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
      1934For
      the quarterly period ended September 27,
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, a non-accelerated filer, or a smaller reporting
company.  See the definitions of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.





Large
      accelerated filer x
            Accelerated
      filer oNon-accelerated
      filer o (Do
      not check if a smaller reporting company)
            Smaller
      reporting company 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: 66,675,731 shares as of October 24, 2008.





1





CABELA'S INCORPORATED





FORM
10-Q


QUARTERLY
PERIOD ENDED SEPTEMBER 27, 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
            44Item
      4.
            Controls
      and Procedures
            46Item
      4T.
            Controls
      and Procedures
            46PART
      II – OTHER INFORMATIONItem
      1.
            Legal
      Proceedings
            47Item
      1A.
            Risk
      Factors
            47Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            48Item
      3.
            Defaults
      Upon Senior Securities
            48Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            48Item
      5.
            Other
      Information
            48Item
      6.
            Exhibits
            49SIGNATURES
            50INDEX
      TO EXHIBITS
            51








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
            
            
            Nine Months EndedSeptember 27,
              2008
            
            
            September 29,
              2007
            
            
            September 27,
              2008
            
            
            September 29,
              2007Revenue:Merchandise
    sales
            
            $
            569,202
            
            
            $
            499,182
            
            
            $
            1,540,753
            
            
            $
            1,325,245Financial services
      revenue
            
            
            41,896
            
            
            
            44,749
            
            
            
            120,857
            
            
            
            121,497Other revenue
            
            
            702
            
            
            
            2,878
            
            
            
            11,681
            
            
            
            13,357Total revenue
            
            
            611,800
            
            
            
            546,809
            
            
            
            1,673,291
            
            
            
            1,460,099Total
      cost of revenue (exclusive of depreciation and
    amortization)
            
            
            376,057
            
            
            
            322,584
            
            
            
            1,006,245
            
            
            
            860,713Selling,
      distribution, and administrative expenses
            
            
            214,898
            
            
            
            199,879
            
            
            
            610,263
            
            
            
            542,397Operating
      income
            
            
            20,845
            
            
            
            24,346
            
            
            
            56,783
            
            
            
            56,989Interest
      (expense) income, net
            
            
            (7,510
            )
            
            
            (4,178
            )
            
            
            (22,399
            )
            
            
            (11,985
            )Other
      non-operating income, net
            
            
            1,616
            
            
            
            1,004
            
            
            
            5,230
            
            
            
            5,353Income
      before provision for income taxes
            
            
            14,951
            
            
            
            21,172
            
            
            
            39,614
            
            
            
            50,357Provision
      for income taxes
            
            
            5,229
            
            
            
            7,940
            
            
            
            12,657
            
            
            
            18,719Net
      income
            
            $
            9,722
            
            
            $
            13,232
            
            
            $
            26,957
            
            
            $
            31,638Basic
      net income per share
            
            $
            0.15
            
            
            $
            0.20
            
            
            $
            0.41
            
            
            $
            0.48Diluted
      net income per share
            
            $
            0.15
            
            
            $
            0.20
            
            
            $
            0.40
            
            
            $
            0.47Basic
      weighted average shares outstanding
            
            
            66,648,175
            
            
            
            65,825,895
            
            
            
            66,261,993
            
            
            
            65,701,443Diluted
      weighted average shares outstanding
            
            
            67,051,493
            
            
            
            67,031,102
            
            
            
            67,105,399
            
            
            
            67,317,482




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)




ASSETS
                
                September
      27,
                  2008
                
                
                December
      29,
                  2007
                
                
                September
      29,
                  2007CURRENTCash and cash
      equivalents
                
                $
                207,282
                
                
                $
                131,182
                
                
                $
                103,114Accounts receivable, net of
      allowance for doubtful accounts of $1,738, $1,851 and
                  $2,084
                
                
                31,269
                
                
                
                46,857
                
                
                
                30,657Credit card loans, net of
      allowances of $1,373, $1,197 and $1,036
                
                
                134,891
                
                
                
                191,893
                
                
                
                172,299Inventories
                
                
                649,155
                
                
                
                608,159
                
                
                
                669,544Prepaid expenses and other
      current assets
                
                
                153,590
                
                
                
                116,297
                
                
                
                131,587Income taxes
      receivable
                
                
                2,786
                
                
                
                --
                
                
                
                11,113Total current
      assets
                
                
                1,178,973
                
                
                
                1,094,388
                
                
                
                1,118,314Property
      and equipment, net
                
                
                905,961
                
                
                
                904,052
                
                
                
                862,554Land
      held for sale or development
                
                
                36,539
                
                
                
                34,802
                
                
                
                34,186Retained
      interests in securitized loans
                
                
                43,170
                
                
                
                51,777
                
                
                
                46,378Economic
      development bonds
                
                
                101,583
                
                
                
                98,035
                
                
                
                80,687Other
      assets
                
                
                32,260
                
                
                
                29,776
                
                
                
                22,655Total assets
                
                $
                2,298,486
                
                
                $
                2,212,830
                
                
                $
                2,164,774LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENTAccounts payable, including
      unpresented checks of $20,753, $11,340 and $40,458
                
                $
                210,208
                
                
                $
                281,391
                
                
                $
                351,653Gift certificates and credit
      card and loyalty rewards programs
                
                
                168,194
                
                
                
                184,257
                
                
                
                141,030Accrued
    expenses
                
                
                104,229
                
                
                
                139,510
                
                
                
                111,413Time deposits
                
                
                122,261
                
                
                
                49,219
                
                
                
                25,044Short-term borrowings of
      financial services subsidiary
                
                
                --
                
                
                
                100,000
                
                
                
                50,000Current maturities of
      long-term debt
                
                
                26,579
                
                
                
                26,785
                
                
                
                26,760Income taxes
      payable
                
                
                --
                
                
                
                34,341
                
                
                
                --Deferred income
      taxes
                
                
                13,496
                
                
                
                15,601
                
                
                
                21,774Total current
      liabilities
                
                
                644,967
                
                
                
                831,104
                
                
                
                727,674Long-term
      debt, less current maturities
                
                
                560,908
                
                
                
                376,600
                
                
                
                523,306Long-term
      time deposits
                
                
                142,928
                
                
                
                111,372
                
                
                
                72,594Deferred
      income taxes
                
                
                26,993
                
                
                
                31,113
                
                
                
                32,004Other
      long-term liabilities
                
                
                56,648
                
                
                
                34,082
                
                
                
                38,803COMMITMENTS
      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
      –  66,669,314,
                  65,888,384
      and 65,843,844 shares
                
                
                667
                
                
                
                659
                
                
                
                658Class B Non-voting,
      Authorized  –  245,000,000 shares;  Issued
      –  none
                
                
                --
                
                
                
                --
                
                
                
                --Additional paid-in
      capital
                
                
                269,804
                
                
                
                257,351
                
                
                
                255,350Retained
    earnings
                
                
                598,229
                
                
                
                571,272
                
                
                
                515,031Accumulated other
      comprehensive income (loss), net
                
                
                (2,658
                )
                
                
                (723
                )
                
                
                (646
                )Total stockholders'
      equity
                
                
                866,042
                
                
                
                828,559
                
                
                
                770,393Total liabilities and
      stockholders' equity
                
                $
                2,298,486
                
                
                $
                2,212,830
                
                
                $
                2,164,774


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)




Nine Months EndedCASH
      FLOWS FROM OPERATING ACTIVITIES:
            
            September
      27,
              2008
            
            
            September
      29,
              2007Net
      income
            
            $
            26,957
            
            
            $
            31,638Adjustments
      to reconcile net income to net cash flows from operating
      activities:Depreciation and
      amortization
            
            
            48,186
            
            
            
            41,604Stock based
      compensation
            
            
            5,253
            
            
            
            3,468Deferred income
      taxes
            
            
            (5,195
            )
            
            
            5,937Other, net
            
            
            (2,019
            )
            
            
            803Change
      in operating assets and liabilities, net of business
      acquisition:Accounts
    receivable
            
            
            13,181
            
            
            
            6,973Originations of credit card
      loans held for sale, net of collections
            
            
            53,457
            
            
            
            (22,867
            )Retained interests in
      securitized loans
            
            
            2,607
            
            
            
            (5,845
            )Inventories
            
            
            (40,995
            )
            
            
            (180,696
            )Prepaid expenses and other
      current assets
            
            
            (33,303
            )
            
            
            (24,860
            )Land held for sale or
      development
            
            
            1,478
            
            
            
            (10,614
            )Accounts payable and accrued
      expenses
            
            
            (70,962
            )
            
            
            16,456Gift certificates and credit
      card and loyalty rewards programs
            
            
            (16,063
            )
            
            
            (3,439
            )Other long-term
      liabilities
            
            
            22,565
            
            
            
            12,054Income taxes
      payable/receivable
            
            
            (38,036
            )
            
            
            (28,349
            )Net cash used in operating
      activities
            
            
            (32,889
            )
            
            
            (157,737
            )CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      and equipment additions
            
            
            (104,087
            )
            
            
            (259,501
            )Purchases
      of economic development bonds
            
            
            --
            
            
            
            (10,052
            )Proceeds
      from disposition of property and equipment
            
            
            --
            
            
            
            3,905Proceeds
      from retirements and maturities of economic development
    bonds
            
            
            5,893
            
            
            
            45,075Change
      in credit card loans receivable, net
            
            
            2,668
            
            
            
            1,955Change
      in cash reserves for retained interests
            
            
            6,000
            
            
            
            (1,500
            )Acquisition,
      net of cash acquired
            
            
            --
            
            
            
            (9,281
            )Other
      investing changes, net
            
            
            (2,807
            )
            
            
            867Net cash used in investing
      activities
            
            
            (92,333
            )
            
            
            (228,532
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Change
      in unpresented checks net of bank balance
            
            
            9,413
            
            
            
            40,458Change
      in time deposits, net
            
            
            104,598
            
            
            
            (4,558
            )Changes
      in short-term borrowings of financial services subsidiary,
    net
            
            
            (100,000
            )
            
            
            (6,491
            )Borrowings
      on revolving credit facilities and inventory financing
            
            
            634,331
            
            
            
            440,321Repayments
      on revolving credit facilities and inventory financing
            
            
            (489,706
            )
            
            
            (191,678
            )Issuances
      of long-term debt
            
            
            61,200
            
            
            
            60,800Payments
      on long-term debt
            
            
            (26,526
            )
            
            
            (26,684
            )Exercise
      of employee stock options
            
            
            7,623
            
            
            
            3,499Other
      financing changes, net
            
            
            389
            
            
            
            813Net cash provided by financing
      activities
            
            
            201,322
            
            
            
            316,480Net
      change in cash and cash equivalents
            
            
            76,100
            
            
            
            (69,789
            )Cash
      and cash equivalents, at beginning of year
            
            
            131,182
            
            
            
            172,903Cash
      and cash equivalents, at end of period
            
            $
            207,282
            
            
            $
            103,114





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 September 27, 2008 (the
"three months ended September 2008"), the 13 weeks ended September 29, 2007 (the
"three months ended September 2007"), the 39 weeks ended September 28, 2008 (the
"nine months ended September 2008"), the 39 weeks ended September 30, 2007 (the
"nine months ended September 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:





September
      27,
              2008
            
            
            December
      29,
              2007
            
            
            September
      29,
              2007Credit
      card loans held for sale (including transferor's interest of $122,047,
              $166,700
      and $155,161)
            
            $
            124,802
            
            
            $
            178,258
            
            
            $
            158,939Credit
      card loans receivable, net of allowances of $1,373, $1,197 and
      $1,036
            
            
            10,089
            
            
            
            13,635
            
            
            
            13,360Total
            
            $
            134,891
            
            
            $
            191,893
            
            
            $
            172,299Composition
      of credit card loans at periods ended:Loans
      serviced
            
            $
            2,175,232
            
            
            $
            2,058,235
            
            
            $
            1,782,100Loans
      securitized and sold to outside investors
            
            
            (2,020,069
            )
            
            
            (1,850,000
            )
            
            
            (1,600,000
            )Securitized loans with securities owned by WFB which are classified as
              retained
      interests
            
            
            (15,087
            )
            
            
            (12,650
            )
            
            
            (6,900
            )140,076
            
            
            
            195,585
            
            
            
            175,200Less
      adjustments to market value and allowance for loan losses
            
            
            (5,185
            )
            
            
            (3,692
            )
            
            
            (2,901
            )Total
      (including transferor's interest of $122,047, $166,700 and
      $155,161)
            
            $
            134,891
            
            
            $
            191,893
            
            
            $
            172,299Transferor's
      interest restricted for repayment of secured borrowing at the
              respective
      periods ended
            
            $
            --
            
            
            $
            133,333
            
            
            $
            66,667Delinquent
      loans in the managed credit card loan portfolio at the respective
              periods
      ended:30-89
      days
            
            
            21,831
            
            
            
            14,319
            
            
            
            12,31490
      days or more and still accruing
            
            
            7,872
            
            
            
            5,835
            
            
            
            5,459





Three Months Ended
            
            
            Nine Months EndedSeptember
              2008
            
            
            September
              2007
            
            
            September
              2008
            
            
            September
              2007Total
      net charge-offs on the managed credit card loans portfolio
            
            $
            15,682
            
            
            $
            8,869
            
            
            $
            41,938
            
            
            $
            22,847Annual
      average credit card loans:Managed
      credit card loans
            
            
            2,153,089
            
            
            
            1,730,886
            
            
            
            2,043,142
            
            
            
            1,633,446Securitized
      credit card loans including
              transferor's
      interest
            
            
            2,120,536
            
            
            
            1,699,428
            
            
            
            2,008,609
            
            
            
            1,600,328Total
      net charge-offs as a percentage of annual
              average
      managed credit card loans
            
            
            2.91
            %
            
            
            2.05
            %
            
            
            2.74
            %
            
            
            1.86
            %





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:





September 27,
              2008
            
            
            December
      29,
              2007
            
            
            September
      29,
              2007Cash
      reserve account
            
            $
            6,090
            
            
            $
            11,965
            
            
            $
            12,089Interest-only
      strips
            
            
            21,993
            
            
            
            27,162
            
            
            
            27,389Subordinated
      asset-backed variable funding notes
            
            
            15,087
            
            
            
            12,650
            
            
            
            6,900$
            43,170
            
            
            $
            51,777
            
            
            $
            46,378





Certain
restrictions exist related to securitization transactions that protect
certificate and note holders against declining performance of 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
occur.  Credit card loans performed within established guidelines
during the three and nine months ended September 2008 and 2007.





3.           SHORT-TERM
BORROWINGS OF FINANCIAL SERVICES SUBSIDIARY





WFB has 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.  On May 29, 2008, this credit agreement was modified to a total
commitment of $25,000 and was extended until May 28, 2009. At September 27,
2008, there were no amounts outstanding under the credit agreement, with
$100,000 outstanding at December 29, 2007, and $50,000 outstanding at September
29, 2007.  The weighted average interest rate on the facility was
3.88% and 5.52%, respectively, for the nine months ended September 2008 and
2007.





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 September 27, 2008, December 29, 2007, or
September 29, 2007.  During the nine months ended September 2008 and
2007, the average balance outstanding was $34,428 and $1,504 with a weighted
average rate of 2.90% and 5.53%, 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:





September 27,
              2008
            
            
            December
      29, 2007
            
            
            September
      29,
              2007Unsecured
      revolving credit facility for $430,000 expiring June 30,
    2012
            
            $
            198,712
            
            
            $
            50,576
            
            
            $
            195,000Unsecured
      senior notes due 2009 with interest at 4.95%
            
            
            25,000
            
            
            
            50,000
            
            
            
            50,000Unsecured
      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 expiring June 30, 2010,
              with interest at 4.75% at
      September 27, 2008
            
            
            8,831
            
            
            
            7,447
            
            
            
            9,333Capital
      lease obligations payable through 2036
            
            
            13,623
            
            
            
            13,939
            
            
            
            13,813Other
      long-term debt
            
            
            9,321
            
            
            
            6,423
            
            
            
            6,920Total debt
            
            
            587,487
            
            
            
            403,385
            
            
            
            550,066Less
      current portion of debt
            
            
            (26,579
            )
            
            
            (26,785
            )
            
            
            (26,760
            )Long-term debt, less current
      maturities
            
            $
            560,908
            
            
            $
            376,600
            
            
            $
            523,306





We have a
credit agreement providing for a $430,000 unsecured revolving credit facility
that was increased from $325,000 effective April 2, 2008.  Other than
the increase in borrowing capacity, the terms of the credit agreement remained
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 nine months ended September 2008 and 2007, the
average principal balance outstanding on the line of credit was $187,270 and
$30,703, respectively, and the weighted average interest rate was 3.81% and
6.24%, respectively.  Letters of credit and standby letters of credit
totaling $26,709, $59,596 and $99,165 were outstanding at September 27, 2008,
December 29, 2007, and September 29, 2007, respectively.  The average
outstanding amount of total letters of credit during the nine months ended
September 2008 and 2007 was $39,922 and $66,410, 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 $4,008, $7,988 and $4,139 at September 27, 2008, December 29, 2007,
and September 29, 2007, respectively.





At
September 27, 2008, we were in compliance with all financial covenants under our
credit agreements and unsecured notes.


9
 TABLE OF CONTENTS





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
            
            
            Nine Months EndedSeptember
              2008
            
            
            September,
              2007
            
            
            September
              2008
            
            
            September
              2007Interest
      expense
            
            $
            (7,980
            )
            
            $
            (6,897
            )
            
            $
            (23,978
            )
            
            $
            (16,750
            )Capitalized
      interest
            
            
            458
            
            
            
            2,677
            
            
            
            1,537
            
            
            
            3,060Interest
      income
            
            
            12
            
            
            
            42
            
            
            
            42
            
            
            
            1,705$
            (7,510
            )
            
            $
            (4,178
            )
            
            $
            (22,399
            )
            
            $
            (11,985
            )








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 fully recognize the tax benefit of
these net operating losses.  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
              
              Nine Months EndedSeptember
                2008
              
              
              September
                2007
              
              September
                2008
              
              
              September
                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
              
              --
              
              
              
              --
              
              
              (2.3
              )
              
              
              --Change
      in state deferred tax rates
              
              --
              
              
              
              --
              
              
              (1.0
              )
              
              
              --Change
      in tax liabilities
              
              --
              
              
              
              --
              
              
              (0.8
              )
              
              
              (1.1
              )Other,
      net
              
              (1.6
              )
              
              
              0.8
              
              
              (0.5
              )
              
              
              1.635.0
              %
              
              
              37.5
              %
              
              32.0
              %
              
              
              37.2
              %








10
 TABLE OF CONTENTS


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 $3,223 and
$9,637 for the three and nine months ended September 2008, respectively, and
$3,522 and $9,017 for the three and nine months ended September 2007,
respectively. The following is a schedule of future minimum rental payments
under operating leases as of September 27, 2008:





For
      the three months ending December 27, 2008
            
            $
            1,920For
      fiscal years:2009
            
            
            5,5702010
            
            
            5,0902011
            
            
            4,6012012
            
            
            4,167Thereafter
            
            
            79,302$
            100,650





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 nine months ended September
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 September
27, 2008, we had total estimated cash commitments of approximately $100,000 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.  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 September 27, 2008, December 29, 2007,
and September 29, 2007, the total amount of grant funding subject to a specific
contractual remedy was $5,309, $13,049 and $13,086, respectively.





Under our
open account document instructions program, which provides for our
company-issued letters of credit, we had obligations to pay participating
vendors $45,378, $6,399 and $4,531 as of September 27, 2008, December 29, 2007,
and September 29, 2007, respectively.  This program began in April
2007.





WFB
enters into financial instruments with off balance sheet risk in the normal
course of business through the origination of unsecured credit card loans.
Unsecured credit card accounts are commitments to extend credit and totaled
$12,668,000, $11,635,000 and $10,914,000 at September 27, 2008, December 29,
2007, and September 29, 2007, respectively. These commitments are in addition to
any current outstanding balances of a cardholder.  Unsecured credit
card loans 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 WFB's maximum related exposure.  WFB has not
experienced and does not anticipate that all customers will exercise the entire
available line of credit at any given point in time. WFB has the right to reduce
or cancel the available lines of credit at any time.







11
 TABLE OF CONTENTS




CABELA'S
INCORPORATED AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Dollars
in Thousands Except Share and Per Share Amounts)


(Unaudited)









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 granting 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.





In
addition, on July 7, 2008, 111,324 shares of restricted stock were issued to two
executives under the 2004 Plan pursuant to Retention Award
Agreements.   The stock price on the date of grant was $10.48 per
share resulting in a fair value of $1.2 million of deferred compensation which
will be amortized to expense over a five-year period.  The restricted
stock vests one-third on the third, fourth, and fifth anniversaries of the grant
date.  As of September 27, 2008, there were 4,905,466 shares subject
to options and 1,503,892 shares authorized and available for grant under the
2004 Plan.





Under our
1997 Stock Option Plan there were 923,727 shares subject to options as of
September 27, 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 nine months ended September 2008, there were 669,600 options
exercised.  The aggregate intrinsic value of awards exercised was
$2,400 and $7,817 during the nine months ended September 2008 and 2007,
respectively.  Based on our closing stock price of $12.45 as of
September 27, 2008, the total number of in-the-money awards exercisable at
September 27, 2008, was 595,258.





We
recorded share-based compensation expense of $2,122 ($1,379 after-tax, or $0.02
per diluted share) and $5,194 ($3,592 after-tax, or $.05 per diluted share) for
the three and nine months ended September 2008, respectively, and $1,354 ($846
after-tax, or $0.01 per diluted share) and $2,627 ($1,642 after-tax, or $.02 per
diluted share) for the three and nine months ended September 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
September 27, 2008, the total unrecognized deferred share-based compensation
balance for unvested shares issued, net of expected forfeitures, was
approximately $8,255, 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 nine months ended September 2008, there were
181,952 shares issued under the ESPP.  As of September 27, 2008, there
were 1,263,324 shares authorized and available for issuance.  We
intend to issue new shares, rather than market purchases, beginning October
2008.











12
 TABLE OF CONTENTS


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 September 27, 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:





September 27,
              2008
            
            
            December
      29,
              2007
            
            
            September
      29,
              2007Accumulated
      net unrealized holding losses on economic
              development
    bonds
            
            $
            (2,623
            )
            
            $
            (806
            )
            
            $
            (739
            )Accumulated
      net unrealized holding gains on derivatives
            
            
            68
            
            
            
            76
            
            
            
            93Cumulative
      foreign currency translation adjustments
            
            
            (103
            )
            
            
            7
            
            
            
            --Total
      accumulated other comprehensive income (loss)
            
            $
            (2,658
            )
            
            $
            (723
            )
            
            $
            (646
            )






10.           COMPREHENSIVE
INCOME





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




Three Months Ended
              
              
              Nine Months EndedSeptember
                2008
              
              
              September
                2007
              
              
              September
                2008
              
              
              September
                2007Net
      income
              
              $
              9,722
              
              
              $
              13,232
              
              
              $
              26,957
              
              
              $
              31,638Changes
      in net unrealized holding gains (losses) on
                economic development bonds, net
      of taxes of
                $519, $64, $(1,075) and
      $(619)
              
              
              903
              
              
              
              107
              
              
              
              (1,817
              )
              
              
              (1,031
              )Changes
      in net unrealized holding gains on derivatives
                designated
      as cash flow hedges, net
                of
      taxes of $1, $61, $82 and $86
              
              
              2
              
              
              
              101
              
              
              
              140
              
              
              
              143Less adjustment for
      reclassification of
                derivatives included in net
      income, net of
                taxes of $15, $25, $85 and
      $44
              
              
              (26
              )
              
              
              (42
              )
              
              
              (148
              )
              
              
              (73
              )(24
              )
              
              
              59
              
              
              
              (8
              )
              
              
              70Foreign
      currency translation adjustment
              
              
              (101
              )
              
              
              --
              
              
              
              (110
              )
              
              
              --Comprehensive
      income
              
              $
              10,500
              
              
              $
              13,398
              
              
              $
              25,022
              
              
              $
              30,677





13
 TABLE OF CONTENTS


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
            
            
            Nine Months EndedSeptember
              2008
            
            
            September
              2007
            
            
            September
              2008
            
            
            September
              2007Weighted average
      number of shares:Common
      shares – basic
            
            
            66,648,175
            
            
            
            65,825,895
            
            
            
            66,261,993
            
            
            
            65,701,443Effect
      of incremental dilutive
              securities:Stock
      options and employee stock
              purchase
      plan shares
            
            
            403,318
            
            
            
            1,205,207
            
            
            
            843,406
            
            
            
            1,616,039Common
      shares – diluted
            
            
            67,051,493
            
            
            
            67,031,102
            
            
            
            67,105,399
            
            
            
            67,317,482Options
      outstanding considered anti-dilutive
            
            
            4,511,987
            
            
            
            11,500
            
            
            
            4,511,987
            
            
            
            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
      atSeptember 27,
              2008
            
            
            September
      29,
              2007Non-cash financing and
      investing activities:Accrued
      property and equipment additions (1)
            
            $
            7,220
            
            
            $
            67,639Capital
      lease obligations
            
            
            --
            
            
            
            202Contribution
      of land received
            
            
            3,903
            
            
            
            --Issuance
      of restricted common stock
            
            
            1,167
            
            
            
            --Nine Months EndedSeptember
              2008
            
            
            September
              2007Other cash flow
      information:Interest
      paid
            
            $
            32,690
            
            
            $
            22,166Capitalized
      interest
            
            
            (1,537
            )
            
            
            (3,060
            )Interest
      paid, net of capitalized interest
            
            $
            31,153
            
            
            $
            19,106Income taxes,
    net
            
            $
            53,505
            
            
            $
            36,646





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





14
 TABLE OF CONTENTS


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 September 27, 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 and nine
months ended September 2008 and 2007:





CorporateThree Months
      Ended
            
            
            
            
            
            
            
            Financial
            
            
            OverheadSeptember
      2008:
            
            Retail
            
            
            Direct
            
            
            Services
            
            
            and Other
            
            
            TotalRevenue
      from external
            
            $
            326,942
            
            
            $
            240,754
            
            
            $
            42,013
            
            
            $
            2,091
            
            
            $
            611,800Revenue
      (loss) from internal
            
            
            1,032
            
            
            
            474
            
            
            
            (117
            )
            
            
            (1,389
            )
            
            
            --Total revenue
            
            $
            327,974
            
            
            $
            241,228
            
            
            $
            41,896
            
            
            $
            702
            
            
            $
            611,800Operating
      income (loss)
            
            $
            30,084
            
            
            $
            33,513
            
            
            $
            11,961
            
            
            $
            (54,713
            )
            
            $
            20,845As a percentage of
      revenue
            
            
            9.2
            %
            
            
            13.9
            %
            
            
            28.5
            %
            
            
            N/A
            
            
            
            3.4
            %Depreciation
      and amortization
            
            $
            7,676
            
            
            $
            1,078
            
            
            $
            200
            
            
            $
            5,164
            
            
            $
            14,118Assets
            
            
            1,024,049
            
            
            
            580,917
            
            
            
            471,508
            
            
            
            222,012
            
            
            
            2,298,486





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)













CorporateThree Months
      Ended
            
            
            
            
            
            
            
            Financial
            
            
            OverheadSeptember
      2007:
            
            Retail
            
            
            Direct
            
            
            Services
            
            
            and Other
            
            
            TotalRevenue
      from external
            
            $
            256,836
            
            
            $
            241,132
            
            
            $
            44,902
            
            
            $
            3,939
            
            
            $
            546,809Revenue
      (loss) from internal
            
            
            446
            
            
            
            768
            
            
            
            (153
            )
            
            
            (1,061
            )
            
            
            --Total revenue
            
            $
            257,282
            
            
            $
            241,900
            
            
            $
            44,749
            
            
            $
            2,878
            
            
            $
            546,809Operating
      income (loss)
            
            $
            26,940
            
            
            $
            40,897
            
            
            $
            9,569
            
            
            $
            (53,060
            )
            
            $
            24,346As a percentage of
      revenue
            
            
            10.5
            %
            
            
            16.9
            %
            
            
            21.4
            %
            
            
            N/A
            
            
            
            4.5
            %Depreciation
      and amortization
            
            $
            7,094
            
            
            $
            1,135
            
            
            $
            287
            
            
            $
            6,270
            
            
            $
            14,786Assets
            
            
            980,290
            
            
            
            468,957
            
            
            
            375,762
            
            
            
            339,765
            
            
            
            2,164,774








CorporateNine Months
      Ended
            
            
            
            
            
            
            
            Financial
            
            
            OverheadSeptember
      2008:
            
            Retail
            
            
            Direct
            
            
            Services
            
            
            and Other
            
            
            TotalRevenue
      from external
            
            $
            854,011
            
            
            $
            683,403
            
            
            $
            121,192
            
            
            $
            14,685
            
            
            $
            1,673,291Revenue
      (loss) from internal
            
            
            1,962
            
            
            
            1,377
            
            
            
            (335
            )
            
            
            (3,004
            )
            
            
            --Total revenue
            
            $
            855,973
            
            
            $
            684,780
            
            
            $
            120,857
            
            
            $
            11,681
            
            
            $
            1,673,291Operating
      income (loss)
            
            $
            79,429
            
            
            $
            93,368
            
            
            $
            33,928
            
            
            $
            (149,942
            )
            
            $
            56,783As a percentage of
      revenue
            
            
            9.3
            %
            
            
            13.6
            %
            
            
            28.1
            %
            
            
            N/A
            
            
            
            3.4
            %Depreciation
      and amortization
            
            $
            28,125
            
            
            $
            3,022
            
            
            $
            786
            
            
            $
            16,253
            
            
            $
            48,186Assets
            
            
            1,024,049
            
            
            
            580,917
            
            
            
            471,508
            
            
            
            222,012
            
            
            
            2,298,486





CorporateNine Months
      Ended
            
            
            
            
            
            
            
            Financial
            
            
            OverheadSeptember
      2007:
            
            Retail
            
            
            Direct
            
            
            Services
            
            
            and Other
            
            
            TotalRevenue
      from external
            
            $
            640,112
            
            
            $
            682,161
            
            
            $
            121,952
            
            
            $
            15,874
            
            
            $
            1,460,099Revenue
      (loss) from internal
            
            
            1,487
            
            
            
            1,485
            
            
            
            (455
            )
            
            
            (2,517
            )
            
            
            --Total revenue
            
            $
            641,599
            
            
            $
            683,646
            
            
            $
            121,497
            
            
            $
            13,357
            
            
            $
            1,460,099Operating
      income (loss)
            
            $
            66,403
            
            
            $
            107,356
            
            
            $
            26,961
            
            
            $
            (143,731
            )
            
            $
            56,989As a percentage of
      revenue
            
            
            10.4
            %
            
            
            15.7
            %
            
            
            22.2
            %
            
            
            N/A
            
            
            
            3.9
            %Depreciation
      and amortization
            
            $
            19,646
            
            
            $
            3,262
            
            
            $
            819
            
            
            $
            17,877
            
            
            $
            41,604Assets
            
            
            980,290
            
            
            
            468,957
            
            
            
            375,762
            
            
            
            339,765
            
            
            
            2,164,774





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
              
              
              Nine Months EndedSeptember
                2008
              
              
              September
                2007
              
              
              September
                2008
              
              
              September
                2007Interest
      and fee income, net of provision for loan
                losses
              
              $
              10,509
              
              
              $
              9,139
              
              
              $
              29,632
              
              
              $
              20,233Interest
      expense
              
              
              (2,831
              )
              
              
              (1,807
              )
              
              
              (8,993
              )
              
              
              (4,252
              )Net
      interest income, net of provision for loan
                losses
              
              
              7,678
              
              
              
              7,332
              
              
              
              20,639
              
              
              
              15,981Non-interest
      income:Securitization
      income
              
              
              47,573
              
              
              
              50,679
              
              
              
              136,923
              
              
              
              144,315Other
      non-interest income
              
              
              17,273
              
              
              
              13,592
              
              
              
              49,914
              
              
              
              36,072Total non-interest
      income
              
              
              64,846
              
              
              
              64,271
              
              
              
              186,837
              
              
              
              180,387Less:
      Customer rewards costs
              
              
              (30,628
              )
              
              
              (26,854
              )
              
              
              (86,619
              )
              
              
              (74,871
              )Financial
      Services total revenue
              
              $
              41,896
              
              
              $
              44,749
              
              
              $
              120,857
              
              
              $
              121,497





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.





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.





17
 TABLE OF CONTENTS


CABELA'S
INCORPORATED AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Dollars
in Thousands Except Share and Per Share Amounts)


(Unaudited)










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 September 27, 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 September 27, 2008.





Assets
            
            Fair
      Value at
              September
      27,
              2008 (1)Retained
      interests in securitized loans
            
            $
            43,170Economic
      development bonds
            
            
            101,583$
            144,753(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 September 2008.





Retained
              Interests
      in
              Securitized
              Loans
            
            
            Economic
              Development
              BondsBalance,
      June 28, 2008
            
            $
            38,390
            
            
            $
            101,316Total
      gains or losses (realized/unrealized):Included in
    earnings
            
            
            (3,108
            )
            
            
            --Included in other comprehensive
      income
            
            
            --
            
            
            
            1,422Purchases,
      issuances, and settlements, net
            
            
            7,888
            
            
            
            (1,155
            )Balance,
      September 27, 2008
            
            $
            43,170
            
            
            $
            101,583





18
 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 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 nine
months ended September 2008.





Retained
              Interests
      in
              Securitized
              Loans
            
            
            Economic
              Development
              BondsBalance,
      December 30, 2007
            
            $
            51,777
            
            
            $
            98,035Total
      gains or losses (realized/unrealized):Included in
    earnings
            
            
            (12,440
            )
            
            
            --Included in other comprehensive
      income
            
            
            --
            
            
            
            (2,892
            )Purchases,
      issuances, and settlements, net
            
            
            3,833
            
            
            
            6,440Balance,
      September 27, 2008
            
            $
            43,170
            
            
            $
            101,583





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.





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 three of its securitizations.  The fair value of these
securities approximates book value given the short-term nature of the
notes.





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.











19
 TABLE OF CONTENTS


CABELA'S
INCORPORATED AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Dollars
in Thousands Except Share and Per Share Amounts)


(Unaudited)













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.





On
September 15, 2008, the FASB issued two exposure drafts proposing amendments to
FAS 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities and FASB Interpretation No. 46R, Consolidation of Variable Interest
Entities.  Currently, the transfers of our bank subsidiary's
credit card receivables in securitization transactions qualify for sale
accounting treatment.  The trusts used in our bank subsidiary's
securitizations are not consolidated with us for financial reporting purposes
because the trusts are qualifying special purpose entities
("QSPE").  Because the transfers qualify as sales and the trusts are
not subject to consolidation, the assets and liabilities of the trusts are not
reported on our consolidated balance sheet under generally accepted accounting
principles.  Under the proposed amendments, the concept of a QSPE
would be eliminated and would modify the consolidation model for variable
interest entities and require continual reassessment of consolidation
conclusions.  As proposed, these amendments would be effective
for us at the beginning of our 2010 fiscal year.  The proposed
amendments, if adopted, could require us to consolidate the assets and
liabilities of our bank subsidiary's securitization trusts.  This
could cause us to breach certain financial covenants in our credit agreements
and unsecured notes.  This could have a significant effect on our
financial condition and ability to meet the capital maintenance requirements of
our bank subsidiary, as affected off-balance sheet loans would be recorded on
our consolidated balance sheet and may be subject to regulatory capital
requirements.


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 the credit markets or the availability of credit;·
            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;·
            changes
      in accounting rules applicable to securitization
    transactions;·
            any
      downgrade of the ratings on the outstanding notes issues by our Financial
      Services business' securitization trust;·
            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"), in Part II, Item 1A, of our Quarterly Report
      on Form 10-Q for the fiscal quarter ended March 29, 2008, and in Part II,
      Item 1A, of this report), 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.


21
 TABLE OF CONTENTS





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.








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 September 27, 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 29 stores, 28 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.


22
 TABLE OF CONTENTS


Financial
Overview




Three Months EndedSeptember
              2008
            
            
            September
              2007
            
            
            Increase
              (Decrease)
            
            
            %
              Change(Dollars
      in Thousands)Revenue:Retail
            
            $
            327,974
            
            
            $
            257,282
            
            
            $
            70,692
            
            
            
            27.5
            %Direct
            
            
            241,228
            
            
            
            241,900
            
            
            
            (672
            )
            
            
            (0.3
            )Total merchandise
      sales
            
            
            569,202
            
            
            
            499,182
            
            
            
            70,020
            
            
            
            14.0Financial
    Services
            
            
            41,896
            
            
            
            44,749
            
            
            
            (2,853
            )
            
            
            (6.4
            )Other revenue
            
            
            702
            
            
            
            2,878
            
            
            
            (2,176
            )
            
            
            (75.6
            )Total revenue
            
            $
            611,800
            
            
            $
            546,809
            
            
            $
            64,991
            
            
            
            11.9Operating
      income
            
            $
            20,845
            
            
            $
            24,346
            
            
            $
            (3,501
            )
            
            
            (14.4
            )Net
      income per diluted share
            
            $
            0.15
            
            
            $
            0.20
            
            
            $
            (0.05
            )
            
            
            (25.0
            )





Nine Months EndedSeptember
                2008
              
              
              September
                2007
              
              
              Increase
                (Decrease)
              
              
              %
                Change(Dollars
      in Thousands)Revenue:Retail
              
              $
              855,973
              
              
              $
              641,599
              
              
              $
              214,374
              
              
              
              33.4
              %Direct
              
              
              684,780
              
              
              
              683,646
              
              
              
              1,134
              
              
              
              0.2Total merchandise
      sales
              
              
              1,540,753
              
              
              
              1,325,245
              
              
              
              215,508
              
              
              
              16.3Financial
    Services
              
              
              120,857
              
              
              
              121,497
              
              
              
              (640
              )
              
              
              (0.5
              )Other revenue
              
              
              11,681
              
              
              
              13,357
              
              
              
              (1,676
              )
              
              
              (12.5
              )Total revenue
              
              $
              1,673,291
              
              
              $
              1,460,099
              
              
              $
              213,192
              
              
              
              14.6Operating
      income
              
              $
              56,783
              
              
              $
              56,989
              
              
              $
              (206
              )
              
              
              (0.4
              )Net
      income per diluted share
              
              $
              0.40
              
              
              $
              0.47
              
              
              $
              (0.07
              )
              
              
              (14.9
              )





Revenues
for the three months ended September 2008 totaled $612 million, an increase of
11.9% over the three months ended September 2007.   For the nine
months ended September 2008, revenues totaled $1.7 billion, an increase of 14.6%
over the nine months ended September 2007.  Revenues increased over
the 2007 periods principally from the opening of ten new stores since April
2007:  our Rapid City, South Dakota, store that opened August 7, 2008,
and our Scarborough, Maine, store that opened May 15, 2008, plus the eight
stores that opened in 2007 - one in April 2007, one in September 2007, and six
in the fourth quarter of 2007.


23
 TABLE OF CONTENTS





Operating
income totaled $21 million for the three months ended September 2008, a decrease
of $4 million, or 14.4%, compared to the three months ended September 2007, and
totaled $57 million for the nine months ended September 2008, down $0.2 million
from the nine months ended September 2007.  Operating income decreased
for the three months ended September 2008 compared to the three months ended
September 2007 primarily due to the macroeconomic environment, decreases in our
gross margins, increases in credit card loan charge-offs and in the allowance
for credit card loans, and related decreases in the valuation of our
interest-only strips associated with our securitized loans.  Operating
income for the nine months ended September 2008 remained relatively constant
compared to the nine months ended September 2007 in spite of the economy and
increases in credit card loan charge-offs in 2008 compared to
2007.  These losses from charge-offs were mostly offset by labor
efficienciesgained
in our Retail and Direct merchandisesegments and to decreases in retail
store pre-opening costs compared to 2007.





Our
operating results for the three months ended September 2008 declined compared to
the three months ended September 2007 as we continued to be impacted by a
challenging retail and macroeconomic environment resulting in slowed retail
store and Direct sales.  Comparable store sales decreased $23 million,
or 9.0%, for the three months ended September 2008 compared to the three months
ended September 2007, and $41 million, or 6.6%, for the nine months ended
September 2008 compared to the nine months ended September
2007.  Internet site visits increased 31.1% and 37.3%, respectively,
for the three and nine months ended September 2008 compared to the respective
periods ended September 2007, as we continue to focus our efforts on utilizing
Direct marketing programs to increase our website traffic. Selling,
distribution, and administrative expenses as a percentage of total revenue
decreased 150 basis points and 60 basis points, respectively, for the three and
nine months ended September 2008 compared to the same periods of
2007.





Our
primary focus is on managing our business efficiently to enhance near-term and
long-term results for our shareholders. As such, after completing a review of
our organization structure, in October 2008 we announced a reduction in
workforce of approximately 10% at our company headquarters.  This
workforce reduction will reduce future costs and is expected to cost
approximately $1.5 million in severance and related assistance. We are also
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 for the
remainder of 2008 is to continue to make progress 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·
            continue
      successful operations and productivity of our retail
    stores.




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





For the
three and nine months ended September 2008 compared to the respective 2007
periods, operating income for our Retail business segment increased $3 million
and $13 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.


24
 TABLE OF CONTENTS





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 are
capitalizing 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 have developed 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 new Rapid
City, South Dakota, store.





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





·
            natural
      growth by offering industry-leading selection, service, value, and
      quality;·
            acquisition,
      retention, and reactivation of customers through our multi-channel
      platform;·
            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 nine months ended September 2008, our Direct revenue was basically
flat compared to the respective 2007 periods, primarily due to the stagnant
retail and macroeconomic environment.  We expanded our Direct customer
base during the nine months ended September 2008 compared to the nine months
ended September 2007, positioning ourselves for future revenue growth when the
economy improves.





Growth of Our Credit Card
Business –We continue working
toward increasing our Financial Services revenue by attracting new cardholders
through lower 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.





25
 TABLE OF CONTENTS


Operations
Review





The three
months ended September 2008 and September 2007 each consisted of 13 weeks, and
the nine months ended September 2008 and September 2007 each consisted of 39
weeks.  Our operating results expressed as a percentage of revenue
were as follows for the periods presented.





Three Months Ended
            
            
            Nine Months EndedSeptember
              2008
            
            
            September
              2007
            
            
            September
              2008
            
            
            September
              2007Revenue
            
            
            100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %Cost
      of revenue
            
            
            61.47
            
            
            
            58.99
            
            
            
            60.14
            
            
            
            58.95Gross profit (exclusive of
      depreciation and
              amortization)
            
            
            38.53
            
            
            
            41.01
            
            
            
            39.86
            
            
            
            41.05Selling,
      distribution, and administrative
              expenses
            
            
            35.12
            
            
            
            36.56
            
            
            
            36.47
            
            
            
            37.15Operating
      income
            
            
            3.41
            
            
            
            4.45
            
            
            
            3.39
            
            
            
            3.90Other
      income (expense):Interest (expense) income,
      net
            
            
            (1.23
            )
            
            
            (0.76
            )
            
            
            (1.33
            )
            
            
            (0.82
            )Other income,
    net
            
            
            0.26
            
            
            
            0.18
            
            
            
            0.31
            
            
            
            0.37Total
      other income (expense), net
            
            
            (0.97
            )
            
            
            (0.58
            )
            
            
            (1.02
            )
            
            
            (0.45
            )Income
      before provision for income taxes
            
            
            2.44
            
            
            
            3.87
            
            
            
            2.37
            
            
            
            3.45Provision
      for income taxes
            
            
            0.85
            
            
            
            1.45
            
            
            
            0.76
            
            
            
            1.28Net
      income
            
            
            1.59
            %
            
            
            2.42
            %
            
            
            1.61
            %
            
            
            2.17
            %








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





Revenues




Three Months EndedSeptember
              2008
            
            
            %
            
            
            September
              2007
            
            
            %
            
            
            Increase
      (Decrease)
            
            
            %
              Change(Dollars
      in Thousands)Retail
            
            $
            327,974
            
            
            
            53.6
            %
            
            $
            257,282
            
            
            
            47.1
            %
            
            $
            70,692
            
            
            
            27.5
            %Direct
            
            
            241,228
            
            
            
            39.4
            
            
            
            241,900
            
            
            
            44.2
            
            
            
            (672
            )
            
            
            (0.3
            )Financial
      Services
            
            
            41,896
            
            
            
            6.9
            
            
            
            44,749
            
            
            
            8.2
            
            
            
            (2,853
            )
            
            
            (6.4
            )Other
            
            
            702
            
            
            
            0.1
            
            
            
            2,878
            
            
            
            0.5
            
            
            
            (2,176
            )
            
            
            (75.6
            )$
            611,800
            
            
            
            100.0
            %
            
            $
            546,809
            
            
            
            100.0
            %
            
            $
            64,991
            
            
            
            11.9
            %





Retail revenue
includes sales incurred and services performed at our retail stores, sales from
orders placed through our retail store Internet kiosks, and sales from customers
utilizing our in-store pick-up program.  Direct revenue includes catalog
and Internet sales from orders placed over the phone, by mail, and through our
website where the merchandise is shipped to any non-retail store
location. 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.


26
 TABLE OF CONTENTS


For the
third 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 September
2008 compared to the three months ended September 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, the Rapid City, South Dakota, store that
opened August 7, 2008, and the Scarborough, Maine, store that opened May 15,
2008.  Direct revenue decreased primarily due to a portion of catalog
mail order sales declining as these sales move to our new retail stores, which
was mostly offset by increased Internet sales comparing the respective
periods.  The decrease in Financial Services revenue was primarily
attributable to increases in credit card loan charge-offs, increases in the
allowance for credit card loans and related decreases in the valuation of our
interest-only strips associated with our securitized loans.





Retail
Revenue–Retail revenue increased $71 million for the three months ended
September 2008 primarily due to new store sales increasing compared to the three
months ended September 2007.  The product category that contributed
the largest dollar volume increase to our Retail revenue for the three months
ended September 2008 was hunting equipment.


Three Months EndedSeptember
                2008
              
              
              September
                2007
              
              
              Increase
                (Decrease)
              
              
              %
                Change(Dollars
      in Thousands)Comparable
      stores sales
              
              $
              230,221
              
              
              $
              252,934
              
              
              $
              (22,713
              )
              
              
              (9.0
              )%




Comparable
store sales decreased $23 million, or 9.0%, for the three months ended September
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.





Direct
Revenue – Direct
revenue decreased $0.7 million, or 0.3%, due to lower catalog sales and to some
cannibalization relating to our new retail stores that opened in late 2007,
mostly offset by increased Internet sales in the three months ended September
2008 compared to the three months ended September 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 31.1%, to 29.8 million visits for the three months ended
September 2008, compared to 22.7 million visits for the three months ended
September 2007.  The clothing and footwear product category was the
largest dollar volume contributor to our Direct revenue for the three months
ended September 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
September:





2008
            
            
            2007
            
            
            Increase
              (Decrease)
            
            
            %
              Change(Dollars
      in Thousands Except Average Balance per Account )Average
      balance of managed credit card loans
            
            $
            2,153,089
            
            
            $
            1,730,886
            
            
            $
            422,203
            
            
            
            24.4
            %Number
      of average active credit card accounts
            
            
            1,143,525
            
            
            
            978,984
            
            
            
            164,541
            
            
            
            16.8Average
      balance per active credit card account
            
            $
            1,883
            
            
            $
            1,768
            
            
            $
            115
            
            
            
            6.5Net
      charge-offs
            
            
            15,682
            
            
            
            8,869
            
            
            
            6,813
            
            
            
            76.8Net
      charge-offs as a percentage of average managed credit card
      loans
            
            
            2.91
            %
            
            
            2.05
            %
            
            
            0.86
            %





27
 TABLE OF CONTENTS





The
balance of average managed credit card loans increased to $2.2 billion, or
24.4%, because of the increase in the number of accounts and the average balance
per account.  The number of accounts increased to 1,143,525, or 16.8%,
due to our marketing efforts to add additional accounts.  Net
charge-offs as a percentage of average managed credit card loans increased to
2.91% for the three months ended September 2008, up 15 basis points compared to
the second quarter of 2008 and up 86 basis points compared to the three months
ended September 2007, principally because of the current 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
September:





(Dollars
      in Thousands)
            
            2008
            
            
            2007Interest
      and fee income, net of provision for loan losses
            
            $
            10,509
            
            
            $
            9,139Interest
      expense
            
            
            (2,831
            )
            
            
            (1,807
            )Net interest income, net of
      provision for loan losses
            
            
            7,678
            
            
            
            7,332Non-interest
      income:Securitization income
      (including gains on sales of credit card loans of $3,108
              and
      $7,203)
            
            
            47,573
            
            
            
            50,679Other non-interest
      income
            
            
            17,273
            
            
            
            13,592Total
      non-interest income
            
            
            64,846
            
            
            
            64,271Less:
      Customer rewards costs
            
            
            (30,628
            )
            
            
            (26,854
            )Financial
      Services revenue
            
            $
            41,896
            
            
            $
            44,749





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.


28
 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 three months ended
September:





(Dollars
      in Thousands)
            
            2008
            
            
            2007Interest
      income
            
            $
            49,709
            
            
            $
            48,465Interchange
      income, net of customer rewards costs
            
            
            19,854
            
            
            
            16,940Other
      fee income
            
            
            10,667
            
            
            
            7,425Interest
      expense
            
            
            (21,569
            )
            
            
            (21,776
            )Provision
      for loan losses
            
            
            (16,632
            )
            
            
            (8,931
            )Other
            
            
            (133
            )
            
            
            2,626Managed
      Financial Services revenue
            
            $
            41,896
            
            
            $
            44,749Managed Financial
      Services Revenue as a Percentage of Average Managed Credit Card
      Loans:Interest
      income
            
            
            9.2
            %
            
            
            11.2
            %Interchange
      income, net of customer rewards costs
            
            
            3.7
            
            
            
            3.9Other
      fee income
            
            
            2.0
            
            
            
            1.7Interest
      expense
            
            
            (4.0
            )
            
            
            (5.0
            )Provision
      for loan losses
            
            
            (3.1
            )
            
            
            (2.1
            )Other
            
            
            --
            
            
            
            0.6Managed
      Financial Services revenue
            
            
            7.8
            %
            
            
            10.3
            %





Financial
Services revenue decreased $3 million, or 6.4%, for the three months ended
September 2008 compared to the three months ended September 2007.  The
increase in interest income of $1 million in the three months ended September
2008 from the three months ended September 2007 was due to an increase in
managed credit card loans, partially offset by decreases in interest
rates.  The increase in interchange income of $3 million in the 2008
third quarter from the 2007 third quarter was driven by net credit card
purchases, which increased 17.1%.  Other fee income increased $3
million due to increases in late fees, overlimit fees, and payment assurance
fees.  These increases were partially offset by an increase in the
provision for loan losses of $8 million from increases in managed credit card
loans and increases in net charge-offs, and by a decrease of $3 million in the
Other category primarily due to related decreases in the valuation of our
interest-only strips associated with our securitized loans.





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 decreased $2 million, or 75.6%, comparing the three months ended
September 2008 to the three months ended September 2007.  There was no
real estate revenue for the three months ended September 2008, compared to $2
million for the three months ended September 2007, resulting in pre-tax gains on
the sale of real estate totaling $1 million.





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 include 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.


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 TABLE OF CONTENTS


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
September:





2008
              
              
              2007
              
              
              Increase(Decrease)
              
              
              %
                Change(Dollars
      in Thousands)Merchandise
      sales
              
              $
              569,202
              
              
              $
              499,182
              
              
              $
              70,020
              
              
              
              14.0
              %Merchandise
      gross margin
              
              
              192,283
              
              
              
              176,635
              
              
              
              15,648
              
              
              
              8.9Merchandise
      gross margin as a percentage of merchandise revenue
              
              
              33.8
              %
              
              
              35.4
              %
              
              
              (1.6
              )%




Merchandise Gross
Margins–
Gross margins of our merchandising business increased $16 million, or 8.9%, to
$192 million for the three months ended September 2008.  Merchandise
gross margins as a percentage of revenue of our merchandising business decreased
to 33.8% for the three months ended September 2008 from 35.4% for the three
months ended September 2007.  The decrease in merchandise gross
margins for the three months ended September 2008 compared to the three months
ended September 2007 is primarily attributable to lower initial margin, as well
as greater markdowns, a decrease in our shipping margin, and to a shift in sales
between channels for the three months ended September 2008 compared to the three
months ended September 2007.





Selling,
Distribution, and Administrative Expenses




Three Months EndedSeptember
                  2008
                
                
                September
                  2007
                
                
                Increase(Decrease)
                
                
                %
                  Change(Dollars
      in Thousands)Selling,
      distribution, and administrative expenses
                
                $
                214,898
                
                
                $
                199,879
                
                
                $
                15,019
                
                
                
                7.5
                %S,D&A
      expenses as a percentage of  total revenue
                
                
                35.1
                %
                
                
                36.6
                %
                
                
                (1.5
                )%Retail
      store pre-opening costs
                
                $
                2,612
                
                
                $
                7,875
                
                
                $
                (5,263
                )
                
                
                (66.8
                )





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 $15
million, or 7.5%, for
the three months ended September 2008 over the three months ended September
2007.  The primary reason for the increase was the addition of eight
new stores in 2007 and the two new stores in 2008, 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 third quarter of 2008 from our retail store expansion,
included increases in:





·
            employee
      compensation, benefits, training, and recruitment costs of $5
      million;·
            advertising
      costs of  $5 million; and·
            other
      retail store-related operating costs of $5
  million.





30
 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 $23 million, including employee compensation and benefits costs of $12
      million, $4 million in advertising and promotional expenses, and lower
      marketing fees of $2 million received from the Financial Services
      segment.·
            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 $3
      million.·
            New
      store pre-opening costs of $3 million, a decrease of $5 million over the
      three months ended September 2007.





Direct
Business Segment:


·
            Lower
      marketing fees of $3 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.·
            A
      decrease of $5 million in the marketing fee paid by the Financial Services
      segment to the Retail segment ($2 million decrease) and the Direct
      business segment ($3 million
decrease).





Corporate
Overhead, Distribution Centers, and Other:


·
            A
      decrease in depreciation expense of $1 million primarily related to
      depreciation changes in estimated lives implemented in April 2008 on
      information system hardware and software.·
            A
      decrease of $1 million in equipment and software
  expenses.·
            An
      increase of $2 million primarily related to settlement of certain claims
      and other business transactions.





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 EndedSeptember
                    2008
                  
                  
                  September
                    2007
                  
                  
                  Increase
                    (Decrease)
                  
                  
                  %
                    Change(Dollars
      in Thousands)Total
      operating income
                  
                  $
                  20,845
                  
                  
                  $
                  24,346
                  
                  
                  $
                  (3,501
                  )
                  
                  
                  (14.4
                  )%Total
      operating income as a percentage of
                    total
      revenue
                  
                  
                  3.4
                  %
                  
                  
                  4.5
                  %
                  
                  
                  (1.1
                  )%Operating
      income by business segment:Retail
                  
                  $
                  30,084
                  
                  
                  $
                  26,940
                  
                  
                  $
                  3,144
                  
                  
                  
                  11.7
                  %Direct
                  
                  
                  33,513
                  
                  
                  
                  40,897
                  
                  
                  
                  (7,384
                  )
                  
                  
                  (18.1
                  )Financial
      Services
                  
                  
                  11,961
                  
                  
                  
                  9,569
                  
                  
                  
                  2,392
                  
                  
                  
                  25.0Operating
      income as a percentage of
                    segment
      revenue:Retail
                  
                  
                  9.2
                  %
                  
                  
                  10.5
                  %
                  
                  
                  (1.3
                  )%Direct
                  
                  
                  13.9
                  
                  
                  
                  16.9
                  
                  
                  
                  (3.0
                  )Financial
      Services
                  
                  
                  28.5
                  
                  
                  
                  21.4
                  
                  
                  
                  7.1





31
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Operating
income decreased $4 million, or 14.4%, for the three months ended September 2008
compared to the three months ended September 2007.  Operating income
as a percentage of revenue also decreased to 3.4% for the three months ended
September 2008 from 4.5% for the three months ended September
2007.  Operating income comparisons between the three months ended
September 2008 and 2007 are impacted by the challenging retail and macroeconomic
environment and by increases in credit card loan charge-offs, increases in the
allowance for credit card loans and related decreases in the valuation of our
interest-only strips associated with our securitized loans.





Interest
(Expense) Income, Net





Interest
expense, net of interest income, increased $3 million to $8 million for the
three months ended September 2008 compared to the three months ended September
2007.  The net increase in interest expense was primarily due to
additional debt incurred in financing our retail store
expansion.  During the three months ended September 2008, we
capitalized interest totaling $0.5 million on qualifying fixed assets relating
primarily to retail store construction compared to $2.7 million for the three
months ended September 2007.





Other
Non-Operating Income, Net





Other
income was $2 million for the three months ended September 2008 compared to $1
million for the three months ended September 2007. This income is from the
interest earned on our economic development bonds.





Provision
for Income Taxes





Our
effective tax rate was 35.0% for the three months ended September 2008 compared
to 37.5% for the three months ended September 2007.  The effective tax
rate was lower for the three months ended September 2008 compared to the 2007
period primarily due to a reduction in our income tax provision relating to a
state tax refund.








Results
of Operations – Nine Months Ended September 2008 Compared to September
2007





Revenues




Nine Months EndedSeptember
                2008
              
              
              %
              
              
              September
                2007
              
              
              %
              
              
              Increase
                (Decrease)
              
              
              %
                Change(Dollars
      in Thousands)Retail
              
              $
              855,973
              
              
              
              51.2
              %
              
              $
              641,599
              
              
              
              44.0
              %
              
              $
              214,374
              
              
              
              33.4
              %Direct
              
              
              684,780
              
              
              
              40.9
              
              
              
              683,646
              
              
              
              46.8
              
              
              
              1,134
              
              
              
              0.2Financial
      Services
              
              
              120,857
              
              
              
              7.2
              
              
              
              121,497
              
              
              
              8.3
              
              
              
              (640
              )
              
              
              (0.5
              )Other
              
              
              11,681
              
              
              
              0.7
              
              
              
              13,357
              
              
              
              0.9
              
              
              
              (1,676
              )
              
              
              (12.5
              )$
              1,673,291
              
              
              
              100.0
              %
              
              $
              1,460,099
              
              
              
              100.0
              %
              
              $
              213,192
              
              
              
              14.6
              %





Retail
sales increased due to the eight new store openings in 2007, the Rapid City,
South Dakota, store that opened August 2008, and the Scarborough, Maine, store
that opened May 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 moved to our new retail stores.  Financial
Services revenue decreased primarily due to increases in credit card loan
charge-offs, increases in the allowance for credit card loans and to related
decreases in the valuation of our interest-only strips associated with our
securitized loans.  These decreases were mostly offset by revenue
growth from increases in the number of average active credit card accounts and
average managed credit card loans.


32
 TABLE OF CONTENTS


Retail
Revenue–Retail revenue increased $214 million for the nine months ended
September 2008 primarily due to new store sales increasing compared to the nine
months ended September 2007.  The product category that contributed
the largest dollar volume increase to our Retail revenue for the first nine
months of 2008 was hunting equipment.





Nine Months EndedSeptember
                  2008
                
                
                September
                  2007
                
                
                Increase(Decrease)
                
                
                %
                  Change(Dollars
      in Thousands)Comparable
      stores sales
                
                $
                579,459
                
                
                $
                620,242
                
                
                $
                (40,783
                )
                
                
                (6.6
                )%





Comparable
store sales decreased $41 million, or 6.6%, for the nine months ended September
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.





Direct
Revenue – Direct
revenue increased $1 million, or 0.2%, in the nine months ended September 2008
compared to the nine months ended September 2007 due to increased Internet sales
offset by lower catalog sales and to cannibalization relating to our new retail
stores that opened in late 2007.  Internet visits increased 37.3% to
87.1 million visits for the nine months ended September 2008 compared to 63.5
million visits for the nine months ended September 2007.  The clothing
and footwear product category was the largest dollar volume contributor to our
Direct revenue for the nine months ended September 2008.





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





2008
              
              
              2007
              
              
              Increase(Decrease)
              
              
              %
                Change(Dollars
      in Thousands Except Average Balance per Account )Average
      balance of managed credit card loans
              
              $
              2,043,142
              
              
              $
              1,633,446
              
              
              $
              409,696
              
              
              
              25.1
              %Number
      of average active credit card accounts
              
              
              1,116,180
              
              
              
              955,940
              
              
              
              160,240
              
              
              
              16.8Average
      balance per active credit card account
              
              $
              1,830
              
              
              $
              1,709
              
              
              $
              121
              
              
              
              7.1
              %Net
      charge-offs
              
              
              41,938
              
              
              
              22,847
              
              
              
              19,091
              
              
              
              83.6Net
      charge-offs as a percentage of average managed credit card
      loans
              
              
              2.74
              %
              
              
              1.86
              %
              
              
              0.88
              %





The
balance of average managed credit card loans increased to $2 billion, or 25.1%,
because of the increase in the number of accounts and the average balance per
account.  The number of accounts increased to 1,116,180, or 16.8%, due
to our marketing efforts to add additional accounts.  Net charge-offs
as a percentage of average managed credit card loans increased to 2.74% for the
nine months ended September 2008, up 10 basis points from the six months ended
June 2008, and up 88 basis points compared to the nine months ended September
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 2.90% to 3.00% compared to 2.01% for fiscal year 2007.


33
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The
components of Financial Services revenue on a GAAP basis are as follows for the
nine months ended September:





(Dollars
      in Thousands)
            
            2008
            
            
            2007Interest
      and fee income, net of provision for loan losses
            
            $
            29,632
            
            
            $
            20,233Interest
      expense
            
            
            (8,993
            )
            
            
            (4,252
            )Net interest income, net of
      provision for loan losses
            
            
            20,639
            
            
            
            15,981Non-interest
      income:Securitization income
      (including gains on sales of credit card loans of $12,440
              and
      $18,957)
            
            
            136,923
            
            
            
            144,315Other non-interest
      income
            
            
            49,914
            
            
            
            36,072Total
      non-interest income
            
            
            186,837
            
            
            
            180,387Less:
      Customer rewards costs
            
            
            (86,619
            )
            
            
            (74,871
            )Financial
      Services revenue
            
            $
            120,857
            
            
            $
            121,497





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





(Dollars
      in Thousands)
            
            2008
            
            
            2007Interest
      income
            
            $
            148,062
            
            
            $
            136,010Interchange
      income, net of customer rewards costs
            
            
            57,677
            
            
            
            46,690Other
      fee income
            
            
            26,135
            
            
            
            19,502Interest
      expense
            
            
            (62,875
            )
            
            
            (60,187
            )Provision
      for loan losses
            
            
            (43,453
            )
            
            
            (23,374
            )Other
            
            
            (4,689
            )
            
            
            2,856Managed
      Financial Services revenue
            
            $
            120,857
            
            
            $
            121,497Managed Financial
      Services Revenue as a Percentage of Average Managed Credit Card
      Loans:Interest
      income
            
            
            9.7
            %
            
            
            11.1
            %Interchange
      income, net of customer rewards costs
            
            
            3.8
            
            
            
            3.8Other
      fee income
            
            
            1.7
            
            
            
            1.6Interest
      expense
            
            
            (4.1
            )
            
            
            (4.9
            )Provision
      for loan losses
            
            
            (2.9
            )
            
            
            (1.9
            )Other
            
            
            (0.3
            )
            
            
            0.2Managed
      Financial Services revenue
            
            
            7.9
            %
            
            
            9.9
            %





Financial
Services revenue decreased $1 million, or 0.5%, for the nine months ended
September 2008 compared to the nine months ended September 2007. The increase in
interest income of $12 million for the nine months ended September 2008 compared
to the nine months ended September 2007 was due to an increase in managed credit
card loans, partially offset by decreases in interest rates.  The
increase in interchange income of $11 million in the 2008 nine-month period from
the 2007 nine-month period was driven by net credit card purchases, which
increased 19.3%.  Other fee income increased $7 million due to
increases in late fees, overlimit fees, and payment assurance
fees.  These increases 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 $20
million from increases in managed credit card loans and increases in net
charge-offs, and by a decrease of $8 million in the Other category due to
related decreases in the valuation of our interest-only strips associated with
our securitized loans.


34
 TABLE OF CONTENTS


Other
Revenue





Other
revenue decreased $2 million, or 12.5%, to $12 million for the nine months ended
September 2008 compared to the nine months ended September 2007.  Real
estate sales totaled $6 million for the nine months ended September 2008,
primarily from two real estate land parcels sold during the second quarter of
2008, compared to $5 million for the nine months ended September 2007. Pre-tax
gains on the sale of real estate totaled $2.1 million for the nine months ended
September 2008 compared to $2.8 million for the nine months ended September
2007.






Gross
Profit





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





September
                2008
              
              
              September
                2007
              
              
              Increase
                (Decrease)
              
              
              %
                Change(Dollars
      in Thousands)Merchandise
      sales
              
              $
              1,540,753
              
              
              $
              1,325,245
              
              
              $
              215,508
              
              
              
              16.3
              %Merchandise
      gross margin
              
              
              535,028
              
              
              
              466,203
              
              
              
              68,825
              
              
              
              14.8Merchandise
      gross margin as a
                percentage
      of merchandise revenue
              
              
              34.7
              %
              
              
              35.2
              %
              
              
              (0.5
              )%





Merchandise Gross
Margins–
Gross margins of our merchandising business increased $69 million, or 14.8%, to
$535 million for the nine months ended September 2008.  Merchandise
gross margins as a percentage of revenue of our merchandising business decreased
to 34.7% for the nine months ended September 2008 from 35.2% for the nine months
ended September 2007.  The decrease in merchandise gross margins for
the nine months ended September 2008 compared to the nine months ended September
2007 is primarily attributable to lower initial margin, an increase in sales
discounts and allowances, a decrease in our shipping margin, a shift in sales
between channels, and an increase in hard goods sales with lower margins for the
nine months ended September 2008 compared to the nine months ended September
2007.








Selling,
Distribution, and Administrative Expenses




Nine Months EndedSeptember
                2008
              
              
              September
                2007
              
              
              Increase
                (Decrease)
              
              
              %
                Change(Dollars
      in Thousands)Selling,
      distribution, and administrative
                expenses
              
              $
              610,263
              
              
              $
              542,397
              
              
              $
              67,866
              
              
              
              12.5
              %S,D&A
      expenses as a percentage of
                total
      revenue
              
              
              36.5
              %
              
              
              37.1
              %
              
              
              (0.6
              )%Retail
      store pre-opening costs
              
              $
              6,991
              
              
              $
              13,091
              
              
              $
              (6,100
              )
              
              
              (46.6
              )





35
 TABLE OF CONTENTS





Selling,
distribution, and administrative expenses on a consolidated basis increased $68
million, or 12.5%, for
the nine months ended September 2008 over the nine months ended September
2007.  The primary reason for the increase was the addition of eight
new stores in 2007 and the two new stores in 2008, 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 nine months of 2008 from our retail store
expansion, included increases in:





·
            employee
      compensation, benefits, training, and recruitment costs of $32
      million;·
            contract
      labor, and facility and information system depreciation of $9
      million;·
            advertising
      costs of  $10 million; and·
            other
      retail store-related operating costs of $17
  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 $67 million, including employee compensation and benefits costs of $36
      million and $11 million in advertising and promotional
      expenses.·
            New
      store pre-opening costs of $7 million, a decrease of $6 million compared
      to the nine months ended September 2007.·
            A
      decrease in comparable store employee compensation and benefits of $8
      million resulting from staffing changes and declining sales in comparable
      stores.·
            Depreciation
      on new stores not open in the comparable period of 2007 of $11
      million.·
            Lower
      marketing fees of $2 million received from the Financial Services
      segment.





Direct
Business Segment:


·
            An
      increase in employee compensation and benefits of $1 million principally
      for positions added to support our Direct and multi-channel
      business.·
            A
      decrease in incidental information system costs of $1 million compared to
      the nine months ended September 2007 specifically related to our
      website.·
            Lower
      marketing fees of $6 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 which were mostly offset by increases in new
      account acquisition costs.·
            A
      decrease of $8 million in the marketing fee paid by the Financial Services
      segment to the Retail segment ($2 million decrease) and the Direct
      business segment ($6 million
decrease).





Corporate
Overhead, Distribution Centers, and Other:


·
            An
      increase in contract labor and employee compensation and benefits of $7
      million from the expansion and improvement of our infrastructure to
      support our growth.·
            An
      increase of $2 million primarily related to settlement of certain claims
      and other business transactions.·
            A
      decrease in depreciation expense of $1 million primarily related to
      depreciation changes in estimated lives implemented in April 2008 on
      information system hardware and software.·
            A
      decrease of $3 million in equipment and software expenses and supply
      expenses.





36
 TABLE OF CONTENTS








Operating
Income





Operating
income was relatively flat for the nine months ended September 2008 compared to
the nine months ended September 2007. Operating income as a percentage of
revenue decreased to 3.4% for the nine months ended September 2008 compared to
3.9% for the nine months ended September 2007.





Nine Months EndedSeptember
                2008
              
              
              September
                2007
              
              
              Increase
      (Decrease)
              
              
              %
                Change(Dollars
      in Thousands)Total
      operating income
              
              $
              56,783
              
              
              $
              56,989
              
              
              $
              (206
              )
              
              
              (0.4
              )%Total
      operating income as a percentage of
                total
      revenue
              
              
              3.4
              %
              
              
              3.9
              %
              
              
              (0.5
              )%Operating
      income by business segment:Retail
              
              $
              79,429
              
              
              $
              66,403
              
              
              $
              13,026
              
              
              
              19.6Direct
              
              
              93,368
              
              
              
              107,356
              
              
              
              (13,988
              )
              
              
              (13.0
              )Financial
      Services
              
              
              33,928
              
              
              
              26,961
              
              
              
              6,967
              
              
              
              25.8Operating
      income as a percentage of
                segment
      revenue:Retail
              
              
              9.3
              %
              
              
              10.4
              %
              
              
              (1.1
              )%Direct
              
              
              13.6
              
              
              
              15.7
              
              
              
              (2.1
              )Financial
      Services
              
              
              28.1
              
              
              
              22.2
              
              
              
              5.9





Interest
(Expense) Income, Net





Interest
expense, net of interest income, increased $10 million to $22 million for the
nine months ended September 2008 compared to the nine months ended September
2007.  The net increase in interest expense was primarily due to
additional debt incurred for financing our retail store
expansion.  During the nine months ended September 2008, we
capitalized interest totaling $1.5 million on qualifying fixed assets relating
primarily to retail store construction compared to $3 million for the nine
months ended September 2007.





Other
Non-Operating Income, Net





Other
income was $5 million for both the nine months ended September 2008 and 2007.
This income is from the interest earned on our economic development
bonds.  Also included in other income for the nine months ended
September 2007 is the pre-tax gain of $1.2 million resulting from the sale of
the assets of our hotel operation in Sidney, Nebraska.





Provision
for Income Taxes





Our
effective tax rate was 32.0% for the nine months ended September 2008 compared
to 37.2% for the nine months ended September 2007.  The effective tax
rate was lower for the nine months ended September 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.














37
 TABLE OF CONTENTS


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
$122 million at the end of September 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 $11
million, $15 million, and $14 million at September 27, 2008, December 29, 2007,
and September 29, 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 third 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.





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
            
            September
              2008
            
            
            June
              2008
            
            
            September
              2007Greater than 30
    days
            
            
            1.35
            %
            
            
            1.08
            %
            
            
            0.99
            %Greater than 60
    days
            
            
            0.76
            
            
            
            0.66
            
            
            
            0.58Greater than 90
    days
            
            
            0.36
            
            
            
            0.33
            
            
            
            0.30








Charge-offs





Charge-offs consist of the
uncollectible principal, interest, and fees on a customer's
account.  Recoveries are the amounts collected on previously
charged-off accounts.  Most bankcard issuers charge-off accounts at
180 days.  Beginning in June 2007, we began charging off credit card
loans on a daily basis after an account becomes at a minimum 130 days
contractually delinquent to allow us to manage the collection process more
efficiently.  Accounts relating to cardholder bankruptcies, cardholder
deaths, and fraudulent transactions are charged off earlier.  Prior to
June 2007, we charged-off credit card loans on the 24th day of the month after
an account became 115 days contractually delinquent resulting in a 129-day
average for charging-off an account.  Our charge-off activity for the
managed portfolio is summarized below for the periods
presented.


38
 TABLE OF CONTENTS





Three Months Ended
                    
                    
                    Nine Months EndedSeptember
                      2008
                    
                    
                    September
                      2007
                    
                    
                    September
                      2008
                    
                    
                    September
                      2007(Dollars
      in Thousands)Charge-offs
                    
                    $
                    18,051
                    
                    
                    $
                    10,964
                    
                    
                    $
                    49,319
                    
                    
                    $
                    29,396Recoveries
                    
                    
                    (2,369
                    )
                    
                    
                    (2,095
                    )
                    
                    
                    (7,381
                    )
                    
                    
                    (6,549
                    )Net
      charge-offs
                    
                    $
                    15,682
                    
                    
                    $
                    8,869
                    
                    
                    $
                    41,938
                    
                    
                    $
                    22,847Net
      charge-offs as a percentage of
                      average managed credit card
      loans
                    
                    
                    2.91
                    %
                    
                    
                    2.05
                    %
                    
                    
                    2.74
                    %
                    
                    
                    1.86
                    %





Net
charge-offs as a percentage of average managed credit card loans were 2.74% for
the nine months ended September 2008, up 88 basis points compared to the nine
months ended September 2007.  For the three months ended September
2008, net charge-offs as a percentage of average managed credit card loans
increased to 2.91%, up 15 basis points compared to 2.76% for the quarter ended
June 2008, and up 38 basis points and 53 basis points, respectively, compared to
the first quarter of 2008 and to 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 2.90% to 3.00% compared to 2.01% for fiscal year
2007.







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 foreseeable
cash requirements and near-term growth plans.  At the end of September
2008, December 2007, and September 2007, cash on a consolidated basis totaled
$207 million, $131 million, and $103 million, respectively, of which $202
million, $123 million, and $79 million, respectively, related to cash at our
Financial Services business segment, which is expected to be utilized by our
Financial Services business segment to meet its liquidity
requirements.  Our Financial Services business segment completed two
securitizations totaling $400 million during the three months ended September
2008 and renewed a $350 million securitization on October 9, 2008.  We
expect these additional liquidity sources and the certificates of deposit market
to provide adequate liquidity to this segment through the second quarter of
2009.





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.




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.  On October 27, 2008, Moody's
Investors Service announced that it has placed the ratings on 23 classes of
asset-backed notes issued by our Financial Services business' securitization
trust under review for possible downgrade.  If a downgrade
occurs,the ability
of our Financial Services business to complete other securitization transactions
on acceptable terms or at all could be jeopardized, our liquidity would
decrease, and our Financial Services business could be forced to rely on other
potentially more expensive funding sources, to the extent available, which would
decrease our profitability.


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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
(World's Foremost Bank or "WFB")– The primary cash requirements of WFB
relate to the financing of credit card loans.  WFB 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. WFB plans to fund
more of its credit card portfolio through certificates of deposit primarily due
to the higher borrowing costs in the securitization market.  We expect
the funding strategy through certificates of deposit to continue until the
securitization market returns to a more normalized level. WFB is prohibited by
regulations from lending money to Cabela's or other affiliates. WFB 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.





The
proposed amendments issued by the Financial Accounting Standards Board in
September 2008, if adopted, could require us to consolidate the assets and
liabilities of our bank subsidiary's securitization trusts.  This
could cause us to breach certain financial covenants in our credit agreements
and unsecured notes.  This could also have a significant effect on our
financial condition and ability to meet the capital maintenance requirements of
our bank subsidiary, as affected off-balance sheet loans would be recorded on
our consolidated balance sheet and could be subject to regulatory capital
requirements.  If the proposed amendments are adopted, we may have to
contribute capital to our bank subsidiary, which may require us to raise
additional debt or equity capital and/or divert capital from our Retail and
Direct businesses, which in turn could significantly alter our growth
initiatives.







Operating,
Investing, and Financing Activities





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





2008
              
              
              2007(In
      Thousands)Net
      cash used in operating activities
              
              $
              (32,889
              )
              
              $
              (157,737
              )Net
      cash used in investing activities
              
              
              (92,333
              )
              
              
              (228,532
              )Net
      cash provided by financing activities
              
              
              201,322
              
              
              
              316,480








2008
versus 2007





Operating Activities– Cash
used in operating activities decreased $125 million for the nine months ended
September 2008 compared to 2007. This net decrease in the use of cash comparing
the respective periods was primarily due to a $140 million improvement between
comparable periods related to inventories and an $85 million increase in cash
related to WFB's securitization funding transactions.  WFB plans to
utilize this cash to fund its credit card operations in addition to utilizing
certificates of deposit until the securitization market returns to a more
normalized level. The improvements in cash for operating activities were
partially offset by a net reduction in accounts payable and accrued expenses of
$87 million and a net decrease in income taxes of $21 million.


40
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We have a
receivable totaling $6 million as of September 27, 2008, related to insurance
claims on damaged inventory and associated expenses due to a fire at one of our
distribution centers.  The business interruption claim is in
process.  We expect to settle these claims and receive funds in the
fourth quarter of 2008.





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 September 2008, we owed approximately $12 million, which liability is
included in our consolidated balance sheet.





Investing Activities –Cash
used in investing activities decreased $136 million for the nine months ended
September 2008 compared to 2007. This net decrease was primarily due to less
expenditures related to the development and construction of the new retail
stores opened in 2008 compared to 2007.  For the nine months
ended September 2008, cash paid for property and equipment additions totaled
$104 million compared to $260 million for the nine months ended September
2007.  We opened our Scarborough, Maine, store in May 2008, and 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 September 27, 2008, we estimate remaining total
capital expenditures, including the purchase of economic development bonds, to
approximate $100 million 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.  We
purchased $10 million of economic development bonds during the nine months ended
September 2007 and used $9 million in the September 2007 acquisition of S.I.R.
Warehouse Sports in Winnipeg, Manitoba.





Financing Activities –Cash
provided by financing activities decreased $115 million for the nine months
ended September 2008 compared to 2007. This net decrease from financing
activities comparing periods was due to a net decrease of $104 million in
borrowings primarily on lines of credit for working capital and inventory
financing and a net decrease in WFB's short-term borrowings of $94 million
primarily from the repayment of a variable funding facility credit agreement. In
addition, unpresented checks net of bank balance decreased $31 million due to
timing of when checks cleared our financial institutions.  Partially
offsetting these decreases was a net increase of $109 million in time deposits
which WFB will utilize to help fund its credit card operations.





The
following table highlights the borrowing activity of our merchandising business
and WFB operations for the nine months ended September:





2008
            
            
            2007(In
      Thousands)Borrowings
      on lines of credit and short-term debt, net of repayments
            
            $
            144,625
            
            
            $
            248,643Changes
      in short-term borrowings of financial services subsidiary,
    net
            
            
            (100,000
            )
            
            
            (6,491
            )Issuances
      of long-term debt, net of repayments
            
            
            34,674
            
            
            
            34,116Total
            
            $
            79,299
            
            
            $
            276,268





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The
following table summarizes our availability under debt and credit facilities,
excluding WFB's facilities, at the periods ended:





September
      27,
              2008
            
            
            September
      29,
              2007(In
      Thousands)Amounts
      available for borrowing under credit facilities (1)
            
            $
            445,000
            
            
            $
            325,000Principal
      amounts outstanding
            
            
            (207,543
            )
            
            
            (204,333
            )Outstanding
      letters of credit and standby letters of credit
            
            
            (26,709
            )
            
            
            (99,165
            )Remaining
      borrowing capacity (1)
            
            $
            210,748
            
            
            $
            21,502





(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 Canada
      operations.








In
addition, WFB has total borrowing availability of $110 million under its
transferor's interest credit agreement ($25 million) and agreements to borrow
federal funds ($85 million). WFB 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 September 2008, the full $110
million of borrowing capacity was available to WFB.





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 September 27, 2008,
December 29, 2007, and September 29, 2007, the total amount of grant funding
subject to a specific contractual remedy was $5 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.





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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 $102 million, $98
million, and $79 million, respectively, as of September 27, 2008, December 29,
2007, and September 29, 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 are 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
            
            Fixed
      (1)
            
            December
      2010Series
      2008-I
            
            Term
            
            
            38,500
            
            Floating
            
            December
      2010Series
      2008-IV
            
            Term
            
            
            122,500
            
            Fixed
            
            September
      2011Series
      2008-IV
            
            Term
            
            
            77,500
            
            Floating
            
            September
      2011Total
      term
            
            
            
            
            1,700,000Series
      2006-I
            
            Variable
      Funding
            
            
            350,000
            
            Floating
            
            October
      2009Series
      2008-II
            
            Variable
      Funding
            
            
            300,000
            
            Floating
            
            June
      2009Series
      2008-III
            
            Variable
      Funding
            
            
            200,000
            
            Floating
            
            July
      2009Total
      variable
            
            
            
            
            850,000Total
      available
            
            
            
            $
            2,550,000







(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.





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. Our Financial Services business
segment completed two securitizations totaling $400 million during the three
months ended September 2008, and renewed a $350 million securitization on
October 9, 2008.  We expect these additional liquidity sources and the
certificates of deposit market to provide adequate liquidity to this segment
through the second quarter of 2009.


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 TABLE OF CONTENTS


Furthermore,
poor performance of our securitized credit card loans, including increased
delinquencies and credit losses, lower payment rates, or a decrease in excess
spreads below certain thresholds, could result in a downgrade or withdrawal of
the ratings on the outstanding securities issued in our securitization
transactions, cause early amortization of these securities, or result in higher
required credit enhancement levels.  On October 27, 2008, Moody's
Investors Service announced that it has placed the ratings on 23 classes of
asset-backed notes issued by our Financial Services business' securitization
trust under review for possible downgrade.  If a downgrade
occurs,the ability
of our Financial Services business to complete other securitization transactions
on acceptable terms or at all could be jeopardized, our liquidity would
decrease, and our Financial Services business could be forced to rely on other
potentially more expensive funding sources, to the extent available, which would
decrease our profitability.





Certificates
of Deposit





WFB
utilizes certificates of deposit to partially finance its operating
activities.  WFB issues certificates of deposit in a minimum amount of
one hundred thousand dollars in various maturities.   As of
September 27, 2008, WFB had $265 million of certificates of deposit outstanding
with maturities ranging from October 2008 to April 2016 and with a weighted
average effective annual fixed rate of 4.69%. This outstanding balance compares
to $161 million and $98 million at December 29, 2007, and September 29, 2007,
respectively, with weighted average effective annual fixed rates of 5.01% and
5.05%, respectively.





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





Credit Card
Limits- WFB
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 $13 billion above existing balances as of September
27, 2008. These funding obligations are not included on our consolidated balance
sheet. While WFB has not experienced, and does not anticipate that it will
experience, a significant draw down of unfunded credit lines by its cardholders,
such an event would create a cash need at WFB which likely could not be met by
our available cash and funding sources. We have the right to reduce or cancel
these available lines of credit at any time.





Securitizations- All of WFB'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.


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 TABLE OF CONTENTS


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.





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





September 27,
              2008
            
            
            December
      29,
              2007
            
            
            September
      29,
              2007As a percentage of
      total balances outstanding:Balances
      carrying interest rate based upon the national
              prime
      lending rate
            
            
            65.4
            %
            
            
            61.1
            %
            
            
            62.8
            %Balances
      carrying an interest rate of 9.99%
            
            
            2.2
            
            
            
            3.1
            
            
            
            2.7Balances
      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
            
            
            32.0
            
            
            
            35.5
            
            
            
            34.5100.0
            %
            
            
            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 67.6% of
total balances outstanding as of September 27, 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 32.0% of total balances
outstanding as of September 27, 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.  Based on this analysis, we believe that an
immediate spread decrease of 50 basis points would cause a pre-tax decrease to
income of $1 million, and an immediate spread increase of 50 basis points would
cause a pre-tax increase to income of $2 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.


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 TABLE OF CONTENTS


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.





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 September 27, 2008.




Changes in Internal Control
Over Financial Reporting





There
were no changes in our internal control over financial reporting that occurred
during the quarter ended September 27, 2008, that materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.








Item4T.                                Controls
and Procedures





Not
applicable.


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 TABLE OF CONTENTS


.


PART II – OTHER INFORMATION





Item
1.                      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.







Item
1A.                    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, and except that
the following new risk factors shall be added.





Difficult
conditions in the economy generally may materially adversely affect our business
and results of operations.





Our
results of operations are materially affected by conditions in the economy
generally.  Recently, concerns over the availability and cost of
credit, a declining real estate market, inflation, energy costs, and
geopolitical issues have contributed to diminished expectations for the economy
going forward.  These factors, combined with declining business and
consumer confidence and increased unemployment, have precipitated an economic
slowdown and fears of a possible recession.  Factors such as consumer
spending and the volatility and strength of the capital markets all affect the
business and macroeconomic environment and, ultimately, the revenue and
profitability of our business.  In an economic downturn characterized
by higher unemployment, lower family income, and lower consumer spending, the
demand for our products could be adversely affected.  This may
materially affect our business and results of operations.





The
volatility and disruption of the capital and credit markets as well as any
downgrade of the ratings on the outstanding notes issued by our Financial
Services business' securitization trust may negatively impact our ability to
access financing.




While we
intend to finance our growth initiatives and operations with existing cash, cash
flow from operations, and borrowings under our existing unsecured credit
facility, we may require additional financing to support our growth initiatives
and operations.  However, due to the existing uncertainty in the capital
and credit markets, our access to capital may not be available on terms
acceptable to us or at all.  Further, the ability of our Financial Services
business to engage in securitization transactions on favorable terms or at all
could be adversely affected by further disruptions in the capital markets or
other events, which could materially affect our business and cause our Financial
Services business to lose an important source of capital.





In addition, on October
27, 2008, Moody's Investors Service announced that it has placed the ratings on
23 classes of asset-backed notes issued by our Financial Services business'
securitization trust under review for possible downgrade.  If a
downgrade occurs, the ability of our Financial Services business to
complete other securitization transactions on acceptable terms or at all could
be jeopardized, and our Financial Services business could be forced to rely on
other potentially more expensive funding sources, to the extent available, which
would decrease our profitability.


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Proposed amendments to accounting
standards could require us to consolidate previous and future securitization
transactions, which could materially adversely affect our financial condition
and cause us to reallocate capital from our Retail and Direct businesses to meet
the capital needs of our Financial Services business.




The
Financial Accounting Standards Board recently issued proposed amendments to
Statement of Financial Accounting Standards No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities
("FAS 140").  Currently under FAS 140, the transfers of our bank
subsidiary's credit card receivables in securitization transactions qualify for
sale accounting treatment.  The trusts used in our bank subsidiary's
securitizations are not consolidated with us for financial reporting purposes
because the trusts are qualifying special purpose entities ("QSPE") under FAS
140.  Because the transfers qualify as sales and the trusts are not
subject to consolidation, the assets and liabilities of the trusts are not
reported on our consolidated balance sheet under generally accepted accounting
principles.  Under the proposed amendments to FAS 140, the concept of
a QSPE has been eliminated.  As proposed, the amendments would be
effective for us at the beginning of our fiscal year 2010.  The
proposed amendments, if adopted, could require us to consolidate the assets and
liabilities of our bank subsidiary's securitization trusts.  This
could cause us to breach certain financial covenants in our credit agreements
and unsecured notes.  This could also have a significant effect on our
financial condition and ability to meet the capital maintenance requirements of
our bank subsidiary, as affected off-balance sheet loans would be recorded on
our consolidated balance sheet and could be subject to regulatory capital
requirements.  If the proposed amendments are adopted, we may have to
contribute capital to our bank subsidiary, which may require us to raise
additional debt or equity capital and/or divert capital from our Retail and
Direct businesses, which in turn could significantly alter our growth
initiatives.







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.





Not
applicable.








Item5.                      Other
Information.





Not
applicable.





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Item6.
                      Exhibits.








(a)
            Exhibits.




Exhibit
              Number
            Description3
            Amended
      and Restated Bylaws of Cabela's Incorporated (incorporated by reference
      from Exhibit 3 of the Company's Current Report on Form 8-K, filed on
      August 29, 2008, File No. 001-32227)10
            Third
      Amendment of the Cabela's Incorporated Third Amended and Restated Deferred
      Compensation Plan31.1
            Certification
      of CEO Pursuant to Rule 13a-14(a) under the Exchange
Act31.2
            Certification
      of CFO Pursuant to Rule 13a-14(a) under the Exchange
Act32
            Certifications
      Pursuant to 18 U.S.C. Section 1350








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SIGNATURES





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








CABELA'S
      INCORPORATEDDated:  November
      4, 2008
            By:
            /s/
      Dennis HighbyDennis
      HighbyPresident
      and Chief Executive OfficerDated:  November
      4, 2008
            By:
            /s/
      Ralph W. CastnerRalph
      W. CastnerVice
      President and Chief Financial
Officer








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EXHIBIT INDEX





Exhibit
              Number
            Description3
            Amended
      and Restated Bylaws of Cabela's Incorporated (incorporated by reference
      from Exhibit 3 of the Company's Current Report on Form 8-K, filed on
      August 29, 2008, File No. 001-32227)10
            Third
      Amendment of the Cabela's Incorporated Third Amended and Restated Deferred
      Compensation Plan31.1
            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