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 June 28,
2008


OR





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





Commission
File Number: 1-32227





CABELA’S
INCORPORATED


(Exact
name of registrant as specified in its charter)





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





(308)
254-5505


(Registrant’s
telephone number, including area code)





Not
applicable


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




Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
the filing requirements for at least the past 90 days. Yes x No o





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





Large
      accelerated filer x
            Accelerated
      filer o
            Non-accelerated
      filer o





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).  Yes o No x





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





Common
stock, $0.01 par value: 66,505,594 shares as of July 25, 2008.





1





CABELA’S INCORPORATED





FORM
10-Q


QUARTERLY
PERIOD ENDED JUNE 28, 2008


TABLE
OF CONTENTS








PagePART
      I – FINANCIAL INFORMATIONItem
      1.
            Financial
      StatementsCondensed
      Consolidated Statements of Income
            3Condensed
      Consolidated Balance Sheets
            4Condensed
      Consolidated Statements of Cash Flows
            5Notes
      to Condensed Consolidated Financial Statements
            6Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            21Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            43Item
      4.
            Controls
      and Procedures
            45Item
      4T.
            Controls
      and Procedures
            45PART
      II – OTHER INFORMATIONItem
      1.
            Legal
      Proceedings
            46Item
      1A.
            Risk
      Factors
            46Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            46Item
      3.
            Defaults
      Upon Senior Securities
            46Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            46Item
      5.
            Other
      Information
            47Item
      6.
            Exhibits
            47SIGNATURES
            48INDEX
      TO EXHIBITS
            49





2
 TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION


Item
1.   
Financial Statements





CABELA’S
      INCORPORATED AND SUBSIDIARIES
              CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME
              (Dollars
      in Thousands Except Share and Per Share Amounts)
              (Unaudited)Three Months Ended
            
            
            Six Months EndedJune
      28,
              2008
            
            
            June
      30,
              2007
            
            
            June
      28,
              2008
            
            
            June
      30,
              2007Revenue:Merchandise
    sales
            
            $
            480,640
            
            
            $
            403,424
            
            
            $
            971,551
            
            
            $
            826,063Financial services
      revenue
            
            
            38,253
            
            
            
            41,014
            
            
            
            78,961
            
            
            
            76,748Other revenue
            
            
            7,059
            
            
            
            6,761
            
            
            
            10,979
            
            
            
            10,479Total revenue
            
            
            525,952
            
            
            
            451,199
            
            
            
            1,061,491
            
            
            
            913,290Total
      cost of revenue (exclusive of depreciation and
    amortization)
            
            
            316,386
            
            
            
            260,097
            
            
            
            630,188
            
            
            
            538,129Selling,
      distribution, and administrative expenses
            
            
            194,714
            
            
            
            170,850
            
            
            
            395,365
            
            
            
            342,518Operating
      income
            
            
            14,852
            
            
            
            20,252
            
            
            
            35,938
            
            
            
            32,643Interest
      (expense) income, net
            
            
            (7,748
            )
            
            
            (4,409
            )
            
            
            (14,889
            )
            
            
            (7,807
            )Other
      non-operating income, net
            
            
            1,755
            
            
            
            2,153
            
            
            
            3,614
            
            
            
            4,349Income
      before provision for income taxes
            
            
            8,859
            
            
            
            17,996
            
            
            
            24,663
            
            
            
            29,185Provision
      for income taxes
            
            
            1,580
            
            
            
            6,732
            
            
            
            7,428
            
            
            
            10,779Net
      income
            
            $
            7,279
            
            
            $
            11,264
            
            
            $
            17,235
            
            
            $
            18,406Basic
      net income per share
            
            $
            0.11
            
            
            $
            0.17
            
            
            $
            0.26
            
            
            $
            0.28Diluted
      net income per share
            
            $
            0.11
            
            
            $
            0.17
            
            
            $
            0.26
            
            
            $
            0.27Basic
      weighted average shares outstanding
            
            
            66,203,423
            
            
            
            65,782,822
            
            
            
            66,068,902
            
            
            
            65,639,217Diluted
      weighted average shares outstanding
            
            
            66,852,745
            
            
            
            67,111,798
            
            
            
            66,761,415
            
            
            
            67,251,708





Refer to
notes to unaudited condensed consolidated financial statements.





3
 TABLE OF CONTENTS





CABELA’S INCORPORATED AND SUBSIDIARIES
                CONDENSED
      CONSOLIDATED BALANCE SHEETS
                (Dollars
      in Thousands Except Par Values)
                (Unaudited)June
      28,
                2008
              
              
              December
      29,
                2007
              
              
              June
      30,
                2007ASSETSCURRENTCash and cash
      equivalents
              
              $
              88,125
              
              
              $
              131,182
              
              
              $
              80,229Accounts receivable, net of
      allowance for doubtful accounts of $1,782, $1,851 and
                $1,714
              
              
              49,652
              
              
              
              46,857
              
              
              
              31,154Credit card loans, net of
      allowances of $1,254, $1,197 and $1,193
              
              
              184,024
              
              
              
              191,893
              
              
              
              133,050Inventories
              
              
              630,830
              
              
              
              608,159
              
              
              
              523,925Prepaid expenses and other
      current assets
              
              
              141,232
              
              
              
              116,297
              
              
              
              141,773Income taxes
      receivable
              
              
              1,753
              
              
              
              --
              
              
              
              7,063Total current
      assets
              
              
              1,095,616
              
              
              
              1,094,388
              
              
              
              917,194Property
      and equipment, net
              
              
              916,558
              
              
              
              904,052
              
              
              
              733,594Land
      held for sale or development
              
              
              33,312
              
              
              
              34,802
              
              
              
              19,192Retained
      interests in securitized loans
              
              
              38,390
              
              
              
              51,777
              
              
              
              40,091Economic
      development bonds
              
              
              101,316
              
              
              
              98,035
              
              
              
              80,269Other
      assets
              
              
              32,356
              
              
              
              29,776
              
              
              
              20,359Total assets
              
              $
              2,217,548
              
              
              $
              2,212,830
              
              
              $
              1,810,699LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENTAccounts payable, including
      unpresented checks of $14,234, $11,340 and $32,615
              
              $
              169,483
              
              
              $
              281,391
              
              
              $
              262,351Gift certificates and credit
      card and loyalty rewards programs
              
              
              170,280
              
              
              
              184,257
              
              
              
              137,775Accrued
    expenses
              
              
              93,134
              
              
              
              139,510
              
              
              
              91,956Time deposits
              
              
              83,979
              
              
              
              49,219
              
              
              
              19,500Short-term borrowings of
      financial services subsidiary
              
              
              --
              
              
              
              100,000
              
              
              
              27,000Current maturities of
      long-term debt
              
              
              26,701
              
              
              
              26,785
              
              
              
              26,738Income taxes
      payable
              
              
              --
              
              
              
              34,341
              
              
              
              --Deferred income
      taxes
              
              
              13,157
              
              
              
              15,601
              
              
              
              17,863Total current
      liabilities
              
              
              556,734
              
              
              
              831,104
              
              
              
              583,183Long-term
      debt, less current maturities
              
              
              606,810
              
              
              
              376,600
              
              
              
              344,349Long-term
      time deposits
              
              
              117,603
              
              
              
              111,372
              
              
              
              65,694Deferred
      income taxes
              
              
              26,667
              
              
              
              31,113
              
              
              
              29,560Other
      long-term liabilities
              
              
              57,243
              
              
              
              34,082
              
              
              
              32,895COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS’
      EQUITYPreferred stock, $0.01 par
      value; Authorized  -- 10,000,000 shares;  Issued –
      none
              
              
              --
              
              
              
              --
              
              
              
              --Common stock, $0.01 par
      value:Class A Voting,
      Authorized  –  245,000,000 shares;  Issued
      –  66,463,389,
                65,888,384
      and 65,798,769 shares
              
              
              665
              
              
              
              659
              
              
              
              658Class B Non-voting,
      Authorized  –  245,000,000 shares;  Issued
      –  none
              
              
              --
              
              
              
              --
              
              
              
              --Additional paid-in
      capital
              
              
              266,755
              
              
              
              257,351
              
              
              
              253,373Retained
    earnings
              
              
              588,507
              
              
              
              571,272
              
              
              
              501,799Accumulated other
      comprehensive income (loss), net
              
              
              (3,436
              )
              
              
              (723
              )
              
              
              (812
              )Total stockholders’
      equity
              
              
              852,491
              
              
              
              828,559
              
              
              
              755,018Total liabilities and
      stockholders’ equity
              
              $
              2,217,548
              
              
              $
              2,212,830
              
              
              $
              1,810,699





Refer to
notes to unaudited condensed consolidated financial statements.


4
 TABLE OF CONTENTS







CABELA’S INCORPORATED AND SUBSIDIARIES
              CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS
              (In
      Thousands)
              (Unaudited)Six Months EndedCASH
      FLOWS FROM OPERATING ACTIVITIES:
            
            June
      28,
              2008
            
            
            June
      30,
              2007Net income
            
            $
            17,235
            
            
            $
            18,406Adjustments to reconcile net
      income to net cash flows from operating activities:Depreciation and
      amortization
            
            
            33,842
            
            
            
            27,044Stock based
      compensation
            
            
            3,072
            
            
            
            2,115Deferred income
      taxes
            
            
            (5,353
            )
            
            
            (318
            )Other, net
            
            
            (2,415
            )
            
            
            52Change in operating assets and
      liabilities:Accounts
    receivable
            
            
            (4,380
            )
            
            
            7,083Originations of credit card
      loans held for sale, net of collections
            
            
            4,643
            
            
            
            16,620Retained interests in
      securitized loans
            
            
            7,387
            
            
            
            (1,058
            )Inventories
            
            
            (22,671
            )
            
            
            (39,511
            )Prepaid expenses and other
      current assets
            
            
            (20,740
            )
            
            
            (35,357
            )Land held for sale or
      development
            
            
            1,490
            
            
            
            1,755Accounts payable and accrued
      expenses
            
            
            (127,742
            )
            
            
            (72,087
            )Gift certificates and credit
      card and loyalty rewards programs
            
            
            (13,977
            )
            
            
            (6,435
            )Other long-term
      liabilities
            
            
            23,161
            
            
            
            16,444Income taxes
      payable/receivable
            
            
            (36,926
            )
            
            
            (24,280
            )Net cash used in operating
      activities
            
            
            (143,374
            )
            
            
            (89,527
            )CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      and equipment additions
            
            
            (91,479
            )
            
            
            (134,386
            )Purchases
      of economic development bonds
            
            
            --
            
            
            
            (10,052
            )Proceeds
      from disposition of property and equipment
            
            
            --
            
            
            
            3,855Proceeds
      from retirements and maturities of economic development
    bonds
            
            
            4,738
            
            
            
            43,763Change
      in credit card loans receivable, net
            
            
            2,680
            
            
            
            1,960Change
      in cash reserves for retained interests
            
            
            6,000
            
            
            
            --Other
      investing changes, net
            
            
            (3,574
            )
            
            
            (754
            )Net cash used in investing
      activities
            
            
            (81,635
            )
            
            
            (95,614
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Change in unpresented checks
      net of bank balance
            
            
            2,894
            
            
            
            32,615Change in time deposits,
      net
            
            
            40,991
            
            
            
            (17,002
            )Changes in short-term
      borrowings of financial services subsidiary, net
            
            
            (100,000
            )
            
            
            20,509Borrowings on revolving credit
      facilities and inventory financing
            
            
            478,474
            
            
            
            254,617Repayments on revolving credit
      facilities and inventory financing
            
            
            (307,492
            )
            
            
            (261,371
            )Issuances of long-term
      debt
            
            
            61,200
            
            
            
            60,800Payments on long-term
      debt
            
            
            (1,078
            )
            
            
            (1,291
            )Exercise of employee stock
      options
            
            
            6,651
            
            
            
            2,932Other financing changes,
      net
            
            
            312
            
            
            
            658Net cash provided by financing
      activities
            
            
            181,952
            
            
            
            92,467Net
      change in cash and cash equivalents
            
            
            (43,057
            )
            
            
            (92,674
            )Cash
      and cash equivalents, at beginning of period
            
            
            131,182
            
            
            
            172,903Cash
      and cash equivalents, at end of period
            
            $
            88,125
            
            
            $
            80,229







Refer to
notes to unaudited condensed consolidated financial statements.





5
 TABLE OF CONTENTS


CABELA’S INCORPORATED AND SUBSIDIARIES
              NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              (Dollars
      in Thousands Except Share and Per Share Amounts)
              (Unaudited)





1.            MANAGEMENT
REPRESENTATIONS





The
condensed consolidated financial statements included herein are unaudited and
have been prepared by Cabela’s Incorporated and its wholly-owned subsidiaries
(“Cabela’s,” “Company,” “we,” “our,” or “us”) 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. Our condensed consolidated balance sheet as of December
29, 2007, was derived from the Company’s audited consolidated balance sheet as
of that date. All other condensed consolidated financial statements contained
herein are unaudited and reflect all adjustments which are, in the opinion of
management, necessary to summarize fairly our financial position and results of
operations and cash flows for the periods presented. All of these adjustments
are of a normal recurring nature. All material intercompany balances and
transactions have been eliminated in consolidation. Because of the seasonal
nature of our operations, results of operations of any single reporting period
should not be considered as indicative of results for a full year. These
condensed consolidated financial statements should be read in conjunction with
the Company’s audited consolidated financial statements for the fiscal year
ended December 29, 2007.





Reporting
Periods:





Unless
otherwise stated, the fiscal periods referred to in the notes to these condensed
consolidated financial statements are the 13 weeks ended June 28, 2008 (the
“three months ended June 2008”), the 13 weeks ended June 30, 2007 (the “three
months ended June 2007”), the 26 weeks ended June 28, 2008 (the “six months
ended June 2008”), the 26 weeks ended June 30, 2007 (the “six months ended June
2007”), and the 52 weeks ended December 29, 2007 (“year ended
2007”).








2.
            CREDIT
      CARD LOANS AND SECURITIZATION





The
Company’s wholly-owned bank subsidiary, World’s Foremost Bank (“WFB”), has
established a trust for the purpose of routinely securitizing and selling credit
card loans. WFB maintains responsibility for servicing the securitized loans and
receives a servicing fee based on the average outstanding loans in the
trust.  Servicing fees are paid monthly and reflected as a component
of Financial Services revenue. The trust issues commercial paper or long-term
notes. Variable notes are priced at a benchmark rate plus a
spread.  Fixed-rate notes are priced on a swap rate plus a
spread.  WFB retains rights to future cash flows arising after
investors have received the return to which they are entitled and after certain
administrative costs of operating the trust. This portion of the retained
interests is known as interest-only strips and is subordinate to investors’
interests. The value of the interest-only strips is subject to credit, payment
rate, and interest rate risks on the loans sold. The investors have no recourse
to the assets of WFB for failure of debtors to pay. However, as contractually
required, WFB establishes certain cash accounts, known as cash reserve accounts,
to be used as collateral for the benefit of investors.


6
 TABLE OF CONTENTS





CABELA’S
      INCORPORATED AND SUBSIDIARIES
              NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              (Dollars
      in Thousands Except Share and Per Share Amounts)
              (Unaudited)





Credit
card loans consisted of the following at or for the periods ended:





June
      28,
              2008
            
            
            December
      29,
              2007
            
            
            June
      30,
              2007Credit
      card loans held for sale (including transferor’s interest of $169,373,
              $166,700
      and $116,483)
            
            $
            173,616
            
            
            $
            178,258
            
            
            $
            119,452Credit
      card loans receivable, net of allowances of $1,254, $1,197 and
      $1,193
            
            
            10,408
            
            
            
            13,635
            
            
            
            13,598Total
            
            $
            184,024
            
            
            $
            191,893
            
            
            $
            133,050Composition
      of credit card loans at periods ended:Loans
      serviced
            
            $
            2,075,236
            
            
            $
            2,058,235
            
            
            $
            1,659,926Loans
      securitized and sold to outside investors
            
            
            (1,877,023
            )
            
            
            (1,850,000
            )
            
            
            (1,519,000
            )Securitized
      loans with securities owned by WFB which are classified as
              retained
      interests
            
            
            (9,929
            )
            
            
            (12,650
            )
            
            
            (5,037
            )188,284
            
            
            
            195,585
            
            
            
            135,889Less
      adjustments to market value and allowance for loan losses
            
            
            (4,260
            )
            
            
            (3,692
            )
            
            
            (2,839
            )Total
      (including transferor’s interest of $169,373, $166,700 and
      $116,483)
            
            $
            184,024
            
            
            $
            191,893
            
            
            $
            133,050Transferor’s
      interest restricted for repayment of secured borrowing at the
              respective
      periods ended
            
            $
            --
            
            
            $
            133,333
            
            
            $
            43,667Delinquent
      loans in the managed credit card loan portfolio at the respective
              periods
      ended:30-89
      days
            
            
            15,737
            
            
            
            14,319
            
            
            
            9,98390
      days or more and still accruing
            
            
            6,960
            
            
            
            5,835
            
            
            
            4,442







Three Months Ended
            
            
            Six Months EndedJune
      28,
              2008
            
            
            June
      30,
              2007
            
            
            June
      28,
              2008
            
            
            June
      30,
              2007Total
      net charge-offs on the managed credit card
              loans
      portfolio
            
            $
            13,866
            
            
            $
            6,645
            
            
            $
            26,256
            
            
            $
            13,978Annual
      average credit card loans:Managed
      credit card loans
            
            
            2,013,065
            
            
            
            1,606,616
            
            
            
            1,987,565
            
            
            
            1,583,918Securitized
      credit card loans including
              transferor’s
      interest
            
            
            1,980,347
            
            
            
            1,577,681
            
            
            
            1,952,030
            
            
            
            1,549,957Total
      net charge-offs as a percentage of annual
              average
      managed credit card loans
            
            
            2.76
            %
            
            
            1.65
            %
            
            
            2.64
            %
            
            
            1.76
            %












7
 TABLE OF CONTENTS





CABELA’S
      INCORPORATED AND SUBSIDIARIES
              NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              (Dollars
      in Thousands Except Share and Per Share Amounts)
              (Unaudited)





Retained
Interests:





Retained
interests in securitized loans consisted of the following at the periods
ended:





June
      28,
              2008
            
            
            December
      29,
              2007
            
            
            June
      30,
              2007Cash
      reserve account
            
            $
            6,292
            
            
            $
            11,965
            
            
            $
            10,076Interest-only
      strips
            
            
            22,169
            
            
            
            27,162
            
            
            
            24,978Subordinated
      asset-backed variable funding notes
            
            
            9,929
            
            
            
            12,650
            
            
            
            5,037$
            38,390
            
            
            $
            51,777
            
            
            $
            40,091








Certain
restrictions exist related to securitization transactions that protect
certificate and note holders against declining performance of the credit card
loans. In the event performance declines outside stated parameters and waivers
are not granted by certificate holders, note holders and/or credit enhancement
providers, a rapid amortization of the certificates and notes could potentially
occur. The credit card loans performed within established guidelines during the
three and six months ended June 2008 and 2007.








3.           SHORT-TERM
BORROWINGS OF FINANCIAL SERVICES SUBSIDIARY





On June
21, 2007, WFB entered into a variable funding facility credit agreement that is
secured by a participation interest in the transferor’s interest of the Cabela’s
Master Credit Card Trust.  No amount was outstanding at June 28, 2008,
and at December 29, 2007, $100,000 was outstanding.  The weighted
average interest rate on the facility was 3.88% for the six months ended June
2008.  On May 29, 2008, this credit agreement was modified to a total
commitment of $25,000 and was extended until May 28, 2009.





WFB has
unsecured federal funds purchase agreements with two financial
institutions.  The maximum amount that can be borrowed is $85,000.
There were no amounts outstanding at June 28, 2008, December 29, 2007, or June
30, 2007.  During the six months ended June 2008 and 2007, the average
balance outstanding was $37,947 and $953 with a weighted average rate of 3.05%
and 5.73%, respectively.


8
 TABLE OF CONTENTS





CABELA’S
      INCORPORATED AND SUBSIDIARIES
              NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              (Dollars
      in Thousands Except Share and Per Share Amounts)
              (Unaudited)





4. LONG-TERM
DEBT AND CAPITAL LEASES





Long-term
debt, including revolving credit facilities and capital leases, consisted of the
following at the periods ended:





June
      28,
              2008
            
            
            December
      29,
              2007
            
            
            June
      30,
              2007Unsecured
      revolving credit facility for $430,000 expiring June 30,
    2012
            
            $
            220,940
            
            
            $
            50,576
            
            
            $
            --Unsecured
      senior notes due 2008-2009 with interest at 4.95%
            
            
            50,000
            
            
            
            50,000
            
            
            
            75,000Unsecured
      notes payable due 2016 with interest at 5.99%
            
            
            215,000
            
            
            
            215,000
            
            
            
            215,000Unsecured
      senior notes payable due 2017 with interest at 6.08%
            
            
            60,000
            
            
            
            60,000
            
            
            
            60,000Unsecured
      senior notes due 2012-2018 with interest at 7.20%
            
            
            57,000
            
            
            
            --
            
            
            
            --Unsecured
      revolving credit facility for $15,000 for Canadian operations
              expiring
      June 30, 2010, with interest at 4.75% at June 28, 2008
            
            
            7,143
            
            
            
            7,447
            
            
            
            --Capital
      lease obligations payable through 2036
            
            
            13,671
            
            
            
            13,939
            
            
            
            13,859Other
      long-term debt
            
            
            9,757
            
            
            
            6,423
            
            
            
            7,228Total debt
            
            
            633,511
            
            
            
            403,385
            
            
            
            371,087Less
      current portion of debt
            
            
            (26,701
            )
            
            
            (26,785
            )
            
            
            (26,738
            )Long-term debt, less current
      maturities
            
            $
            606,810
            
            
            $
            376,600
            
            
            $
            344,349







At June
28, 2008, we had a credit agreement providing for a $430,000 unsecured revolving
credit facility.  This credit facility was increased from $325,000
effective April 2, 2008.  Other than the increase in borrowing
capacity, the terms of the credit agreement remain unchanged.  The
credit facility may be increased to $450,000, and permits the issuance of up to
$200,000 in letters of credit and standby letters of credit, which reduce the
overall credit limit available under the credit facility.  During the
six months ended June 2008 and 2007, the average principal balance outstanding
on the line of credit was $176,966 and $8,022, respectively, and the weighted
average interest rate was 3.90% and 6.14%, respectively.  Letters of
credit and standby letters of credit totaling $45,719, $59,596 and $105,363 were
outstanding at June 28, 2008, December 29, 2007, and June 30, 2007,
respectively.  The average outstanding amount of total letters of
credit during the six months ended June 2008 and 2007 was $47,395 and $58,302,
respectively.





On
January 16, 2008, we issued and sold $57,000 of 7.20% fixed-rate unsecured
senior notes to institutional buyers.  The notes have a final
maturity of 10 years (January 16, 2018) and an average life of seven
years.  Scheduled principal repayments of $8,143 are payable beginning
January 16, 2012, and annually thereafter.  Interest is payable
semi-annually.  We used the proceeds to pay down existing debt and for
general corporate purposes.





We have
financing agreements that allow certain boat and all-terrain vehicle merchandise
vendors to give us extended payment terms.   The vendors are
responsible for all interest payments, with certain exceptions, for the
financing period and the financing company holds a security interest in the
specific inventory held by Cabela’s.  We record this merchandise in
inventory.  Our revolving credit facility limits this security
interest to $50,000.  The extended payment terms to the vendor do not
exceed one year.  The outstanding liability, included in accounts
payable, was $8,851, $7,988 and $3,074 at June 28, 2008, December 29, 2007, and
June 30, 2007, respectively.





At June
28, 2008, we were in compliance with all financial covenants under our credit
agreements and unsecured notes.


9
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CABELA’S
      INCORPORATED AND SUBSIDIARIES
              NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              (Dollars
      in Thousands Except Share and Per Share Amounts)
              (Unaudited)








5. INTEREST
(EXPENSE) INCOME, NET





Interest
expense, net of interest income, consisted of the following for the periods
presented.





Three Months Ended
            
            
            Six Months EndedJune
      28,
              2008
            
            
            June
      30,
              2007
            
            
            June
      28,
              2008
            
            
            June
      30,
              2007Interest
      expense
            
            $
            (8,418
            )
            
            $
            (5,159
            )
            
            $
            (15,999
            )
            
            $
            (9,853
            )Capitalized
      interest
            
            
            663
            
            
            
            323
            
            
            
            1,079
            
            
            
            383Interest
      income
            
            
            7
            
            
            
            427
            
            
            
            31
            
            
            
            1,663$
            (7,748
            )
            
            $
            (4,409
            )
            
            $
            (14,889
            )
            
            $
            (7,807
            )











6.
            INCOME
      TAXES





Effective
April 1, 2008, we completed a legal entity restructuring by merging certain
subsidiaries resulting in the major selling channels (catalog, Internet, and
retail) residing in a single legal entity.  Prior to the
restructuring, state net operating losses were being carried
forward.  Under the previous operating structure, the losses were
likely to have expired unused, therefore a full valuation allowance was
established.  The surviving entity in the restructuring is anticipated
to generate sufficient taxable income to recognize the tax benefit of these the
net operating losses in full.  Accordingly, in the second quarter of
2008, we reversed the state net operating losses valuation allowance of
$916,000.





A
reconciliation of the statutory federal tax rate to the effective income tax
rate is as follows for the periods presented.





Three Months Ended
            
            
            Six Months EndedJune
      28,
              2008
            
            
            June
      30,
              2007
            
            
            June
      28,
              2008
            
            
            June
      30,
              2007Statutory
      federal taxes
            
            
            35.0
            %
            
            
            35.0
            %
            
            
            35.0
            %
            
            
            35.0
            %State
      income taxes, net of federal tax benefit
            
            
            1.6
            
            
            
            1.7
            
            
            
            1.6
            
            
            
            1.7State
      net operating losses valuation allowance release
            
            
            (10.3
            )
            
            
            --
            
            
            
            (3.7
            )
            
            
            --Change
      in state deferred tax rates
            
            
            (4.3
            )
            
            
            --
            
            
            
            (1.6
            )
            
            
            --Change
      in tax liabilities
            
            
            (3.8
            )
            
            
            --
            
            
            
            (1.4
            )
            
            
            (1.1
            )Other,
      net
            
            
            (0.4
            )
            
            
            0.7
            
            
            
            0.2
            
            
            
            1.317.8
            %
            
            
            37.4
            %
            
            
            30.1
            %
            
            
            36.9
            %











10
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CABELA’S
      INCORPORATED AND SUBSIDIARIES
              NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              (Dollars
      in Thousands Except Share and Per Share Amounts)
              (Unaudited)








7.
            COMMITMENTS
      AND CONTINGENCIES





We lease
various buildings, computer equipment, signs, and storage space under operating
leases, which expire on various dates through April 2033.  Rent
expense on these leases as well as other month to month rentals was $3,277 and
$6,414 for the three and six months ended June 2008, respectively, and $2,741
and $5,495 for the three and six months ended June 2007, respectively. The
following is a schedule of future minimum rental payments under operating leases
as of June 28, 2008:





For
      the six months ending December 27, 2008
            
            $
            3,331For
      fiscal years:2009
            
            
            5,5702010
            
            
            5,0902011
            
            
            4,6012012
            
            
            4,167Thereafter
            
            
            78,702$
            101,461








We have
entered into certain lease agreements for retail store
locations.  Certain leases include tenant allowances that will be
amortized over the life of the lease. During the six months ended June 2008, we
received $21,977 in tenant allowances.





We have
entered into real estate purchase, construction, and/or economic development
agreements for various new retail store site locations.  At June 28,
2008, we had total estimated cash commitments of approximately $110,000 for
projected retail store-related expenditures and the purchase of future economic
development bonds connected with the development, construction, and completion
of new retail stores for 2008 and 2009.  This does not include any
amounts for contractual obligations associated with retail store locations where
we are in the process of certain negotiations.





Under
various grant programs, state or local governments provide funding for certain
costs associated with developing and opening a new retail store. We generally
receive grant funding in exchange for commitments, such as assurance of agreed
employment and wage levels at the retail store or that the retail store will
remain open, made by us to the state or local government providing the funding.
The commitments typically phase out over five to 10 years.  If we fail
to maintain the commitments during the applicable period, the funds received may
have to be repaid or other adverse consequences may arise, which could affect
our cash flows and profitability. As of June 28, 2008, December 29, 2007, and
June 30, 2007, the total amount of grant funding subject to a specific
contractual remedy was $8,445, $13,049 and $13,303, respectively.





Under our
open account document instructions program, which provides for our
company-issued letters of credit, we had obligations to pay participating
vendors $27,748, $6,399 and $3,592 as of June 28, 2008, December 29, 2007, and
June 30, 2007, respectively.  This program began in April
2007.


11
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CABELA’S
      INCORPORATED AND SUBSIDIARIES
              NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              (Dollars
      in Thousands Except Share and Per Share Amounts)
              (Unaudited)





WFB
enters into financial instruments with off balance sheet risk in the normal
course of business through the origination of unsecured credit card loans. These
financial instruments consist of commitments to extend credit and totaled
$12,421,000, $11,635,000 and $10,471,000 at June 28, 2008, December 29, 2007,
and June 30, 2007, respectively. These commitments are in addition to any
current outstanding balances of a cardholder.  These instruments
involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the consolidated balance sheets. The principal amounts of these
instruments reflect the maximum exposure WFB has in the instruments. WFB has not
experienced and does not anticipate that all of the customers will exercise
their entire available line of credit at any given point in time. WFB has the
right to reduce or cancel these available lines of credit at any
time.





Litigation and
Claims– We are party to various proceedings, lawsuits, disputes, and
claims arising in the ordinary course of our business.  These actions
include commercial, intellectual property, employment, and product liability
claims.  Some of these actions involve complex factual and legal
issues and are subject to uncertainties.  We cannot predict with
assurance the outcome of the actions brought against us.  Accordingly,
adverse developments, settlements, or resolutions may occur and negatively
impact earnings in the quarter of such development, settlement, or
resolution.  However, we do not believe that the outcome of any
current action would have a material adverse effect on our results of
operations, cash flows, or financial position taken as a whole.





8. STOCK OPTION
PLANS





Employee Stock
Option Plans– The Cabela’s Incorporated 2004 Stock Plan (the “2004
Plan”) provides for the grant of non-qualified stock options, incentive stock
options, stock appreciation rights, restricted stock, restricted stock units,
and other stock-based awards to employees, directors, and consultants. Options
granted under the 2004 Plan have a term of no greater than ten years from the
grant date and are exercisable in accordance with the vesting schedule
determined at the time the awards are granted. During May 2008, there were
1,065,400 options granted to employees and 12,000 options granted to
non-employee directors, all at an exercise price of $15.25 per
share.  The options have an eight-year term and vest over three years
for employees and one year for non-employee directors.  As of June 28,
2008, there were 4,654,368 shares subject to options and 1,598,132 shares
authorized and available for grant under the 2004 Plan.





Under our
1997 Stock Option Plan there were 1,114,567 shares subject to options as of June
28, 2008, with no shares available for grant.  Options issued expire
on the fifth or the tenth anniversary of the date of the grant under this
plan.





During
the six months ended June 2008, there were 575,005 options
exercised.  The aggregate intrinsic value of awards exercised was
$2,201 and $7,252 during the six months ended June 2008 and 2007,
respectively.  Based on our closing stock price of $11.08 as of June
28, 2008, the total number of in-the-money awards exercisable at June 28, 2008,
was 606,268.





We
recorded share-based compensation expense of $1,652 ($1,241 after-tax, or $0.02
per diluted share) and $3,072 ($2,067 after-tax, or $.03 per diluted share) for
the three and six months ended June 2008, respectively, and $1,259 ($787
after-tax, or $0.01 per diluted share) and $2,115 ($1,322 after-tax, or $.02 per
diluted share) for the three and six months ended June 2007,
respectively.  Compensation expense related to our share-based payment
awards is recorded in selling, distribution, and administrative expenses in the
consolidated statements of income.





As of
June 28, 2008, the total unrecognized deferred share-based compensation balance
for unvested shares issued, net of expected forfeitures, was approximately
$10,650, net of tax, which is expected to be amortized over a weighted average
period of 3.0 years.





Employee Stock
Purchase Plan– The maximum number of shares of common stock available
for issuance under our Employee Stock Purchase Plan (the “ESPP”) is
1,835,000.  During the six months ended June 2008, there were 124,971
shares issued under the ESPP.  As of June 28, 2008, there were
1,320,305 shares authorized and available for issuance.  We intend to
utilize market purchases, rather than new issuances, whenever
possible.


12
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CABELA’S
      INCORPORATED AND SUBSIDIARIES
              NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              (Dollars
      in Thousands Except Share and Per Share Amounts)
              (Unaudited)








9.
            STOCKHOLDERS’
      EQUITY AND DIVIDEND RESTRICTIONS





The most
significant restrictions on the payment of dividends are the covenants contained
in our revolving credit agreement and unsecured senior notes purchase
agreements.  At June 28, 2008, we had unrestricted retained earnings
of $108,933 available for dividends.  However, we have never declared
or paid any cash dividends on our common stock and we do not anticipate paying
any cash dividends in the foreseeable future.  Nebraska banking laws
also govern the amount of dividends that WFB can pay to Cabela’s.





Other
Comprehensive Income (Loss)– The components of accumulated other
comprehensive income (loss), net of related taxes, are as follows at the periods
ended:





June
      28,
              2008
            
            
            December
      29,
              2007
            
            
            June
      30,
              2007Accumulated
      net unrealized holding losses on economic development
              bonds
            
            $
            (3,526
            )
            
            $
            (806
            )
            
            $
            (845
            )Accumulated
      net unrealized holding gains on derivatives
            
            
            92
            
            
            
            76
            
            
            
            33Cumulative
      foreign currency translation adjustments
            
            
            (2
            )
            
            
            7
            
            
            
            --Total
      accumulated other comprehensive income (loss)
            
            $
            (3,436
            )
            
            $
            (723
            )
            
            $
            (812
            )







10.           COMPREHENSIVE
INCOME





The
components of comprehensive income and related tax effects were as follows for
the periods presented.







Three Months Ended
              
              
              Six Months EndedJune
      28,
                2008
              
              
              June
      30,
                2007
              
              
              June
      28,
                2008
              
              
              June
      30,
                2007Net
      income
              
              $
              7,279
              
              
              $
              11,264
              
              
              $
              17,235
              
              
              $
              18,406Changes
      in net unrealized holding losses on economic
                development
      bonds, net of taxes of $156, $534, $1,594
                and
      $683
              
              
              (272
              )
              
              
              (890
              )
              
              
              (2,720
              )
              
              
              (1,138
              )Changes
      in net unrealized holding gains on derivatives
                designated
      as cash flow hedges, net of taxes of $14,
                $11,
      $80 and $25
              
              
              25
              
              
              
              18
              
              
              
              138
              
              
              
              42Less
      adjustment for reclassification of derivatives
                included
      in net income, net of taxes of $38, $15,
                $70
      and $19
              
              
              (66
              )
              
              
              (25
              )
              
              
              (122
              )
              
              
              (31
              )(41
              )
              
              
              (7
              )
              
              
              16
              
              
              
              11Foreign
      currency translation adjustment
              
              
              7
              
              
              
              --
              
              
              
              (9
              )
              
              
              --Comprehensive
      income
              
              $
              6,973
              
              
              $
              10,367
              
              
              $
              14,522
              
              
              $
              17,279
 
   13
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CABELA’S
      INCORPORATED AND SUBSIDIARIES
              NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              (Dollars
      in Thousands Except Share and Per Share Amounts)
              (Unaudited)





11.           EARNINGS
PER SHARE





The
following table reconciles the number of shares utilized in the earnings per
share calculations for the periods presented.




Three Months Ended
            
            
            Six Months EndedJune
      28,
              2008
            
            
            June
      30,
              2007
            
            
            June
      28,
              2008
            
            
            June
      30,
              2007Weighted average
      number of shares:Common
      shares – basic
            
            
            66,203,423
            
            
            
            65,782,822
            
            
            
            66,068,902
            
            
            
            65,639,217Effect of incremental dilutive
      securities:Stock options and employee
      stock purchase
              plan
      shares
            
            
            649,322
            
            
            
            1,328,976
            
            
            
            692,513
            
            
            
            1,612,491Common
      shares – diluted
            
            
            66,852,745
            
            
            
            67,111,798
            
            
            
            66,761,415
            
            
            
            67,251,708Options
      outstanding considered anti-dilutive
            
            
            4,070,688
            
            
            
            4,000
            
            
            
            4,070,688
            
            
            
            4,000











12.           SUPPLEMENTAL
CASH FLOW INFORMATION





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





Balance
      at
              June
      28,
              2008
            
            
            Balance
      at
              June
      30,
              2007Non-cash financing and
      investing activities:Accrued
      property and equipment additions (1)
            
            $
            13,959
            
            
            $
            47,398Capital
      lease obligations
            
            
            --
            
            
            
            202





Six Months EndedJune
      28,
              2008
            
            
            June
      30,
              2007Other cash flow
      information:Interest
      paid
            
            $
            18,169
            
            
            $
            11,896Capitalized
      interest
            
            
            (1,079
            )
            
            
            (383
            )Interest
      paid, net of capitalized interest
            
            $
            17,090
            
            
            $
            11,513Income taxes,
    net
            
            $
            47,547
            
            
            $
            31,030





(1)
            Accrued property and equipment
      additions are recognized in the condensed consolidated statements of cash
      flows in the period they are
paid.








14
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CABELA’S
      INCORPORATED AND SUBSIDIARIES
              NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              (Dollars
      in Thousands Except Share and Per Share Amounts)
              (Unaudited)





13.           SEGMENT
REPORTING





We have
three reportable segments: Retail, Direct, and Financial
Services.  The Retail segment sells products and services through our
retail stores; the Direct segment sells products through direct mail catalogs
and e-commerce websites (Cabelas.com and complementary websites); and the
Financial Services segment issues co-branded credit cards.  Operating
costs for the Retail segment primarily consists of labor, advertising,
depreciation, and occupancy costs of retail stores.  For the Direct
segment, operating costs primarily consist of catalog costs, e-commerce
advertising costs, and order processing costs.  Operating costs for
the Financial Services segment primarily consists of advertising and promotion,
marketing fees, third party services for processing credit card transactions,
salaries, and other general and administrative costs.





Revenue
included in Corporate Overhead and Other is primarily made up of land sales,
amounts received from our outfitter services, real estate rental income, and
fees earned through our travel business and other complementary business
services.  Corporate Overhead and Other expenses include unallocated
shared-service costs, operations of various ancillary subsidiaries such as real
estate development and travel, and eliminations.  Unallocated
shared-service costs include receiving, distribution, and storage costs of
inventory, merchandising, and quality assurance costs, as well as corporate
headquarters occupancy costs.





Segment
assets are those directly used in or clearly allocable to an operating segment’s
operations.  For the Retail segment, assets include inventory in the
retail stores, land, buildings, fixtures, and leasehold
improvements.   For the Direct segment, assets include deferred
catalog costs and fixed assets.  Included in the assets of these two
segments is goodwill totaling $4,474 as of June 28, 2008, that has been
allocated $969 to the Direct segment and $3,505 to the Retail
segment.  For the Financial Services segment, assets include cash,
credit card loans, retained interest, buildings, and fixtures.  Assets
for the Corporate Overhead and Other segment include corporate headquarters and
facilities, merchandise distribution inventory, shared technology infrastructure
and related information systems, corporate cash and cash equivalents, economic
development bonds, prepaid expenses, deferred income taxes, and other corporate
long-lived assets.  Depreciation, amortization, and property and
equipment expenditures of each segment are allocated to each respective
segment.  Intercompany revenue between segments has been eliminated in
consolidation.





Results
by business segment are presented in the following table for the three months
ended June 2008 and 2007:





Three Months
      Ended
              June 28,
      2008:
            
            Retail
            
            
            Direct
            
            
            Financial
              Services
            
            
            Corporate
              Overhead
              and Other
            
            
            TotalRevenue
      from external
            
            $
            273,122
            
            
            $
            206,630
            
            
            $
            38,369
            
            
            $
            7,831
            
            
            $
            525,952Revenue
      (loss) from internal
            
            
            502
            
            
            
            386
            
            
            
            (116
            )
            
            
            (772
            )
            
            
            --Total revenue
            
            $
            273,624
            
            
            $
            207,016
            
            
            $
            38,253
            
            
            $
            7,059
            
            
            $
            525,952Operating
      income (loss)
            
            $
            22,406
            
            
            $
            26,379
            
            
            $
            11,190
            
            
            $
            (45,123
            )
            
            $
            14,852As a percentage of
      revenue
            
            
            8.2
            %
            
            
            12.7
            %
            
            
            29.3
            %
            
            
            N/A
            
            
            
            2.8
            %Depreciation
      and amortization
            
            $
            10,220
            
            
            $
            891
            
            
            $
            288
            
            
            $
            4,696
            
            
            $
            16,095Assets
            
            
            1,017,088
            
            
            
            504,168
            
            
            
            395,831
            
            
            
            300,461
            
            
            
            2,217,548







15
 TABLE OF CONTENTS





CABELA’S
      INCORPORATED AND SUBSIDIARIES
              NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              (Dollars
      in Thousands Except Share and Per Share Amounts)
              (Unaudited)





Three Months
      Ended
              June 30,
      2007:
            
            Retail
            
            
            Direct
            
            
            Financial
              Services
            
            
            Corporate
              Overhead
              and Other
            
            
            TotalRevenue
      from external
            
            $
            199,029
            
            
            $
            203,487
            
            
            $
            41,166
            
            
            $
            7,517
            
            
            $
            451,199Revenue
      (loss) from internal
            
            
            534
            
            
            
            374
            
            
            
            (152
            )
            
            
            (756
            )
            
            
            --Total revenue
            
            $
            199,563
            
            
            $
            203,861
            
            
            $
            41,014
            
            
            $
            6,761
            
            
            $
            451,199Operating
      income (loss)
            
            $
            22,108
            
            
            $
            33,966
            
            
            $
            8,833
            
            
            $
            (44,655
            )
            
            $
            20,252As a percentage of
      revenue
            
            
            11.1
            %
            
            
            16.7
            %
            
            
            21.5
            %
            
            
            N/A
            
            
            
            4.5
            %Depreciation
      and amortization
            
            $
            6,645
            
            
            $
            1,119
            
            
            $
            268
            
            
            $
            5,759
            
            
            $
            13,791Assets
            
            
            758,521
            
            
            
            422,959
            
            
            
            338,437
            
            
            
            290,782
            
            
            
            1,810,699








Six Months
      Ended
              June 28,
      2008:
            
            Retail
            
            
            Direct
            
            
            Financial
              Services
            
            
            Corporate
              Overhead
              and Other
            
            
            TotalRevenue
      from external
            
            $
            527,069
            
            
            $
            442,649
            
            
            $
            79,179
            
            
            $
            12,594
            
            
            $
            1,061,491Revenue
      (loss) from internal
            
            
            930
            
            
            
            903
            
            
            
            (218
            )
            
            
            (1,615
            )
            
            
            --Total revenue
            
            $
            527,999
            
            
            $
            443,552
            
            
            $
            78,961
            
            
            $
            10,979
            
            
            $
            1,061,491Operating
      income (loss)
            
            $
            49,345
            
            
            $
            59,855
            
            
            $
            21,967
            
            
            $
            (95,229
            )
            
            $
            35,938As a percentage of
      revenue
            
            
            9.3
            %
            
            
            13.5
            %
            
            
            27.8
            %
            
            
            N/A
            
            
            
            3.4
            %Depreciation
      and amortization
            
            $
            20,223
            
            
            $
            1,944
            
            
            $
            586
            
            
            $
            11,089
            
            
            $
            33,842Assets
            
            
            1,017,088
            
            
            
            504,168
            
            
            
            395,831
            
            
            
            300,461
            
            
            
            2,217,548








Six Months
      Ended
              June 30,
      2007:
            
            Retail
            
            
            Direct
            
            
            Financial
              Services
            
            
            Corporate
              Overhead
              and Other
            
            
            TotalRevenue
      from external
            
            $
            383,276
            
            
            $
            441,029
            
            
            $
            77,050
            
            
            $
            11,935
            
            
            $
            913,290Revenue
      (loss) from internal
            
            
            1,041
            
            
            
            717
            
            
            
            (302
            )
            
            
            (1,456
            )
            
            
            --Total revenue
            
            $
            384,317
            
            
            $
            441,746
            
            
            $
            76,748
            
            
            $
            10,479
            
            
            $
            913,290Operating
      income (loss)
            
            $
            39,463
            
            
            $
            66,459
            
            
            $
            17,392
            
            
            $
            (90,671
            )
            
            $
            32,643As a percentage of
      revenue
            
            
            10.3
            %
            
            
            15.0
            %
            
            
            22.7
            %
            
            
            N/A
            
            
            
            3.6
            %Depreciation
      and amortization
            
            $
            12,778
            
            
            $
            2,127
            
            
            $
            532
            
            
            $
            11,607
            
            
            $
            27,044Assets
            
            
            758,521
            
            
            
            422,959
            
            
            
            338,437
            
            
            
            290,782
            
            
            
            1,810,699








16
 TABLE OF CONTENTS








CABELA’S
      INCORPORATED AND SUBSIDIARIES
              NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              (Dollars
      in Thousands Except Share and Per Share Amounts)
              (Unaudited)





The
components and amounts of total revenue for the Financial Services business
segment were as follows for the periods presented.





Three Months Ended
              
              
              Six Months EndedJune
      28,
                2008
              
              
              June
      30,
                2007
              
              
              June
      28,
                2008
              
              
              June
      30,
                2007Interest
      and fee income, net of provision for loan losses
              
              $
              8,743
              
              
              $
              6,334
              
              
              $
              19,123
              
              
              $
              11,094Interest
      expense
              
              
              (2,660
              )
              
              
              (1,205
              )
              
              
              (6,162
              )
              
              
              (2,445
              )Net
      interest income, net of provision for loan losses
              
              
              6,083
              
              
              
              5,129
              
              
              
              12,961
              
              
              
              8,649Non-interest
      income:Securitization
      income
              
              
              45,652
              
              
              
              50,026
              
              
              
              89,350
              
              
              
              93,636Other
      non-interest income
              
              
              16,053
              
              
              
              11,308
              
              
              
              32,641
              
              
              
              22,480Total non-interest
      income
              
              
              61,705
              
              
              
              61,334
              
              
              
              121,991
              
              
              
              116,116Less:
      Customer rewards costs
              
              
              (29,535
              )
              
              
              (25,449
              )
              
              
              (55,991
              )
              
              
              (48,017
              )Financial
      Services total revenue
              
              $
              38,253
              
              
              $
              41,014
              
              
              $
              78,961
              
              
              $
              76,748





Our
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 merchandise sales in each
reported period. No single customer accounts for 10% or more of consolidated net
sales. No single product or service accounts for a significant percentage of our
consolidated revenue.






14.
              FAIR
      VALUE MEASUREMENTS




Effective
December 30, 2007, we adopted the provisions of Financial Accounting Standards
(“FAS”) No. 157, Fair Value
Measurements.  This statement defines fair value, establishes a
hierarchal disclosure framework for measuring fair value, and requires expanded
disclosures about fair value measurements.  The provisions of FAS 157
apply to all financial instruments that are being measured and reported on a
fair value basis.  In addition, in February 2008, the Financial
Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) FAS
157-2, Effective Date of FASB
Statement No. 157.  This FSP delays the effective date of FAS
157 to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years for all nonfinancial assets and liabilities, except
those that are recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually).  The partial adoption of FAS
157 did not have any impact on our financial position or results of
operations.  We do not believe that the adoption of FAS 157, as it
relates to nonfinancial assets and liabilities, will have a material impact on
our financial position or results of operations.





17
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CABELA’S
      INCORPORATED AND SUBSIDIARIES
              NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              (Dollars
      in Thousands Except Share and Per Share Amounts)
              (Unaudited)





As
defined by FAS 157, fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date.  In determining fair value, we
use various methods including discounted cash flow projections based on
available market interest rates and management estimates of future cash
payments.   Financial instrument assets and liabilities measured
and reported at fair value are classified and disclosed in one of the following
categories:





·
            Level
      1 - Quoted market prices in active markets for identical assets or
      liabilities.·
            Level
      2 – Observable inputs other than quoted market prices.·
            Level
      3 – Unobservable inputs corroborated by little, if any, market
      data.





Level 3
is comprised of financial instruments whose fair value is estimated based on
internally developed models or methodologies utilizing significant inputs that
are primarily unobservable from objective sources.  In determining the
appropriate levels, we performed an analysis of the assets and liabilities that
are subject to FAS 157 and determined that at June 28, 2008, all applicable
financial instruments carried on our consolidated balance sheets are classified
as Level 3.  The following table summarizes the valuation of our
recurring financial instruments at June 28, 2008.





Assets
            
            Fair
      Value at
              June
      28,
              2008 (1)Credit
      card loans
            
            $
            173,616Retained
      interests in securitized loans
            
            
            38,390Economic
      development bonds
            
            
            101,316$
            313,322(1)  All
      fair value measurements using Level 3 category.








The table
below presents changes in fair value of our assets measured at fair value on a
recurring basis using significant unobservable inputs (Level 3), as defined in
FAS 157, for the three months ended June 2008.





Credit
      Card
              Loans
            
            
            Retained
              Interests
      in
              Securitized
              Loans
            
            
            Economic
              Development
              BondsBalance,
      March 29, 2008
            
            $
            162,351
            
            
            $
            36,864
            
            
            $
            106,314Total
      gains or losses (realized/unrealized):Included in
    earnings
            
            
            --
            
            
            
            (2,470
            )
            
            
            --Included in other comprehensive
      income
            
            
            --
            
            
            
            --
            
            
            
            (428
            )Purchases,
      issuances, and settlements, net
            
            
            11,265
            
            
            
            3,996
            
            
            
            (4,570
            )Transfers
      in/out of Level 3
            
            
            --
            
            
            
            --
            
            
            
            --Balance,
      June 28, 2008
            
            $
            173,616
            
            
            $
            38,390
            
            
            $
            101,316











18
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CABELA’S
      INCORPORATED AND SUBSIDIARIES
              NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              (Dollars
      in Thousands Except Share and Per Share Amounts)
              (Unaudited)





The table
below presents changes in fair value of our assets measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) for the six
months ended June 2008.





Credit
      Card
              Loans
            
            
            Retained
              Interests
      in
              Securitized
              Loans
            
            
            Economic
              Development
              BondsBalance,
      December 30, 2007
            
            $
            178,258
            
            
            $
            51,777
            
            
            $
            98,035Total
      gains or losses (realized/unrealized):Included in
    earnings
            
            
            --
            
            
            
            (9,332
            )
            
            
            --Included in other comprehensive
      income
            
            
            --
            
            
            
            --
            
            
            
            (4,283
            )Purchases,
      issuances, and settlements, net
            
            
            (4,642
            )
            
            
            (4,055
            )
            
            
            7,564Transfers
      in/out of Level 3
            
            
            --
            
            
            
            --
            
            
            
            --Balance,
      June 28, 2008
            
            $
            173,616
            
            
            $
            38,390
            
            
            $
            101,316








The
carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable, gift certificates (including credit card and loyalty rewards programs),
accrued expenses, short-term borrowings, and income taxes payable included in
the consolidated balance sheets approximate fair value given the short-term
nature of these financial instruments.  The estimated fair value and
disclosures for time deposits and long-term debt included in the consolidated
balance sheets are reported under the provisions of FAS 107 Disclosures About Fair Value of
Financial Instruments.





Fair
values of economic development bonds (“bonds”) are estimated using discounted
cash flow projections based on available market interest rates and management
estimates including the estimated amounts and timing of expected future tax
payments to be received by the municipalities under development
zones.  These fair values do not reflect any premium or discount that
could result from offering these bonds for sale or through early redemption, or
any related income tax impact.  Declines in the fair value of
held-to-maturity and available-for-sale economic development bonds below cost
that are deemed to be other than temporary are reflected in
earnings.





Credit
card loans classified as held for sale, which includes WFB’s transferor’s
interest in securitized credit card loans, are carried at the lower of cost or
market.  Net unrealized losses, if any, are recognized in income
through a valuation allowance.  WFB’s securitization transactions are
treated as sales and the securitized loans are not included in our consolidated
balance sheet.  Gains or losses are recognized at the time of sale,
and depend, in part, on the carrying amount assigned to the credit card loans
sold, which is allocated between the assets sold and retained
interest  based on their relative fair values at date of
transfer.





For
interest-only strips, we estimate related fair values based on the present value
of future expected cash flows using assumptions for credit losses, payment
rates, and discount rates commensurate with the risks involved.  WFB
retains the rights to remaining cash flows (including interchange fees) after
the other costs of the trust are paid.  However, future expected cash
flows for valuation of the interest-only strips do not include interchange
income since interchange income is earned only when a charge is made to a
customer’s account.  WFB is required to maintain a cash reserve
account under certain securitization programs.  The fair value of the
cash reserve accounts are estimated by discounting future cash flows using a
rate reflecting the risks commensurate with similar types of
instruments.  WFB also owns subordinated asset-backed variable funding
notes from two of its securitizations.  The fair value of these
securities approximates book value given the short-term nature of the
notes.





19
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CABELA’S
      INCORPORATED AND SUBSIDIARIES
              NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              (Dollars
      in Thousands Except Share and Per Share Amounts)
              (Unaudited)








15. ACCOUNTING
PRONOUNCEMENTS





As of
December 30, 2007, FAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an Amendment of FASB Statement No.
115, became effective for the Company.  This statement permits
entities to choose to measure many financial instruments and certain other items
at fair value.  We have not elected to adopt the fair value option
under FAS 159 on any of our financial instruments or other items we
held.





In
December 2007, the FASB issued FAS No. 141R, Business Combinations, which
replaces FAS No. 141.  FAS 141R establishes principles and
requirements for how the acquirer of a business recognizes and measures in its
financial statements the identifiable assets acquired and the liabilities
assumed.   This statement applies prospectively to all business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  FAS 141R will be applicable to us beginning in
2009.





In
December 2007, the FASB issued FAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No.
51.  This statement amends ARB No. 51 to establish accounting
and reporting standards for the noncontrolling interest in a subsidiary and for
the deconsolidation of a subsidiary.  FAS 160 is effective for fiscal
years beginning on or after December 15, 2008, including interim
periods.  We do not believe that the adoption of this statement will
have a material effect on our financial position or results of
operations.





In
February 2008, the FASB issued FSP FAS 140-3, Accounting for Transfers of
Financial Assets and Repurchase Financing Transactions.The
objective of this FSP is to provide implementation guidance on accounting for a
transfer of a financial asset and repurchase financing.  The FSP
presumes that an initial transfer of a financial asset and a repurchase
financing are considered part of the same arrangement (linked transaction) under
FAS 140.  However, if certain criteria are met, the initial transfer
and repurchase financing shall not be evaluated as a linked transaction and
shall not be evaluated under FAS 140.  FSP FAS 140-3 is effective for
fiscal years beginning after November 15, 2008.  We do not believe
that the adoption of this statement will have a material effect on our financial
position or results of operations.





In March
2008, the FASB issued FAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133.This statement changesthe existing disclosure
requirements in FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities.FAS
161 requires enhanced disclosures about an entity’s derivative and hedging
activities.  This statement is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008,
with early application encouraged. Since the provisions of this statement are
disclosure related, we do not believe that the adoption of this statement will
have a material effect on our financial position or results of
operations.











20
 TABLE OF CONTENTS








Item2.    Management’s
Discussion and Analysis of Financial Condition and Results of
Operations





This
report contains “forward-looking statements” that are based on our beliefs,
assumptions and expectations of future events, taking into account the
information currently available to us.  All statements other than
statements of current or historical fact contained in this report are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act.  The words “believe,” “may,” “should,”
“anticipate,” “estimate,” “expect,” “intend,” “objective,” “seek,” “plan,” and
similar statements are intended to identify forward-looking
statements.  Forward-looking statements involve risks and
uncertainties that may cause our actual results, performance, or financial
condition to differ materially from the expectations of future results,
performance, or financial condition we express or imply in any forward-looking
statements.  These risks and uncertainties include, but are not
limited to:





·
            the
      strength of the economy;·
            the
      level of discretionary consumer spending;·
            changes
      in consumer preferences and demographic trends;·
            our
      ability to successfully execute our multi-channel
  strategy;·
            the
      ability to negotiate favorable purchase, lease, and/or economic
      development arrangements for new retail store
locations;·
            expansion
      into new markets;·
            market
      saturation due to new 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;·
            trade
      restrictions;·
            political
      or financial instability in countries where the goods we sell are
      manufactured;·
            adverse
      fluctuations in foreign currencies;·
            increases
      in postage rates or paper and printing costs;·
            supply
      and delivery shortages or interruptions caused by system changes or other
      factors;·
            adverse
      or unseasonal weather conditions;·
            fluctuations
      in operating results;·
            the
      cost of fuel increasing;·
            road
      construction around our retail stores;·
            labor
      shortages or increased labor costs;·
            increased
      government regulation;·
            inadequate
      protection of our intellectual property;·
            our
      ability to protect our brand and reputation;·
            decreased
      interchange fees received by our Financial Services business as a result
      of credit card industry litigation;·
            other
      factors that we may not have currently identified or quantified;
      and·
            other
      risks, relevant factors, and uncertainties identified in our filings with
      the SEC (including the information set forth in the “Risk Factors” section
      of our Annual Report on Form 10-K for the fiscal year ended December 29,
      2007 (our “2007 Form 10-K”), and in Part II, Item 1A, of our Quarterly
      Report on Form 10-Q for the fiscal quarter ended March 29, 2008), which
      filings are available at the SEC’s website atwww.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 2007 Form
10-K, as filed with the SEC, and our unaudited interim condensed consolidated
financial statements and the notes thereto appearing elsewhere in this
report.





21
 TABLE OF CONTENTS











Critical
Accounting Policies and Use of Estimates





Our
condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
which require us to make estimates and judgments that affect amounts reported in
the condensed consolidated financial statements and accompanying notes.
Management has discussed the development, selection, and disclosure of critical
accounting policies and estimates with the Audit Committee of Cabela’s Board of
Directors.  While our estimates and assumptions are based on our
knowledge of current events and actions we may undertake in the future, actual
results may ultimately differ from our estimates and assumptions.  Our
estimation processes contain uncertainties because they require management to
make assumptions and apply judgment to make these estimates.  Should
actual results be different than our estimates, we could be exposed to gains or
losses from differences that are material.





Our
critical accounting policies and use of estimates utilized in the preparation of
the condensed consolidated financial statements as of June 28, 2008, remain
unchanged from December 29, 2007.





Cabela’s®





We are a
leading specialty retailer, and the world’s largest direct marketer, of hunting,
fishing, camping, and related outdoor merchandise.  We provide a
quality service to our customers who enjoy an outdoor lifestyle by supplying
outdoor products through our multi-channel retail business consisting of our
Retail and Direct business segments.  Our Retail business segment is
comprised of 28 stores, 27 located in the United States and one in
Canada.   Our Direct business segment is comprised of our catalog
mail order business and our highly acclaimed Internet website.





Our
Financial Services business segment plays an integral role in supporting our
merchandising business.  Our Financial Services business segment is
comprised of our credit card services, which reinforces our strong brand and
strengthens our customer loyalty through our credit card loyalty
programs.





Financial
Overview





Three Months EndedJune
      28,
                  2008
                
                June
      30,
                  2007
                
                
                Increase
                  (Decrease)
                
                
                %
                  Change(Dollars
      in Thousands)Revenue:Retail
                
                $
                273,624
                
                
                $
                199,563
                
                
                $
                74,061
                
                
                
                37.1
                %Direct
                
                
                207,016
                
                
                
                203,861
                
                
                
                3,155
                
                
                
                1.5Total merchandise
      sales
                
                
                480,640
                
                
                
                403,424
                
                
                
                77,216
                
                
                
                19.1Financial
    Services
                
                
                38,253
                
                
                
                41,014
                
                
                
                (2,761
                )
                
                
                (6.7
                )Other revenue
                
                
                7,059
                
                
                
                6,761
                
                
                
                298
                
                
                
                4.4Total revenue
                
                $
                525,952
                
                
                $
                451,199
                
                
                $
                74,753
                
                
                
                16.6Operating
      income
                
                $
                14,852
                
                
                $
                20,252
                
                
                $
                (5,400
                )
                
                
                (26.7
                )Net
      income per diluted share
                
                $
                0.11
                
                
                $
                0.17
                
                
                $
                (0.06
                )
                
                
                (35.3
                )








22
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Six Months EndedJune
      28,
                    2008
                  
                  
                  June
      30,
                    2007
                  
                  
                  Increase
                    (Decrease)
                  
                  
                  %
                    Change(Dollars
      in Thousands)Revenue:Retail
                  
                  $
                  527,999
                  
                  
                  $
                  384,317
                  
                  
                  $
                  143,682
                  
                  
                  
                  37.4
                  %Direct
                  
                  
                  443,552
                  
                  
                  
                  441,746
                  
                  
                  
                  1,806
                  
                  
                  
                  0.4Total merchandise
      sales
                  
                  
                  971,551
                  
                  
                  
                  826,063
                  
                  
                  
                  145,488
                  
                  
                  
                  17.6Financial
    Services
                  
                  
                  78,961
                  
                  
                  
                  76,748
                  
                  
                  
                  2,213
                  
                  
                  
                  2.9Other revenue
                  
                  
                  10,979
                  
                  
                  
                  10,479
                  
                  
                  
                  500
                  
                  
                  
                  4.8Total revenue
                  
                  $
                  1,061,491
                  
                  
                  $
                  913,290
                  
                  
                  $
                  148,201
                  
                  
                  
                  16.2Operating
      income
                  
                  $
                  35,938
                  
                  
                  $
                  32,643
                  
                  
                  $
                  3,295
                  
                  
                  
                  10.1Net
      income per diluted share
                  
                  $
                  0.26
                  
                  
                  $
                  0.27
                  
                  
                  $
                  (0.01
                  )
                  
                  
                  (3.7
                  )





Revenues
for the three months ended June 2008 totaled $526 million, an increase of 16.6%
over the three months ended June 2007.   For the six months ended
June 2008, revenues totaled $1.1 billion, an increase of 16.2% over the six
months ended June 2007.  Revenues increased over the 2007 periods
principally from the opening of nine new stores – the Scarborough, Maine, store
that opened May 15, 2008, plus the eight stores opened in 2007 - one each in
April 2007 and September 2007, and six in the fourth quarter of
2007.





Operating
income totaled $15 million for the three months ended June 2008, a decrease of
$5 million, or 26.7%, compared to the three months ended June 2007, but
increased $3 million, or 10.1%, for the six months ended June 2008 compared to
the six months ended June 2007.  Operating income decreased for the
second quarter of 2008 compared to the second quarter of 2007 primarily due to
increases in credit card loan charge-offs and related decreases in the
interest-only strips associated with our securitized loans.  Operating
income increased to $36 million for the six months ended June 2008 due to
increases in our Retail and Direct merchandise gross margins and to labor
efficiencies in these segments compared to the six months ended June
2007.





Net
income per diluted share for the three and six months ended June 2008 was $0.11
and $0.26, respectively, compared to $0.17 and $0.27, respectively, for the
three and six months ended June 2007.





Our
operating results for the second quarter of 2008 declined compared to the second
quarter of 2007 as we continue to be impacted by a challenging retail and
macroeconomic environment resulting in slowed retail store and Direct
sales.  Comparable store sales decreased $3 million, or 1.6%, for the
three months ended June 2008 compared to the three months ended June 2007, and
$18 million, or 4.9%, for the six months ended June 2008 compared to the six
months ended June 2007.





Other
significant items which directly impacted comparisons of our operating results
for the three and six months ended June 2008 to the three and six months ended
June 2007 were:





·
            Internet
      site visits increasing 40.9% for the three months ended June 2008 compared
      to the same period for 2007, and to 57.4 million visits for the six months
      ended June 2008, an increase of 40.8% over the first six months of 2007,
      as we continue to focus our efforts on utilizing Direct marketing
      programs to increase traffic to our website;·
            selling,
      distribution, and administrative expenses as a percentage of total revenue
      decreased 90 basis points and 30 basis points, respectively, for the three
      and six months ended June 2008 compared to the same periods of 2007, to
      37.0% and 37.2%, respectively;·
            increases
      in Financial Services operating income totaled $2 million and $5 million,
      respectively, for the three and six months ended June 2008 compared to the
      2007 periods, principally from growth in the number of average active
      credit card accounts and average managed credit card loans, partially
      offset by higher credit card loan charge-offs;
  and








23
 TABLE OF CONTENTS








·
            increases
      of $21 million and $53 million, or 14.2 % and 18.3%, respectively, in our
      merchandise gross margin, for the three and six months ended June 2008
      compared to the first six months of 2007; with our merchandise gross
      margin as a percentage of revenue at 34.5% and 35.3% for the three and six
      months ended June 2008, compared to 35.9% and 35.1% for the respective
      2007 periods.





As we
stated in our 2007 annual report, our primary focus for 2008 is on managing our
business efficiently to enhance near-term and long-term results for our
shareholders. We are focusing on improving our retail store operating
metrics.  As announced in our 2007 annual report, we slowed our new
store opening schedule to two stores in 2008 given the continued slowdown
projected in discretionary consumer spending for the remainder of
2008.  Our focus is on the following initiatives:





·
            improve
      our advertising strategy by using more targeted campaigns throughout our
      multi-channel model to increase store traffic;·
            improve
      retail store sales and profitability through enhanced product assortment,
      streamlined flow of merchandise to our retail stores, and reduced
      operating expenses;·
            maintain
      merchandise gross margins in our sales channels;·
            improve
      inventory management by actively managing quantities and product
      deliveries through enhanced leveraging of existing technologies, and by
      reducing unproductive inventory; and·
            the
      successful opening of two new stores in
2008.


.


Retail Store Efficiencies– Our primary
objective is to enhance our retail store efficiencies and improve our operating
results.  We continue to work on this objective by enhancing and
optimizing our retail store merchandising processes, management information
systems, and distribution and logistics capabilities.  We continue to
flex stores more by adding more seasonal product assortments, and improve our
visual merchandising.  Also, we continue to streamline the flow of
merchandise to our stores increasing productivity and reducing labor
costs.  To enhance our customer service at our retail stores, we are
focusing on customer service through training and mentoring
programs.





For the
three and six months ended June 2008 compared to the respective 2007 periods,
operating income for our Retail business segment increased $0.3 million and $10
million, respectively, despite a deteriorating consumer spending
environment.  These increases in operating income were in part due to
improvements in labor productivity in our retail stores.  We opened
our Scarborough, Maine, store on May 15, 2008; and we plan to open our Rapid
City, South Dakota, store in August 2008.





Leverage
Our Multi-Channel Model–We are
offering customers integrated opportunities to access and use our retail store,
catalog, and Internet channels, including the completion of ourcustomer
service enhancements in the first quarter of
2008.  Our in-store pick-up program allows customers to order
products through our catalogs and Internet site, and have them delivered to the
retail store of their choice without incurring shipping costs, increasing foot
traffic in our stores.  Conversely, our expanding retail stores
introduce customers to our Internet and catalog channels.  We intend
to further capitalize on our multi-channel model by building on the strengths of
each channel, primarily through improvements in our merchandise planning and
replenishment systems.  These systems allow us to identify the correct
product mix in each of our retail stores, and also help maintain the proper
inventory levels to satisfy customer demand in both our Retail and Direct
business channels.





Next Generation Stores – To
enhance our returns on capital we are developing a next generation store format
which incorporates the following objectives:





·
            a
      store development modelthat will be
      adaptable to more markets, faster to start-up,and more efficient
      to operate to reduce our investment and increase sales per square
      foot; and·
            to
      provide shopper-friendly layouts with regionalized product mixes, concept
      shops, and new product displays/fixtures featuring an improved
      look.





We have
incorporated many of these next generation store concepts into our Rapid City,
South Dakota, store scheduled to open in August 2008.





24
 TABLE OF CONTENTS





Direct Business Expansion – We
are working on the following key growth objectives to expand our Internet
channel:





·
            natural
      growth by offering industry-leading selection, service, value, and
      quality;·
            category
      expansion to capitalize on the general outdoor enthusiast;
    and·
            targeted
      marketing designed to increase sales overall and to transition customers
      from the catalog channel.





During
the three and six months ended June 2008, our Direct revenue increased $3
million and $2 million, compared to the respective 2007 periods, due to
increases in Internet sales.  Our Direct customer base increased
during the six months ended June 2008 compared to the six months ended June 2007
– positioning ourselves for future revenue growth when the economy
improves.





Growth of Our Credit Card
Business –We are increasing our
Financial Services revenue by attracting new cardholders through low cost
marketing efforts with our Retail and Direct businesses.  By
continuing our conservative underwriting and account management standards and
practices, we are controlling costs in our Financial Services segment through
active management of our credit card delinquencies and charge-offs.





Operations
Review





The three
months ended June 2008 and June 2007 each consisted of 13 weeks, and the six
months ended June 2008 and June 2007 each consisted of 26 weeks.  Our
operating results expressed as a percentage of revenue were as follows for the
periods presented.





Three Months Ended
            
            
            Six Months EndedJune
      28, 2008
            
            
            June
      30, 2007
            
            
            June
      28, 2008
            
            
            June
      30, 2007Revenue
            
            
            100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %Cost
      of revenue
            
            
            60.16
            
            
            
            57.65
            
            
            
            59.37
            
            
            
            58.92Gross profit (exclusive of
      depreciation and amortization)
            
            
            39.84
            
            
            
            42.35
            
            
            
            40.63
            
            
            
            41.08Selling,
      distribution, and administrative expenses
            
            
            37.02
            
            
            
            37.86
            
            
            
            37.25
            
            
            
            37.50Operating
      income
            
            
            2.82
            
            
            
            4.49
            
            
            
            3.39
            
            
            
            3.58Other
      income (expense):Interest (expense) income,
      net
            
            
            (1.48
            )
            
            
            (0.98
            )
            
            
            (1.41
            )
            
            
            (0.86
            )Other income,
    net
            
            
            0.34
            
            
            
            0.48
            
            
            
            0.34
            
            
            
            0.48Total
      other income (expense), net
            
            
            (1.14
            )
            
            
            (0.50
            )
            
            
            (1.07
            )
            
            
            (0.38
            )Income
      before provision for income taxes
            
            
            1.68
            
            
            
            3.99
            
            
            
            2.32
            
            
            
            3.20Provision
      for income taxes
            
            
            0.30
            
            
            
            1.49
            
            
            
            0.70
            
            
            
            1.18Net
      income
            
            
            1.38
            %
            
            
            2.50
            %
            
            
            1.62
            %
            
            
            2.02
            %














25
 TABLE OF CONTENTS








Results
of Operations – Three Months Ended June 2008 Compared to June 2007





Revenues





Three Months EndedJune
      28,
              2008
            
            
            %
            
            
            June
      30,
              2007
            
            
            %
            
            
            Increase
      (Decrease)
            
            
            %
              Change(Dollars
      in Thousands)Retail
            
            $
            273,624
            
            
            
            52.0
            %
            
            $
            199,563
            
            
            
            44.2
            %
            
            $
            74,061
            
            
            
            37.1
            %Direct
            
            
            207,016
            
            
            
            39.4
            
            
            
            203,861
            
            
            
            45.2
            
            
            
            3,155
            
            
            
            1.5Financial
      Services
            
            
            38,253
            
            
            
            7.3
            
            
            
            41,014
            
            
            
            9.1
            
            
            
            (2,761
            )
            
            
            (6.7
            )Other
            
            
            7,059
            
            
            
            1.3
            
            
            
            6,761
            
            
            
            1.5
            
            
            
            298
            
            
            
            4.4$
            525,952
            
            
            
            100.0
            %
            
            $
            451,199
            
            
            
            100.0
            %
            
            $
            74,753
            
            
            
            16.6
            %








Retail
revenue includes sales and services at our retail stores.  Direct
revenue includes sales from orders placed over the phone, by mail, and through
our website.  Financial Services revenue is comprised of
securitization income, interest income, and interchange and other fees, net of
reward program costs, interest expense, and credit losses from our credit card
operations.  Other revenue consists principally of sales of land
surrounding our retail store developments and fees collected from our other real
estate, outfitter services, and travel businesses.





For the
second quarter of 2008, our Retail and Direct sales continue to be impacted by a
challenging retail and macroeconomic environment.  Despite this
challenging environment, revenue increased in the three months ended June 2008
compared to the three months ended June 2007 in our merchandising business
segments, but declined for our Financial Services segment.  Retail
sales increased due to the eight new store openings in 2007 that began in April
2007, and to the Scarborough, Maine, store that opened May 15,
2008.  Direct revenue increased primarily due to increased Internet
sales comparing the respective periods. The decrease in Financial Services
revenue was attributable to increases in the provision for loan losses and
related decreases in the interest-only strips associated with our securitized
loans.





Retail
Revenue–Retail revenue increased $74 million for the three months ended June
2008 primarily due to new store sales increasing compared to the three months
ended June 2007.  The product category that contributed the largest
dollar volume increase to our Retail revenue for the three months ended June
2008 was hunting equipment.





Three Months EndedJune
      28,
                  2008
                
                
                June
      30,
                  2007
                
                
                Increase
                  (Decrease)
                
                
                %
                  Change(Dollars
      in Thousands)Comparable
      stores sales
                
                $
                186,787
                
                
                $
                189,875
                
                
                $
                (3,088
                )
                
                
                (1.6
                )%





Comparable
store sales decreased $3 million, or 1.6%, for the three months ended June 2008
principally because of the challenging macroeconomic and retail industry
environment, a lowering of overall consumer confidence in the United States as
consumers continue to pull back discretionary spending, and competition in
certain markets, all which negatively impacted sales growth.





26
 TABLE OF CONTENTS








Direct
Revenue – Direct
revenue increased $3 million, or 1.5%, due to increased Internet sales offset by
lower catalog sales in the three months ended June 2008 compared to the three
months ended June 2007 and to some cannibalization relating to our new retail
stores that opened in late 2007.  Internet site visits increased
as we continue to focus our efforts on utilizing Direct marketing programs
to increase traffic to our website.  Internet visits increased 40.9%,
to 27.2 million visits for the three months ended June 2008, compared to 19.3
million visits for the three months ended June 2007.  The clothing and
footwear product category was the largest dollar volume contributor to our
Direct revenue for the three months ended June 2008.





Financial
Services Revenue–Key statistics reflecting the performance of our Financial Services
business are shown in the following chart for the three months
ended:





June
      28,
                  2008
                
                
                June
      30,
                  2007
                
                
                Increase
                  (Decrease)
                
                
                %
                  Change(Dollars
      in Thousands Except Average Balance per Account )Average
      balance of managed credit card loans
                
                $
                2,013,065
                
                
                $
                1,606,616
                
                
                $
                406,449
                
                
                
                25.3
                %Number
      of average active credit card accounts
                
                
                1,111,069
                
                
                
                953,150
                
                
                
                157,919
                
                
                
                16.6Average
      balance per active credit card account
                
                $
                1,812
                
                
                $
                1,686
                
                
                $
                126
                
                
                
                7.5Net
      charge-offs
                
                
                13,866
                
                
                
                6,645
                
                
                
                7,221
                
                
                
                108.7Net
      charge-offs as a percentage of average managed credit card
      loans
                
                
                2.76
                %
                
                
                1.65
                %
                
                
                1.11
                %





The
balance of average managed credit card loans increased to $2 billion, or 25.3%,
because of the increase in the number of accounts and the average balance per
account.  The number of accounts increased to 1,111,069, or 16.6%, due
to our marketing efforts to add additional accounts.  Net charge-offs
as a percentage of average managed credit card loans increased to 2.76% for the
second quarter of 2008, up 23 basis points compared to the rate of 2.53% for the
first quarter of 2008, principally because of the challenging economic
environment.





The
components of Financial Services revenue on a generally accepted accounting
principles (“GAAP”) basis are as follows for the three months
ended:





June
      28,
                  2008
                
                
                June
      30,
                  2007Interest
      and fee income, net of provision for loan losses
                
                $
                8,743
                
                
                $
                6,334Interest
      expense
                
                
                (2,660
                )
                
                
                (1,205
                )Net interest income, net of
      provision for loan losses
                
                
                6,083
                
                
                
                5,129Non-interest
      income:Securitization income
      (including gains on sales of credit card loans of $2,470 and
                  $4,258)
                
                
                45,652
                
                
                
                50,026Other non-interest
      income
                
                
                16,053
                
                
                
                11,308Total
      non-interest income
                
                
                61,705
                
                
                
                61,334Less:
      Customer rewards costs
                
                
                (29,535
                )
                
                
                (25,449
                )Financial
      Services revenue
                
                $
                38,253
                
                
                $
                41,014








27
 TABLE OF CONTENTS








Credit
card loans securitized and sold are removed from our consolidated balance sheet,
and the net earnings on these securitized assets, after paying costs associated
with outside investors, are reflected as a component of our securitization
income shown above on a GAAP basis.  Net interest income includes
operating results on the credit card loans receivable we own. Non-interest
income includes servicing income, gains on sales of loans, and income recognized
on our retained interests, as well as interchange income on the entire managed
portfolio.





Managed
credit card loans of the Financial Services business segment include both credit
card loans receivable we own and securitized credit card loans.  The
process by which credit card loans are securitized converts interest income,
interchange income, credit card fees, credit losses, and other income and
expenses on the securitized loans into securitization income.  Because
the financial performance of the total managed portfolio has a significant
impact on earnings we receive from servicing the portfolio, management believes
that evaluating the components of our Financial Services revenue for both owned
loans and securitized loans, as presented below in the non-GAAP presentation, is
important to analyzing results.





Non-GAAP
Presentation – The “non-GAAP” presentation shown below presents the
financial performance of the total managed portfolio of credit card
loans.  Although our condensed consolidated financial statements are
not presented in this manner, we review the performance of the managed portfolio
as presented below.  Interest income, interchange income (net of
customer rewards), and fee income on both the owned and securitized portfolio
are reflected in the respective line items.  Interest paid to outside
investors on the securitized credit card loans is included in interest
expense.  Credit losses on the entire managed portfolio are reflected
in the provision for loan losses.





The
following table sets forth the revenue components of our Financial Services
segment managed portfolio on a non-GAAP basis for the three months
ended:





(Dollars
      in Thousands)
            
            June
      28,
              2008
            
            
            June
      30,
              2007Interest
      income
            
            $
            46,544
            
            
            $
            43,738Interchange
      income, net of customer rewards costs
            
            
            19,996
            
            
            
            16,285Other
      fee income
            
            
            7,991
            
            
            
            6,039Interest
      expense
            
            
            (19,596
            )
            
            
            (19,551
            )Provision
      for loan losses
            
            
            (14,419
            )
            
            
            (7,110
            )Other
            
            
            (2,263
            )
            
            
            1,613Managed
      Financial Services revenue
            
            $
            38,253
            
            
            $
            41,014




Managed Financial
      Services Revenue as a Percentage of Average Managed Credit Card
      Loans:Interest
      income
            
            
            9.2
            %
            
            
            10.9
            %Interchange
      income, net of customer rewards costs
            
            
            4.0
            
            
            
            4.1Other
      fee income
            
            
            1.6
            
            
            
            1.5Interest
      expense
            
            
            (3.9
            )
            
            
            (4.9
            )Provision
      for loan losses
            
            
            (2.9
            )
            
            
            (1.8
            )Other
            
            
            (0.4
            )
            
            
            0.4Managed
      Financial Services revenue
            
            
            7.6
            %
            
            
            10.2
            %








Financial
Services revenue decreased $3 million, or 6.7%, for the three months ended June
2008 compared to the three months ended June 2007.  The increase in
interest income of $3 million in the second quarter of 2008 from the second
quarter of 2007 was due to an increase in managed credit card loans, partially
offset by decreases in interest rates.  The increase in interchange
income of $4 million in the 2008 second quarter from the 2007 second quarter was
driven by net credit card purchases, which increased 18.5%.  Other fee
income increased $2 million due to increases in late fees, overlimit fees, and
payment assurance fees.  The increases in interest income and
interchange income were partially offset by an increase in the provision for
loan losses of $7 million from increases in managed credit card loans and
increases in net charge-offs, and by a decrease of $4 million in the Other
category due to related decreases in the interest-only strips associated with
our securitized loans.





28
 TABLE OF CONTENTS





Other
Revenue





Other
revenue sources include sales of land held for sale, amounts received from our
outfitter services, real estate rental income, and fees earned through our
travel business and other complementary business services.  Other
revenue was flat at $7 million for both the three months ended June 2008 and
2007.  Real estate revenue totaled $5 million for the three months ended
June 2008, primarily from two real estate land parcels sold during this quarter,
compared to $4 million for the three months ended June 2007.  Pre-tax gains
on the sale of real estate totaled $2.1 million for the three months ended June
2008 compared to $1.8 million for the three months ended June 2007.





Gross
Profit





Gross
profit, or gross margin, is defined as total revenue less the costs of related
merchandise sold and shipping costs.  Comparisons of gross profit and
gross profit as a percentage of revenue for our operations, year over year, and
to the retail industry in general, are impacted by:





·
            retail
      store, distribution, and warehousing costs which we exclude from our cost
      of revenue;·
            Financial
      Services revenue that we include in revenue for which there are no costs
      of revenue;·
            real
      estate land sales we include in revenue for which costs vary by
      transaction;·
            outfitter
      services revenue that we included in revenue for which there are no costs
      of revenue; and·
            customer
      shipping charges in revenue which are slightly higher than shipping costs
      in costs of revenue because of our practice of pricing shipping charges to
      match costs.





Accordingly,
comparisons of gross margins on merchandising revenue presented below are the
best metrics for analysis of our gross profit for the three months
ended:





June
      28,
                    2008
                  
                  
                  June
      30,
                    2007
                  
                  
                  Increase
                    (Decrease)
                  
                  
                  %
                    Change(Dollars
      in Thousands)Merchandise
      sales
                  
                  $
                  480,640
                  
                  
                  $
                  403,424
                  
                  
                  $
                  77,216
                  
                  
                  
                  19.1
                  %Merchandise
      gross margin
                  
                  
                  165,597
                  
                  
                  
                  144,975
                  
                  
                  
                  20,622
                  
                  
                  
                  14.2Merchandise
      gross margin as a percentage of merchandise revenue
                  
                  
                  34.5
                  %
                  
                  
                  35.9
                  %
                  
                  
                  (1.4
                  )%





Merchandise Gross
Margins–
Gross margins of our merchandising business increased $21 million, or 14.2%, to
$166 million for the three months ended June 2008.  Merchandise gross
margins as a percentage of revenue of our merchandising business decreased to
34.5% for the three months ended June 2008, from 35.9% for the three months
ended June 2007.  The decrease in merchandise gross margins for the
second quarter of 2008 compared to the second quarter of 2007 is primarily
attributable to lower initial margin, as well as greater markdowns, and to a
continuing increase in hard goods sales with lower margins for the three months
ended June 2008 compared to the three months ended June 2007.  These
decreases were partially offset by an increase in our shipping margin for the
three months ended June 2008 compared to the three months ended June
2007.





29
 TABLE OF CONTENTS








Selling,
Distribution, and Administrative Expenses





Three Months EndedJune
      28,
                    2008
                  
                  
                  June
      30,
                    2007
                  
                  
                  Increase
                    (Decrease)
                  
                  
                  %
                    Change(Dollars
      in Thousands)Selling,
      distribution, and administrative expenses
                  
                  $
                  194,714
                  
                  
                  $
                  170,850
                  
                  
                  $
                  23,864
                  
                  
                  
                  14.0
                  %S,D&A
      expenses as a percentage of  total revenue
                  
                  
                  37.0
                  %
                  
                  
                  37.9
                  %
                  
                  
                  (0.9
                  )%Retail
      store pre-opening costs
                  
                  $
                  2,613
                  
                  
                  $
                  2,416
                  
                  
                  $
                  197
                  
                  
                  
                  8.2





Selling,
distribution, and administrative expenses include all operating expenses related
to our retail stores, Internet website, distribution centers, product
procurement, and overhead costs, including: advertising and marketing, catalog
costs, employee compensation and benefits, occupancy costs, information systems
processing, and depreciation and amortization.





Selling,
distribution, and administrative expenses on a consolidated basis increased $24
million, or 14.0%, for
the three months ended June 2008 over the three months ended June
2007.  The primary reason for the increase was the addition of eight
new stores in 2007 along with the addition of infrastructure necessary to
support this store expansion.  The most significant factors
contributing to the increase in selling, distribution, and administrative
expenses, and the infrastructure expansion required to support the revenue
growth in the second quarter of 2008 from our retail store expansion, included
increases in:





·
            employee
      compensation, benefits, training, and recruitment costs of $12
      million;·
            contract
      labor, and facility and information system depreciation of $4
      million;·
            advertising
      costs of  $3 million; and·
            retail
      store-related operating costs of $5
million.





Significant
selling, distribution, and administrative expense increases and decreases
related to specific business segments included the following:





Retail
Business Segment:


·
            Operating
      costs for new stores that were not open in the comparable period of 2007
      of $20 million, including employee compensation and benefits costs of $12
      million, $5 million in advertising and promotional expenses,
      and lower marketing fees of $1.3 million received from the Financial
      Services segment.·
            A
      decrease in comparable store employee compensation and benefits of $2
      million resulting from staffing changes and declining sales in comparable
      stores.·
            Depreciation
      on new stores not open in the comparable period of 2007 of $4
      million.·
            New
      store pre-opening costs of $3 million, a decrease of $0.2 million over the
      three months ended June 2007.





Direct
Business Segment:


·
            An
      increase in employee compensation and benefits of $1 million principally
      for positions added to support our Direct and multi-channel
      growth.·
            Lower
      marketing fees of $2.7 million received from the Financial Services
      segment.








Financial
Services:


·
            A
      decrease in advertising and promotional costs of $2 million due to new
      marketing incentives received.·
            A
      decrease of $4 million in the marketing fee paid by the Financial Services
      segment to the Retail segment ($1.3 million decrease) and the Direct
      business segment ($2.7 million
decrease).





30
 TABLE OF CONTENTS








Corporate
Overhead, Distribution Centers, and Other:


·
            An
      increase in employee compensation and benefits of $2 million from the
      expansion and improvement of our infrastructure to support our
      growth.·
            Depreciation
      expense decrease of $1 million primarily due to a $1.9 million adjustment
      in the second quarter of 2008 related to depreciation changes in estimated
      lives implemented in April 2008 on information system hardware and
      software.





Operating
Income





Operating
income is revenue less cost of revenue and selling, distribution, and
administrative expenses.  Operating income for our merchandise
business segments excludes costs associated with operating expenses of
distribution centers, procurement activities, and other corporate overhead
costs.




Three Months EndedJune
      28,
                  2008
                
                
                June
      30,
                  2007
                
                
                Increase
                  (Decrease)
                
                
                %
                  Change(Dollars
      in Thousands)Total
      operating income
                
                $
                14,852
                
                
                $
                20,252
                
                
                $
                (5,400
                )
                
                
                (26.7
                )%Total
      operating income as a percentage of total revenue
                
                
                2.8
                %
                
                
                4.5
                %
                
                
                (1.7
                )%Operating
      income by business segment:Retail
                
                $
                22,406
                
                
                $
                22,108
                
                
                $
                298
                
                
                
                1.3
                %Direct
                
                
                26,379
                
                
                
                33,966
                
                
                
                (7,587
                )
                
                
                (22.3
                )Financial
      Services
                
                
                11,190
                
                
                
                8,833
                
                
                
                2,357
                
                
                
                26.7Operating
      income as a percentage of segment revenue:Retail
                
                
                8.2
                %
                
                
                11.1
                %
                
                
                (2.9
                )%Direct
                
                
                12.7
                
                
                
                16.7
                
                
                
                (4.0
                )Financial
      Services
                
                
                29.3
                
                
                
                21.5
                
                
                
                7.8








Operating
income decreased $5 million, or 26.7%, for the three months ended June 2008
compared to the three months ended June 2007.  Operating income as a
percentage of revenue also decreased to 2.8% for the second quarter of 2008 from
4.5% for the second quarter of 2007.  Operating income comparisons
between the three months ended June 2008 and 2007 are impacted by the
challenging retail and macroeconomic environment and by increases in credit card
loan charge-offs.





Interest
(Expense) Income, Net





Interest
expense, net of interest income, increased $3 million to $8 million for the
three months ended June 2008 compared to the three months ended June
2007.  The net increase in interest expense was primarily due to
additional debt incurred for financing our retail store
expansion.  During the three months ended June 2008, we capitalized
interest totaling $0.7 million on qualifying fixed assets relating primarily to
retail store construction compared to $0.3 million for the three months ended
June 2007.





Other
Non-Operating Income, Net





Other
income was $2 million for both the three months ended June 2008 and 2007. This
income is from the interest earned on our economic development
bonds.  During the three months ended June 2007, the assets of our
hotel operation in Sidney, Nebraska, were sold resulting in a pre-tax gain of
$1.2 million (or approximately $0.8 million after-tax, or $0.01 per diluted
share).  The gain on sale is classified in the Other Income section of
our condensed consolidated statements of income.





31
 TABLE OF CONTENTS








Provision
for Income Taxes





Our
effective tax rate was 17.8% for the three months ended June 2008 compared to
37.4% for the three months ended June 2007.  The effective tax rate
was lower for the three months ended June 2008 compared to the 2007 period
primarily due to the impact from a corporate restructure completed effective
April 1, 2008, and the release of a valuation allowance relating to state net
operating losses, all of which was realized in the second quarter of
2008.  Refer to Note 6 herein of our condensed consolidated financial
statements for additional information.








Results
of Operations – Six Months Ended June 2008 Compared to June 2007





Revenues





Six Months EndedJune
      28,
                2008
              
              
              %
              
              
              June
      30,
                2007
              
              
              %
              
              
              Increase
                (Decrease)
              
              
              %
                Change(Dollars
      in Thousands)Retail
              
              $
              527,999
              
              
              
              49.8
              %
              
              $
              384,317
              
              
              
              42.1
              %
              
              $
              143,682
              
              
              
              37.4
              %Direct
              
              
              443,552
              
              
              
              41.8
              
              
              
              441,746
              
              
              
              48.4
              
              
              
              1,806
              
              
              
              0.4Financial
      Services
              
              
              78,961
              
              
              
              7.4
              
              
              
              76,748
              
              
              
              8.4
              
              
              
              2,213
              
              
              
              2.9Other
              
              
              10,979
              
              
              
              1.0
              
              
              
              10,479
              
              
              
              1.1
              
              
              
              500
              
              
              
              4.8$
              1,061,491
              
              
              
              100.0
              %
              
              $
              913,290
              
              
              
              100.0
              %
              
              $
              148,201
              
              
              
              16.2
              %





Retail
sales increased due to the eight new store openings in 2007 that began in April
2007, and to the Scarborough, Maine, store that opened May 15,
2008.  Direct revenue increased primarily due to increased Internet
sales comparing the respective periods, which was mostly offset by decreases
primarily due to a portion of catalog mail order sales decreasing as these sales
move to our new retail stores.  Financial Services revenue growth was
driven by growth in the number of average active credit card accounts and
average managed credit card loans, partially offset by increases in the
provision for loan losses and to related decreases in the interest-only strips
associated with our securitized loans.





Retail
Revenue–Retail revenue increased $144 million for the six months ended June
2008 primarily due to new store sales increasing compared to the six months
ended June 2007.  The product category that contributed the largest
dollar volume increase to our Retail revenue for the first six months of 2008
was hunting equipment.





Six Months EndedJune
      28,
                2008
              
              
              June
      30,
                2007
              
              
              Increase
                (Decrease)
              
              
              %
                Change(Dollars
      in Thousands)Comparable
      stores sales
              
              $
              349,238
              
              
              $
              367,309
              
              
              $
              (18,071
              )
              
              
              (4.9
              )%





Comparable
store sales decreased $18 million, or 4.9%, for the six months ended June 2008
principally because of the challenging macroeconomic and retail industry
environment, a lowering of overall consumer confidence in the United States as
consumers continue to pull back discretionary spending, and competition in
certain markets, all which negatively impacted sales growth.





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Direct
Revenue – Direct
revenue increased $2 million, or 0.4%, in the six months ended June 2008
compared to the six months ended June 2007, due to increased Internet sales
offset by lower catalog sales, due to cannibalization relating to our new
retail stores that opened in late 2007.  Internet visits increased
40.8% to 57.4 million visits for the six months ended June 2008 compared to 40.8
million visits for the six months ended June 2007.  The clothing and
footwear product category was the largest dollar volume contributor to our
Direct revenue for the six months ended June 2008.





Financial
Services Revenue–Key statistics reflecting the performance of our Financial Services
business are shown in the following chart for the six months ended:





June
      28,
                2008
              
              
              June
      30,
                2007
              
              
              Increase
                (Decrease)
              
              
              %
                Change(Dollars
      in Thousands Except Average Balance per Account )Average
      balance of managed credit card loans
              
              $
              1,987,565
              
              
              $
              1,583,918
              
              
              $
              403,647
              
              
              
              25.5
              %Number
      of average active credit card accounts
              
              
              1,102,508
              
              
              
              944,418
              
              
              
              158,090
              
              
              
              16.7Average
      balance per active credit card account
              
              $
              1,803
              
              
              $
              1,677
              
              
              $
              126
              
              
              
              7.5
              %Net
      charge-offs
              
              
              26,256
              
              
              
              13,978
              
              
              
              12,278
              
              
              
              87.8Net
      charge-offs as a percentage of average managed credit card
      loans
              
              
              2.64
              %
              
              
              1.76
              %
              
              
              0.88
              %





The
balance of average managed credit card loans increased to $2 billion, or 25.5%,
because of the increase in the number of accounts and the average balance per
account.  The number of accounts increased to 1,102,508, or 16.7%, due
to our marketing efforts to add additional accounts.  Net charge-offs
as a percentage of average managed credit card loans increased to 2.64% for the
six months ended June 2008, up 11 basis points from the first quarter of 2008,
and up 26 basis points compared to the rate of 2.38% for the fourth quarter of
2007, principally because of the challenging economic environment.  We
believe our charge-off levels remain well below industry
average.  Management expects net charge-offs as a percentage of
average managed credit card loans for full fiscal year 2008 to be in the range
of 2.70% to 2.90% compared to 2.01% for full fiscal year 2007.





The
components of Financial Services revenue on a generally accepted accounting
principles (“GAAP”) basis are as follows for the six months ended:





June
      28,
              2008
            
            
            June
      30,
              2007Interest
      and fee income, net of provision for loan losses
            
            $
            19,123
            
            
            $
            11,094Interest
      expense
            
            
            (6,162
            )
            
            
            (2,445
            )Net interest income, net of
      provision for loan losses
            
            
            12,961
            
            
            
            8,649Non-interest
      income:Securitization income
      (including gains on sales of credit card loans of $9,332 and
              $11,754)
            
            
            89,350
            
            
            
            93,636Other non-interest
      income
            
            
            32,641
            
            
            
            22,480Total
      non-interest income
            
            
            121,991
            
            
            
            116,116Less:
      Customer rewards costs
            
            
            (55,991
            )
            
            
            (48,017
            )Financial
      Services revenue
            
            $
            78,961
            
            
            $
            76,748











33
 TABLE OF CONTENTS








The
following table sets forth the revenue components of our Financial Services
segment managed portfolio on a non-GAAP basis for the six months
ended:





(Dollars
      in Thousands)
            
            June
      28,
              2008
            
            
            June
      30,
              2007Interest
      income
            
            $
            98,353
            
            
            $
            87,545Interchange
      income, net of customer rewards costs
            
            
            37,823
            
            
            
            29,750Other
      fee income
            
            
            15,468
            
            
            
            12,077Interest
      expense
            
            
            (41,306
            )
            
            
            (38,411
            )Provision
      for loan losses
            
            
            (26,821
            )
            
            
            (14,443
            )Other
            
            
            (4,556
            )
            
            
            230Managed
      Financial Services revenue
            
            $
            78,961
            
            
            $
            76,748Managed Financial
      Services Revenue as a Percentage of Average Managed Credit Card
      Loans:Interest
      income
            
            
            9.9
            %
            
            
            11.1
            %Interchange
      income, net of customer rewards costs
            
            
            3.8
            
            
            
            3.8Other
      fee income
            
            
            1.6
            
            
            
            1.5Interest
      expense
            
            
            (4.2
            )
            
            
            (4.9
            )Provision
      for loan losses
            
            
            (2.7
            )
            
            
            (1.8
            )Other
            
            
            (0.5
            )
            
            
            0.0Managed
      Financial Services revenue
            
            
            7.9
            %
            
            
            9.7
            %








Financial
Services revenue increased $2 million, or 2.9%, for the six months ended June
2008, compared to the six months ended June 2007. The increase in interest
income of $11 million for the six months ended June 2008 compared to the six
months ended June 2007 was due to an increase in managed credit card loans,
partially offset by decreases in interest rates.  The increase in
interchange income of $8 million in the 2008 six-month period from the 2007
six-month period was driven by net credit card purchases, which increased
20.5%.  Other fee income increased $3 million due to increases in late
fees, overlimit fees, and payment assurance fees.  The increases in
interest income and interchange income were partially offset by an increase in
interest expense of $3 million from increases in securitized credit card loans
and borrowings, partially offset by decreases in interest
rates.  Also, partially offsetting the increases in interest income
and interchange income was an increase in the provision for loan losses of $12
million from increases in managed credit card loans and increases in net
charge-offs, and by a decrease of $5 million in the Other category due to
related decreases in the interest-only strips associated with our securitized
loans.





Other
Revenue





Other
revenue was flat at $11 million for the six months ended June 2008 compared to
$11 million for the six months ended June 2007.  Real estate sales
totaled $6 million for the six months ended June 2008, primarily from two real
estate land parcels sold during the second quarter of 2008, compared to $4
million for the six months ended June 2007. Pre-tax gains on the sale of real
estate totaled $2.1 million for the six months ended June 2008 compared to $1.8
million for the six months ended June 2007.








34
 TABLE OF CONTENTS








Gross
Profit





Comparisons
of gross margins on merchandising revenue are presented below for analysis of
our gross profit for the six months ended:





June
      28,
                2008
              
              
              June
      30,
                2007
              
              
              Increase
                (Decrease)
              
              
              %
                Change(Dollars
      in Thousands)Merchandise
      sales
              
              $
              971,551
              
              
              $
              826,063
              
              
              $
              145,488
              
              
              
              17.6
              %Merchandise
      gross margin
              
              
              342,557
              
              
              
              289,568
              
              
              
              52,989
              
              
              
              18.3Merchandise
      gross margin as a percentage of merchandise revenue
              
              
              35.3
              %
              
              
              35.1
              %
              
              
              0.2
              %





Merchandise Gross
Margins–
Gross margins of our merchandising business increased $53 million, or 18.3%, to
$343 million for the six months ended June 2008.  Merchandise gross
margins as a percentage of revenue of our merchandising business increased to
35.3% for the six months ended June 2008 from 35.1% for the six months ended
June 2007.  The increase in merchandise gross margins for the six
months ended June 2008 compared to the six months ended June 2007 was positively
impacted by an increase in our shipping margin for the six months ended June
2008 over the six months ended June 2007, and a refinement in the estimate of
our drop ship costs during the first quarter of 2007.  These increases
were partially offset by lower initial margin, an increase in sales discounts
and allowances, and by a continuing increase in hard goods sales with lower
margins, for the six months ended June 2008 compared to the six months ended
June 2007.





Selling,
Distribution, and Administrative Expenses




Six Months EndedJune
      28,
                2008
              
              
              June
      30,
                2007
              
              
              Increase
                (Decrease)
              
              
              %
                Change(Dollars
      in Thousands)Selling,
      distribution, and administrative expenses
              
              $
              395,365
              
              
              $
              342,518
              
              
              $
              52,847
              
              
              
              15.4
              %S,D&A
      expenses as a percentage of  total revenue
              
              
              37.2
              %
              
              
              37.5
              %
              
              
              (0.3
              )%Retail
      store pre-opening costs
              
              $
              4,555
              
              
              $
              5,251
              
              
              $
              (696
              )
              
              
              (13.3
              )%





Selling,
distribution, and administrative expenses on a consolidated basis increased $53
million, or 15.4%, for
the six months ended June 2008 over the six months ended June
2007.  The primary reason for the increase was the addition of eight
new stores in 2007 along with the addition of infrastructure necessary to
support this store expansion.  The most significant factors
contributing to the increase in selling, distribution, and administrative
expenses, and the infrastructure expansion required to support the revenue
growth in the first six months of 2008 from our retail store expansion, included
increases in:





·
            employee
      compensation, benefits, training, and recruitment costs of $27
      million;·
            contract
      labor, and facility and information system depreciation of $9
      million;·
            advertising
      costs of  $6 million; and·
            retail
      store-related operating costs of $11
million.








35
 TABLE OF CONTENTS








Significant
selling, distribution, and administrative expense increases and decreases
related to specific business segments included the following:





Retail
Business Segment:


·
            Operating
      costs for new stores that were not open in the comparable period of 2007
      of $42 million, including employee compensation and benefits costs of $25
      million and $8 million in advertising and promotional
      expenses..·
            New
      store pre-opening costs of $5 million, a decrease of $0.7 million compared
      to the six months ended June 2007.·
            A
      decrease in comparable store employee compensation and benefits of $3
      million resulting from staffing changes and declining sales in comparable
      stores.·
            Depreciation
      on new stores not open in the comparable period of 2007 of $12
      million.








Direct
Business Segment:


·
            An
      increase in employee compensation and benefits of $1 million principally
      for positions added to support our Direct and multi-channel
      growth.·
            A
      decrease in incidental information system costs of $1 million compared to
      the six months ended June 2007 specifically related to our
      website.·
            Lower
      marketing fees of $2.5 million received from the Financial Services
      segment.








Financial
Services:


·
            A
      decrease in advertising and promotional costs of $1 million due to new
      marketing incentives received which were mostly offset by an increase in
      new account acquisition costs.·
            A
      decrease of $2.5 million in the marketing fee paid by the Financial
      Services segment to the Direct business
segment.








Corporate
Overhead, Distribution Centers, and Other:


·
            An
      increase in employee compensation and benefits of $5 million from the
      expansion and improvement of our infrastructure to support our
      growth.·
            Depreciation
      expense increase of $1 million on information system upgrades implemented
      in 2007 and contract labor, including a $1.9 million decrease resulting
      from an adjustment in the second quarter of 2008 related to depreciation
      changes in estimated lives implemented in April 2008 on information system
      hardware and software.




Operating Income




Six Months EndedJune
      28,
                2008
              
              
              June
      30,
                2007
              
              
              Increase
                (Decrease)
              
              
              %
                Change(Dollars
      in Thousands)Total
      operating income
              
              $
              35,938
              
              
              $
              32,643
              
              
              $
              3,295
              
              
              
              10.1
              %Total
      operating income as a percentage of total revenue
              
              
              3.4
              %
              
              
              3.6
              %
              
              
              (0.2
              )%Operating
      income by business segment:Retail
              
              $
              49,345
              
              
              $
              39,463
              
              
              $
              9,882
              
              
              
              25.0Direct
              
              
              59,855
              
              
              
              66,459
              
              
              
              (6,604
              )
              
              
              (9.9
              )Financial
      Services
              
              
              21,967
              
              
              
              17,392
              
              
              
              4,575
              
              
              
              26.3Operating
      income as a percentage of segment revenue:Retail
              
              
              9.3
              %
              
              
              10.3
              %
              
              
              (1.0
              )%Direct
              
              
              13.5
              
              
              
              15.0
              
              
              
              (1.5
              )Financial
      Services
              
              
              27.8
              
              
              
              22.7
              
              
              
              5.1






36
 TABLE OF CONTENTS




Operating
income increased $3 million, or 10.1%, for the six months ended June 2008
compared to the six months ended June 2007. Operating income as a percentage of
revenue decreased to 3.4% for the six months ended June 2008 compared to
3.6% for the six months ended June 2007.  Operating income comparisons
between the six months ended June 2008 and 2007 were impacted by 1) the
addition of one new retail store in 2008 and the stores in 2007, and 2) the
profitability of our Financial Services business segment, offset by the
challenging retail and macroeconomic environment and to increases in credit card
loan charge-offs.





Interest
(Expense) Income, Net





Interest
expense, net of interest income, increased $7 million to $15 million for the six
months ended June 2008 compared to the six months ended June
2007.  The net increase in interest expense was primarily due to
additional debt incurred for financing our retail store
expansion.  During the six months ended June 2008, we capitalized
interest totaling $1.1 million on qualifying fixed assets relating primarily to
retail store construction compared to $0.4 million for the six months ended June
2007.





Other
Non-Operating Income, Net





Other
income was $4 million for both the six months ended June 2008 and 2007. This
income is from the interest earned on our economic development
bonds.  Also included in other income for the three months ended
June 2007, is the pre-tax gain of $1.2 million (or approximately $0.8
million after-tax, or $0.01 per diluted share) resulting from the sale of the
assets of our hotel operation in Sidney, Nebraska.





Provision
for Income Taxes





Our
effective tax rate was 30.1% for the six months ended June 2008 compared to
36.9% for the six months ended June 2007.  The effective tax rate was
lower for the six months ended June 2008 compared to the 2007 period primarily
due to the impact from a corporate restructure completed effective April 1,
2008, and the release of a valuation allowance relating to state net operating
losses.  Refer to Note 6 herein of our condensed consolidated
financial statements for additional information.











Bank
Asset Quality





Overview





We
securitize a majority of our credit card loans. On a quarterly basis, we
transfer eligible credit card loans into a securitization trust.  We
are required to own at least a minimum twenty day average of 5% of the interests
in the securitization trust, which is our transferor’s interest that totaled
$169 million at the end of June 2008.  Accordingly, retained credit
card loans have the same characteristics as credit card loans sold to outside
investors.  Certain accounts are ineligible for securitization for
reasons such as:  1) they are delinquent, 2) they originated from
sources other than Cabela's CLUB Visa credit cards, or 3) various other
requirements.  Loans ineligible for securitization totaled $12
million, $15 million and $15 million, at June 28, 2008, December 29, 2007, and
June 30, 2007, respectively.





The
quality of our managed credit card loan portfolio at any time reflects, among
other factors:  1) the creditworthiness of cardholders, 2) general
economic conditions, 3) the success of our account management and collection
activities, and 4) the life-cycle stage of the portfolio.  During
periods of economic weakness, delinquencies and net charge-offs are more likely
to increase. We have mitigated periods of economic weakness by selecting a
customer base that is very creditworthy.  The median FICO scores of
our securitized loans were 787 in the second quarter of 2008 compared to 787 in
2007 and 785 in 2006. We believe that as our credit card accounts mature, they
are less likely to result in a charge-off and less likely to be
closed.





37
 TABLE OF CONTENTS





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 method is based on the number of completed billing cycles during which
a customer has failed to make a required payment. The following chart shows the
percentage of our managed credit card loans that have been delinquent at the
periods ended:





Number of days
      delinquent
            
            June
      28,
              2008
            
            
            December
      29,
              2007
            
            
            June
      30,
              2007Greater than 30
    days
            
            
            1.08
            %
            
            
            0.97
            %
            
            
            0.86
            %Greater than 60
    days
            
            
            0.66
            
            
            
            0.57
            
            
            
            0.53Greater than 90
    days
            
            
            0.33
            
            
            
            0.28
            
            
            
            0.27








Charge-offs










Three Months Ended
            
            
            Six Months EndedJune
      28,
              2008
            
            
            June
      30,
              2007
            
            
            June
      28,
              2008
            
            
            June
      30,
              2007(Dollars
      in Thousands)Charge-offs
            
            $
            16,303
            
            
            $
            8,951
            
            
            $
            31,268
            
            
            $
            18,432Recoveries
            
            
            (2,437
            )
            
            
            (2,306
            )
            
            
            (5,012
            )
            
            
            (4,454
            )Net
      charge-offs
            
            $
            13,866
            
            
            $
            6,645
            
            
            $
            26,256
            
            
            $
            13,978Net
      charge-offs as a percentage of
              average managed credit card
      loans
            
            
            2.76
            %
            
            
            1.65
            %
            
            
            2.64
            %
            
            
            1.76
            %








Net
charge-offs as a percentage of average managed credit card loans was 2.64% for
the six months ended June 2008.  For the three months ended June 2008,
net charge-offs as a percentage of average managed credit card loans increased
to 2.76%, up 23 basis points compared to 2.53% for the quarter ended March 2008
and up 38 basis points compared to 2.38% for the fourth quarter of 2007,
principally because of the challenging economic environment. We believe our
charge-off levels remain well below industry average.  Management
expects net charge-offs as a percentage of average managed credit card loans for
full fiscal year 2008 to be in the range of 2.70% to 2.90% compared to 2.01% for
full fiscal year 2007.








38
 TABLE OF CONTENTS








Liquidity
and Capital Resources





Overview





We
believe that we will have sufficient capital available from cash on hand, our
revolving credit facility, and other borrowing sources to fund our cash
requirements and near-term growth plans.





Our
Retail and Direct business segments and our Financial Services business segment
have significantly differing liquidity and capital needs. The primary cash
requirements of our merchandising business relate to capital for new retail
stores, purchases of inventory, investments in our management information
systems and infrastructure, purchases of economic development bonds related to
the construction of new retail stores, and general working capital
needs.  We historically have met these requirements with cash
generated 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 retail stores, collecting principal and interest payments on our
economic development bonds, and from the retirement of economic development
bonds.





Retail and Direct Business
Segments – The cash flow we generate from our merchandising business is
seasonal, with our peak cash requirements for inventory occurring from April
through November.  While we have consistently generated overall
positive annual cash flow from our operating activities, other sources of
liquidity are 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.  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
could result in reduced revenue and profits.





Financial Services Business Segment
(the “bank”)– The primary cash requirements of our bank relate to the
financing of credit card loans.  The bank sources operating funds in
the ordinary course of business through various financing activities, which
includes funding obtained from securitization transactions, borrowing under its
credit agreement or federal funds purchase agreements, accepting certificates of
deposit, and generating cash from operations.  The bank is prohibited
by regulations from lending money to Cabela’s or 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 also limited by Nebraska
and Federal banking law.





Operating,
Investing, and Financing Activities





The
following table presents changes in our cash and cash equivalents for the six
months ended:





June
      28,
              2008
            
            
            June
      30,
              2007(In
      Thousands)Net
      cash used in operating activities
            
            $
            (143,374
            )
            
            $
            (89,527
            )Net
      cash used in investing activities
            
            
            (81,635
            )
            
            
            (95,614
            )Net
      cash provided by financing activities
            
            
            181,952
            
            
            
            92,467











39
 TABLE OF CONTENTS





2008
versus 2007





Operating Activities– Cash
used in operating activities increased $54 million for the six months ended June
2008 compared to 2007. This net increase in the use of cash comparing the
respective periods was primarily due to a net reduction in accounts payable and
accrued expenses of $56 million, a net decrease of $11 million in accounts
receivable, and a net reduction in income taxes payable of $15
million.  These uses of cash for operating activities were partially
offset by a net increase of $17 million between comparable periods related to
inventories, and by a $15 million net change in prepaid expenses and other
current assets.





We will
incur a total cash outlay of approximately $19 million over four years (through
2010) based on our election in our 2007 federal income tax return to change our
method of accounting for inventory from LIFO to FIFO for income tax purposes. At
the end of June 2008, we owed approximately $14 million, which liability is
included in our consolidated balance sheet.





Investing Activities –Cash
used in investing activities decreased $14 million for the six months ended June
2008 compared to 2007. This net decrease was primarily due to less expenditures
related to the development and construction of the new retail stores scheduled
to open in 2008 compared to 2007.  For the six months ended June 2008,
cash paid for property and equipment additions totaled $91 million compared to
$134 million for the six months ended June 2007.  We opened our
Scarborough, Maine, store in May 2008, and plan to open our Rapid City, South
Dakota, store in August 2008.  Retail stores currently scheduled to
open in 2009 are East Rutherford, New Jersey, and Billings,
Montana.  At June 28, 2008, we estimate remaining total capital
expenditures, including the purchase of economic development bonds, to
approximate $110 million to be paid in 2008 and 2009 relating to the
development, construction, and completion of retail stores.  Certain
contractual aspects of our retail store locations are in various stages of
negotiations and are subject to customary conditions to
closing.  Economic development bonds totaling $3 million related to
our Mitchell, South Dakota, retail store were retired in June 2008 and bonds
totaling $43 million related to our Wheeling, West Virginia, retail store and
distribution center were retired in April 2007.





Financing Activities –Cash
provided by financing activities increased $89 million for the six months ended
June 2008 compared to 2007. This net increase from financing activities
comparing periods was due to a net increase of $157 million in borrowings
primarily on lines of credit for working capital and inventory financing and a
net increase of $58 million in time deposits.  Partially offsetting
these increases was a net decrease in the bank’s short-term borrowings of $100
million primarily from the repayment of a variable funding facility credit
agreement. In addition, unpresented checks net of bank balance decreased $30
million due to timing of when checks cleared our financial
institution.




The
following table highlights the borrowing activity of our merchandising business
and bank operations for the six months ended June:





2008
            
            
            2007(In
      Thousands)Borrowings
      on lines of credit and short-term debt, net of repayments
            
            $
            170,982
            
            
            $
            (6,754
            )Changes
      in short-term borrowings of financial services subsidiary,
    net
            
            
            (100,000
            )
            
            
            20,509Issuances
      of long-term debt, net of repayments
            
            
            60,122
            
            
            
            59,509Total
            
            $
            131,104
            
            
            $
            73,264











40
 TABLE OF CONTENTS








The
following table summarizes our availability under debt and credit facilities,
excluding the bank’s facilities, at the end of June:





2008
            
            
            2007(In
      Thousands)Amounts
      available for borrowing under credit facilities (1)
            
            $
            445,000
            
            
            $
            325,000Principal
      amounts outstanding
            
            
            (228,083
            )
            
            
            --Outstanding
      letters of credit and standby letters of credit
            
            
            (45,719
            )
            
            
            (105,363
            )Remaining
      borrowing capacity (1)
            
            $
            171,198
            
            
            $
            219,637








(1)
            Effective
      April 2, 2008, we increased our revolving credit facility by $105 million
      to $430 million, resulting in a total amount available for borrowing of
      $445 million, including the credit facility for our Canadian
      operations.








In
addition, the bank has total borrowing availability of $110 million under its
transferor’s interest credit agreement ($25 million) and agreements to borrow
federal funds ($85 million). Our bank entered into a credit agreement in 2007
for a variable funding facility secured by a participation interest in the
bank’s transferor’s interest of the Cabela’s Master Credit Card
Trust.  In May 2008, this credit facility was modified to a $25
million commitment and was extended to May 28, 2009.  At the end of
June 2008, the full $110 million of borrowing capacity was
available.





On
January 16, 2008, we issued and sold $57 million of 7.20% senior unsecured notes
to institutional buyers.  The notes have a final maturity of 10 years
and an average life of seven years.  Scheduled principal repayments of
$8 million  are payable beginning January 16, 2012, and annually
thereafter.  Interest is payable semi-annually.  We used the
proceeds to pay down existing debt and for general corporate
purposes.





Grants
and Economic Development Bonds





Grants– We generally have received
grant funding in exchange for commitments made by us to the state or local
government providing the funding.  The commitments, such as assurance
of agreed employment and wage levels at our retail stores or that the retail
store will remain open, typically phase out over five to 10 years.  If
we fail to maintain the commitments during the applicable period, the funds we
received may have to be repaid or other adverse consequences may arise, which
could affect our cash flows and profitability. As of June 28, 2008, December 29,
2007, and June 30, 2007, the total amount of grant funding subject to a specific
contractual remedy was $8 million, $13 million and $13 million,
respectively.





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 retail stores. In the past, we have primarily been the sole
purchaser of these bonds. The bond proceeds that are received by the
governmental entity are then used to fund the construction and equipping of new
retail stores and related infrastructure development. While purchasing these
bonds involves an initial cash outlay by us in connection with a new store, some
or all of these costs can be recaptured through the repayments of the bonds. The
payments of principal and interest on the bonds are typically tied to sales,
property, or lodging taxes generated from the store and, in some cases, from
businesses in the surrounding area, over periods which range between 20 and 30
years. In addition, some of the bonds that we 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.








41
 TABLE OF CONTENTS





After
purchasing the bonds, we typically record them on our consolidated balance sheet
classified as “available for sale” and value them based upon management’s
projections of the amount of tax revenue expected to be generated to support
principal and interest payments on the bonds.  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 consolidated
balance sheet.  Economic development bonds totaled $101 million, $98
million, and $80 million, respectively, as of June 28, 2008, December 29, 2007,
and June 30, 2007.





Securitization
of Credit Card Loans





Our
Financial Services business historically has funded most of its growth in credit
card loans through an asset securitization program. We sell our credit card
loans in the ordinary course of business through a commercial paper conduit
program and longer-term fixed and floating rate securitization
transactions.   In a conduit securitization, our credit card
loans are converted into securities and sold to commercial paper issuers, which
pool the securities with those of other issuers. The amount securitized in a
conduit structure is allowed to fluctuate within the terms of the facility,
which may provide greater flexibility for liquidity needs.





The total
amounts and maturities for our credit card securitizations as of June 28, 2008,
were as follows:





Series
            Type
            Initial
              Amount
            Interest
      Rate
            Expected
      Final
              Maturity(Dollars
      in Thousands)Series
      2004-I
            Term
            $75,000
            Fixed
            March
      2009Series
      2004-II
            Term
            175,000
            Floating
            March
      2009Series
      2005-I
            Term
            140,000
            Fixed
            October
      2010Series
      2005-I
            Term
            110,000
            Floating
            October
      2010Series
      2006-III
            Term
            250,000
            Fixed
            October
      2011Series
      2006-III
            Term
            250,000
            Floating
            October
      2011Series
      2008-I
            Term
            461,500 (1)
            Fixed
            December
      2010Series
      2008-I
            Term
            38,500
            Floating
            December
      2010Series
      2006-I
            Variable
      Funding
            350,000
            Floating
            October
      2008Series
      2008-II
            Variable
      Funding
            300,000
            Floating
            June
      2009


_____________________




(1)
            The
      trust entered into an interest rate swap agreement to convert the floating
      rate notes with a notional amount of $229.85 million into a fixed rate
      obligation.








On July
14, 2008, credit card securitization Series 2008-III, a 364-day variable funding
facility with a $200 million commitment, was issued.





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





Furthermore,
poor performance of our securitized credit card loans, including increased
delinquencies and credit losses, lower payment rates, or a decrease in excess
spreads below certain thresholds, could result in a downgrade or withdrawal of
the ratings on the outstanding securities issued in our securitization
transactions, cause early amortization of these securities, or result in higher
required credit enhancement levels. This could jeopardize our ability to
complete other 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.








42
 TABLE OF CONTENTS





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 one
hundred thousand dollars in various maturities.   As of June 28,
2008, we had $202 million of certificates of deposit outstanding with maturities
ranging from July 2008 to April 2016 and with a weighted average effective
annual fixed rate of 4.85%. This outstanding balance compares to $161 million
and $85 million at December 29, 2007, and June 30, 2007, respectively, with
weighted average effective annual fixed rates of 5.01% and 4.99%,
respectively.  Certificate of deposit borrowings are subject to
regulatory capital requirements.





Impact
of Inflation





We do not
believe that our operating results have been materially affected by inflation
during the preceding three years. We cannot assure, however, that our operating
results will not be adversely affected by inflation in the future.





Off-Balance
Sheet Arrangements





Operating
Leases- We lease
various items of office equipment and buildings.  Rent expense for
these operating leases is recorded in selling, distribution, and administrative
expenses in the consolidated statements of income. Future obligations are shown
in the preceding contractual obligations table.





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 $12 billion above existing balances as of June 28,
2008. 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 its cardholders,
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 sales transactions and
the credit card loans relating to those pools of assets are not reflected in 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 buying patterns around the holidays and the
opening of hunting seasons, our merchandise revenue is traditionally higher in
the third and fourth quarters than in the first and second quarters, and we
typically earn a disproportionate share of our operating income in the fourth
quarter.  We anticipate our sales will continue to be seasonal in
nature.








Item3.    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 credit card loans and interest expense do not respond
equally to changes in interest rates, or that rates do not change uniformly,
securitization earnings and economic value of equity could be affected. Our net
interest income on managed credit card loans is affected primarily by changes in
short term interest rate indices such as London Inter-Bank Offered Rate
(“LIBOR”) and the prime rate.  The variable rate credit card loans are
indexed to the prime rate.  Securitization notes are indexed to
LIBOR-based rates of interest and are periodically
repriced.  Certificate of deposits are priced at the current
prevailing market rate at the time of issuance. We manage and mitigate our
interest rate sensitivity through several techniques, but primarily by modifying
the contract terms with our cardholders, including interest rates charged, in
response to changing market conditions. Additional techniques we use include
managing the maturity, repricing, and distribution of assets and liabilities by
issuing fixed rate securitization notes, and by entering into interest rate
swaps.





43
 TABLE OF CONTENTS








The table
below shows the mix of our credit card account balances at the periods
ended:





June
      28,
              2008
            
            
            December
      29,
              2007
            
            
            June
      30,
              2007As a percentage of
      total balances outstanding:Balances
      carrying interest rate based upon the national
              prime lending
    rate
            
            
            63.9
            %
            
            
            61.1
            %
            
            
            62.5
            %Balances
      carrying an interest rate of 9.99%
            
            
            2.2
            
            
            
            3.1
            
            
            
            2.6Balances
      carrying an interest rate of 0.00%
            
            
            0.4
            
            
            
            0.3
            
            
            
            --Balances
      not carrying interest because their previous
              month's balance was paid in
      full
            
            
            33.5
            
            
            
            35.5
            
            
            
            34.9100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %








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.  However, purchases of Cabela’s merchandise, certain
other charges, and balance transfer programs are financed at a fixed interest
rate of 9.99%. Together, the balances on these credit cards represent 66.1% of
total balances outstanding as of June 28, 2008, compared to 64.2% at the end of
2007.  No interest is charged if the account is paid in full within 20
days of the billing cycle, which represent 33.5% of total balances outstanding
as of June 28, 2008. Credit card balances with a zero percentage interest rate
have increased over prior years due to an increase in promotional merchandise
offers.





Management
has performed an interest rate gap analysis to measure the effects of the timing
of the repricing of our interest sensitive assets and liabilities. Based on this
analysis, we believe that if there had been an immediate 100 basis point, or
1.0%, increase in the market rates for which our assets and liabilities are
indexed during the next twelve months, our projected operating results would not
be materially affected.  Management also has performed a projected
interest rate gap analysis for the same future twelve month period to measure
the effects of a change in the spread between the prime interest rate and the
LIBOR interest rate, which was 254 basis points at the end of June
2008.  Based on this analysis, we believe that an immediate spread
decrease of 50 basis points, or 0.5%, would cause a pre-tax decrease to income
of $6 million, and an immediate spread increase of 50 basis points would cause a
pre-tax increase to income of $8 million on our Financial Services segment over
the next twelve months, which could have a material effect on our operating
results.





Merchandising
Business Interest Rate Risk





The
interest payable on our line of credit is based on variable interest rates and
therefore affected by changes in market interest rates. If interest rates on
existing variable rate debt increased 1.0%, our interest expense and 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 United
States 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.  For our retail store in Canada, we intend to fund all
transactions in Canadian dollars, and we will utilize our unsecured revolving
credit agreement of $15 million to fund such operations.





44
 TABLE OF CONTENTS








Item4.    Controls and
Procedures





We
maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), designed
to ensure that information required to be disclosed in reports filed under the
Exchange Act is recorded, processed, summarized, and reported within specified
time periods. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
accumulated and communicated to management, including our Chief Executive
Officer and Chief Financial Officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure.





In
connection with this quarterly report on Form 10-Q, our Chief Executive Officer
and Chief Financial Officer evaluated, with the participation of our management,
the effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based on management’s evaluation, our Chief
Executive Officer and Chief Financial Officer each concluded that our disclosure
controls and procedures were effective as of June 28, 2008.




Changes in Internal Control
Over Financial Reporting





During
the second quarter of fiscal 2008, we completed the implementation of our new
foundational inventory and financial systems.  Process level controls
related to accounts receivable, accounts payable, and inventory valuation were
positively impacted by this change.  There were no other changes in
our internal control over financial reporting that occurred during the quarter
ended June 28, 2008, that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.








Item4T.  Controls and
Procedures





Not
applicable.





45
 TABLE OF CONTENTS





PART
II – OTHER INFORMATION





Item1.    Legal
Proceedings.





We are
party to various proceedings, lawsuits, disputes, and claims arising in the
ordinary course of our business.  These actions include commercial,
intellectual property, employment, and product liability claims.  Some
of these actions involve complex factual and legal issues and are subject to
uncertainties.  We cannot predict with assurance the outcome of the
actions brought against us.  Accordingly, adverse developments,
settlements, or resolutions may occur and negatively impact earnings in the
quarter of such development, settlement, or resolution.  However, we
do not believe that the outcome of any current action would have a material
adverse effect on our results of operations, cash flows, or financial position
taken as a whole.








Item1A.                       Risk
Factors.





There
have been no material changes from the risk factors disclosed in the “Risk
Factors” section of our Annual Report on Form 10-K for the fiscal year ended
December 29, 2007, except as described in Part II, Item 1A, of our Quarterly
Report on Form 10-Q for the fiscal quarter ended March 29, 2008.








Item2.    Unregistered
Sales of Equity Securities and Use of Proceeds.





Not
applicable.








Item3.    Defaults Upon
Senior Securities.





Not
applicable.








Item4.    Submission of
Matters to a Vote of Security Holders.





The
Annual Meeting of Shareholders of Cabela’s Incorporated was held on May 13,
2008.  The matters voted upon at the meeting and the votes cast with
respect to such matters were as follows:





1.
            Election
      of nine directors.





FOR
            WITHHELDTheodore
      M. Armstrong
            61,426,569
            298,618Richard
      N. Cabela
            60,350,179
            1,375,008James
      W. Cabela
            60,353,793
            1,371,394John
      H. Edmondson
            60,684,332
            1,040,855John
      Gottschalk
            61,421,224
            303,963Dennis
      Highby
            61,398,216
            326,971Rueben
      Mark
            61,427,050
            298,137Michael
      R. McCarthy
            61,368,180
            357,007Stephen
      P. Murray
            61,012,405
            712,782





2.
            Approval
      of the Company’s Performance Bonus
      Plan.





FOR
            AGAINST
            ABSTAIN
            BROKER
              NON-VOTES59,017,106
            1,977,698
            730,383
            0





3.
            Ratification
      of the appointment of Deloitte & Touche LLP as the Company’s
      independent registered public accounting firm for fiscal
    2008.





FOR
            AGAINST
            ABSTAIN
            BROKER
              NON-VOTES60,665,447
            140,795
            918,945
            0








46
 TABLE OF CONTENTS





Item5.    Other
Information.





Not
applicable.








Item6.   
Exhibits.








(a)
            Exhibits.




Exhibit
              Number
            Description10.1
            Cabela’s
      Incorporated Performance Bonus Plan (incorporated by reference from
      Exhibit 10 of the Company’s Current Report on Form 8-K, filed on February
      19, 2008, File No. 001-32227)10.2
            Cabela’s
      Incorporated 2004 Stock Plan (as amended and restated effective May 14,
      2008) (incorporated by reference from Exhibit 10.2 of the Company’s
      Current Report on Form 8-K, filed on May 19, 2008, File No.
      001-32227)10.3
            Form
      of Proprietary Matters Agreement (incorporated by reference from Exhibit
      10.1 of the Company’s Current Report on Form 8-K, filed on June 4, 2008,
      File No. 001-32227)10.4
            Form
      of Proprietary Matters Agreement – World’s Foremost Bank (incorporated by
      reference from Exhibit 10.2 of the Company’s Current Report on Form 8-K,
      filed on June 4, 2008, File No. 001-32227)10.5
            Form
      of 2004 Stock Plan Employee Stock Option Agreement (2008) (incorporated by
      reference from Exhibit 10.3 of the Company’s Current Report on Form 8-K,
      filed on June 4, 2008, File No. 001-32227)10.6
            Form
      of 2004 Stock Plan Non-Employee Director Stock Option Agreement (2008)
      (incorporated by reference from Exhibit 10.4 of the Company’s Current
      Report on Form 8-K, filed on June 4, 2008, File No.
    001-32227)31.1
            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














47
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SIGNATURES





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








CABELA'S
      INCORPORATEDDated:  August
      5, 2008
            By:
            /s/
      Dennis HighbyDennis
      HighbyPresident
      and Chief Executive OfficerDated:  August
      5, 2008
            By:
            /s/
      Ralph W. CastnerRalph
      W. CastnerVice
      President and Chief Financial
Officer











48
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EXHIBIT INDEX





Exhibit
              Number
            Description10.1
            Cabela’s
      Incorporated Performance Bonus Plan (incorporated by reference from
      Exhibit 10 of the Company’s Current Report on Form 8-K, filed on February
      19, 2008, File No. 001-32227)10.2
            Cabela’s
      Incorporated 2004 Stock Plan (as amended and restated effective May 14,
      2008) (incorporated by reference from Exhibit 10.2 of the Company’s
      Current Report on Form 8-K, filed on May 19, 2008, File No.
      001-32227)10.3
            Form
      of Proprietary Matters Agreement (incorporated by reference from Exhibit
      10.1 of the Company’s Current Report on Form 8-K, filed on June 4, 2008,
      File No. 001-32227)10.4
            Form
      of Proprietary Matters Agreement – World’s Foremost Bank (incorporated by
      reference from Exhibit 10.2 of the Company’s Current Report on Form 8-K,
      filed on June 4, 2008, File No. 001-32227)10.5
            Form
      of 2004 Stock Plan Employee Stock Option Agreement (2008) (incorporated by
      reference from Exhibit 10.3 of the Company’s Current Report on Form 8-K,
      filed on June 4, 2008, File No. 001-32227)10.6
            Form
      of 2004 Stock Plan Non-Employee Director Stock Option Agreement (2008)
      (incorporated by reference from Exhibit 10.4 of the Company’s Current
      Report on Form 8-K, filed on June 4, 2008, File No.
    001-32227)31.1
            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