 million to $250 million
      in fiscal 2005. This number could increase depending on the timing of land
      acquisitions for our future stores.





29
 Table
          of Contents


**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, but 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. Our failure to comply with the terms
      of
      current economic development packages could result in our repayment of grant
      money or other adverse consequences that would affect our cash flows and
      profitability. As of July 2, 2005 and January 1, 2005, the total amount of
      grant
      funding subject to a specific contractual remedy was $16.6 million and $17.7
      million, respectively. Portions of three 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.





*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. We typically have been the sole purchaser of these
      bonds. The bond proceeds that are received by the governmental entity are then
      used to fund portions of the cost of constructing and equipping new destination
      retail stores and related infrastructure development. While purchasing these
      bonds involves an initial cash outlay by us, 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 10 and 30 years. In addition, some of
      the
      bonds that we 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 July 2, 2005 and January 1, 2005, we carried $162.1million and
      $144.6 million, respectively, of economic development bond receivables 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 in our ability to execute our destination retail
      store
      expansion strategy because these arrangements 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 would be adversely affected and we may
      choose to significantly alter our destination retail store expansion
      strategy.





**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.





30
 Table
          of Contents


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 July
      2,
      2005 are as follows:





**Series**
            
            **Type**
            
            **Initial
                Amount**
            
            
            
            **Certificate
                Rate**
            
            **Expected
                Final**(Dollars
                in thousands)Series
                2001-2
            
            
            Term
            
            $
            250,000
            
            
            
            
            
            Floating
            
            
            November
                2006Series
                2003-1
            
            
            Term
            
            $
            300,000
            
            
            
            
            
            Floating
                (2)
            
            
            January
                2008Series
                2003-2
            
            
            Variable
                Funding
            
            $
            300,000 (1)
            
            
            
            
            
            Floating
            
            
            June
                2006Series
                2004-I
            
            
            Term
            
            $
            75,000
            
            
            
            
            
            Fixed
            
            
            March
                2009Series
                2004-II
            
            
            Term
            
            $
            175,000
            
            
            
            
            
            Floating
            
            
            March
                2009





(1)
            We
                extended the Series 2003-2 facility to June 2006 and amended it to
                include
                an additional $50 million temporary increase for seasonal purposes
                from
                December 1 to February 28, if needed.(2)
            The
                trust entered into an agreement to convert the floating rate certificate
                into a fixed rate obligation.





**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 July 2, 2005, we had $79.9 million of
      certificates of deposit outstanding with maturities ranging from July 2005
      to
      June 2015 and with a weighted average effective annual fixed rate of 3.63%.
      Certificate of deposit borrowings are subject to regulatory capital
      requirements.





**Credit
      Facilities and other Indebtedness**





We
      had a
      revolving credit facility with a group of banks that provided us with a $230
      million unsecured line of credit available for our operations. This revolving
      facility was amended and restated on July 15, 2005 and the details of the new
      agreement are discussed below. The facility in place throughout the six months
      ended July 2, 2005 provided for a LIBOR-based rate of interest plus a spread
      of
      between 0.80% and 1.425% based upon our achievement of certain cash flow
      leverage ratios. During the term of the facility, we were required to pay a
      facility fee, which ranged from 0.125% to 0.25%. Our credit facility permitted
      the issuance of up to $100 million in letters of credit and standby letters
      of
      credit, which were applied against the overall credit limit available under
      the
      revolver. We utilized these letters of credit to support purchases from our
      suppliers in the ordinary course of our business. The average outstanding amount
      of letters of credit during the six months ended July 2, 2005 was $39.8 million.
      There was $102 million in outstanding principal borrowings under the credit
      facility as of July 2, 2005. Our total remaining borrowing capacity under the
      credit facility as of July 2, 2005, after subtracting outstanding letters of
      credit of $64.1 million, and standby letters of credit of $7.3 million, was
      $56.6 million.





Our
      credit agreement in place throughout the six months ended July 2, 2005 required
      that we comply with several financial and other covenants, including
      requirements that we maintain the following financial ratios as set forth in
      our
      credit agreement:





·
            a
                current consolidated assets to current consolidated liabilities ratio
                of
                no less than 1.15 to 1.00 as of the last day of any fiscal year;





·
            a
                fixed charge coverage ratio (the ratio of the sum of consolidated
                EBITDA
                plus certain rental expenses to the sum of consolidated cash interest
                expense plus certain rental expenses) of no less than 2.00 to 1.00
                as of
                the last day of any fiscal quarter;





31
 Table
          of Contents


·
            a
                cash flow leverage ratio of no more than 2.50 to 1.00 as of the last
                day
                of any fiscal quarter; and





·
            a
                minimum tangible net worth of no less than $300 million plus 50%
                of
                positive consolidated net earnings on a cumulative basis for each
                fiscal
                year beginning with fiscal year ended 2004 as of the last day of
                any
                fiscal quarter. Tangible net worth is equity less intangible
                assets.





In
      addition, our credit agreement in place throughout the six months ended July
      2,
      2005 included 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
      permitted acceleration by the lenders in the event there is a “change in
      control.” The credit agreement defined “EBITDA” to mean our net income before
      deductions for income taxes, interest expense, depreciation and amortization.
      Based upon this EBITDA calculation for fiscal 2004, dividends would not be
      permissible in fiscal 2005 in excess of $68.8 million. The credit agreement
      defined a “change in control” to mean any circumstances under which we cease to
      own 100% of the voting stock in each of our subsidiaries that have or have
      had
      total assets in excess of $5.0 million, any event in which any person or group
      of persons (other than our stockholders as of May 6, 2004 and their affiliates)
      acting in concert acquires beneficial ownership of, or control over, 20% or
      more
      of the combined voting power of all of our securities entitled to vote in the
      election of directors and such voting percentage exceeds the percentage of
      our
      common stock owned by Mr. R. Cabela and Mr. J. Cabela as of the date of such
      acquisition, or any change in a majority of the members of our board of
      directors within any twelve month period for any reason (other than by reason
      of
      death, disability or scheduled retirement). As of July 2, 2005, Mr. R. Cabela
      and Mr. J. Cabela collectively owned 12,641,227 shares (not including 8,663,964
      shares beneficially owned by Mr. R. Cabela through Cabela’s Family, LLC) of
      common stock, which represented 19.5% of our total outstanding common stock
      and
      non-voting common stock. The credit agreement provided that all loans or
      deposits from us or any of our subsidiaries to the bank cannot exceed $20.0
      million in the aggregate at any time when loans are outstanding under the
      revolving credit facility.





On
      July
      15, 2005, we amended and restated our credit agreement with several banks.
      The
      amended and restated credit agreement provides for a $325 million unsecured
      revolving credit facility and expires on June 30, 2010. In addition, the credit
      agreement was amended to eliminate certain limitations with regard to the
      temporary pay down of revolving loans. 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. 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; and





·
            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 the last
                day
                of the fiscal quarter; and





·
            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.





32
 Table
          of Contents


In
      addition, our new 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.” Our credit agreement defines “EBITDA” to mean
      our net income before deductions for income taxes, interest expense,
      depreciation and amortization. Based upon this EBITDA calculation for fiscal
      2004, dividends would not be permissible in fiscal 2005 in excess of $68.8
      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 thereunder as
      in
      effect on the date hereof), 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.





Our
      bank
      entered into an unsecured uncommitted Federal Funds Sales Agreement with a
      bank
      on October 7, 2004. The maximum amount of funds which can be outstanding is
      $25.0 million of which no amounts were outstanding at July 2, 2005. On October
      8, 2004, our bank entered into an unsecured uncommitted Federal Funds Line
      of
      Credit Agreement with another bank. The maximum amount of funds which can be
      outstanding is $40.0 million of which no amounts were outstanding at July 2,
      2005.





In
      addition to our credit facilities, we have from time to time accessed the
      private placement debt markets. We currently have two such note issuances
      outstanding. 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 entire
      principal amount under these notes remains unpaid. In January 1995, we issued
      $20.0 million in senior unsecured notes bearing interest at fixed rates ranging
      between 8.79% and 9.19% per year. The notes amortize, with principal and
      interest payable in the amount of $0.3 million per month through January 1,
      2007, thereafter decreasing to $0.1 million per month through January 1, 2010.
      The aggregate principal balance of these notes as of July 2, 2005 was $6.8
      million. Both note issuances provide for prepayment penalties based on yield
      maintenance formulas.





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 agreement:





·
            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; and





·
            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
      July 2, 2005, 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.





33
 Table
          of Contents


*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 $6.6 billion and $6.0 billion as of July 2, 2005
      and January 1, 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.





*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 receivables 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 receivables is affected primarily by changes in short term interest
      rate
      indices such as LIBOR and prime rate. The variable rate card receivables are
      indexed to the prime rate. Securitization certificates and notes are indexed
      to
      LIBOR-based rates of interest and are periodically repriced. Certificates of
      deposit 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.





**July
                2,**
            
            **January
                1,**
            
            **July
                3,****2005**
            
            **2005**
            
            **2004***As
                a percentage of total balances outstanding*Balances
                carrying interest rate based upon the national prime lending
                rate.
            
            
            59.6
            %
            
            57.2
            %
            
            61.1
            %Balances
                carrying an interest rate of 9.99%.
            
            
            2.3
            %
            
            3.1
            %
            
            2.7
            %Balances
                not carrying interest because their previous month's balance was
                paid in
                full.
            
            
            38.1
            %
            
            39.6
            %
            
            36.2
            %





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 balance is paid in full within 20 days
      of
      the billing cycle.





34
 Table
          of Contents


Management
      performs a projected interest rate gap analysis over a rolling twelve-month
      period 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 is 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 has
      also performed a projected interest rate gap analysis, over the same rolling
      twelve-month period, to measure the effects of a change in 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 an increase or decrease of $3.5 million to $3.7 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.





**Merchandising
      Interest Rate Risk**





Two
      of
      our economic development bond agreements are priced at a variable interest
      rate.
      One is tied to the LIBOR rate and one is tied to the prime rate. These rates
      are
      adjusted annually in November and December. We do not believe these interest
      rate changes will have a material impact on our operations.





The
      interest payable under our revolving credit facility 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 July 2, 2005, and (ii) no change in internal
      control over financial reporting occurred during the quarter ended July 2,
      2005,
      that has materially affected, or is reasonably likely to materially affect,
      such
      internal control over financial reporting.







35
 Table
          of Contents


**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
      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.**
 
 The
        Annual
        Meeting of Stockholders of Cabela’s Incorporated was held on May 11, 2005. The
        matters voted upon at the meeting and the votes cast with respect to such
        matters are as follows:
 
 1.
              Election
                  of two Class I directors, each for a three year term.
 
 FOR
              WITHHELDMichael
                  R. McCarthy
              47,504,665
              217,289Reuben
                  Mark
              47,408,668
              313,486
 
 
 2.
              Ratification
                  of appointment of Deloitte & Touche LLP as independent auditor for
                  fiscal 2005.
  FOR
              AGAINST
              ABSTAIN
              BROKER
                NON-VOTES47,587,237
              57,320
              77,397
              0


**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





36
 Table
          of Contents








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:
                August 5, 2005
            By:
            /s/
                Dennis HighbyDennis
                HighbyPresident
                and Chief Executive OfficerDated:
                August 5, 2005
            By:
            /s/
                Ralph W. CastnerRalph
                W. CastnerVice
                President and Chief Financial
                Officer











37
 Table
          of Contents





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











38