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10-K 1 c93209e10vk.htm FORM 10-K e10vk

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the fiscal year ended January 1, 2005

or

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

Commission File Number: 1-32227

CABELA’S INCORPORATED

(Exact name of registrant as specified in its charter)


Delaware		20-0486586
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

One Cabela Drive, Sidney, Nebraska (Address of principal executive offices)		69160 (Zip Code)

Registrant’s telephone number, including area code:

(308) 254-5505

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Each Exchange on Which Registered

Class A Common Stock, par value $0.01 per share		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $775,474,531 as of July 2, 2004 (the last business day of the registrant’s most recently completed second fiscal quarter) based upon the closing price of the registrant’s Class A Common Stock on that date as reported on the New York Stock Exchange. For the purposes of this disclosure only, the registrant has assumed that its directors and executive officers and the beneficial owners of 5% or more of its voting common stock are affiliates of the registrant.

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

Common stock, $0.01 par value: 64,836,116 shares, including 8,073,205 shares of non-voting common stock, as of March 15, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held May 11, 2005, are incorporated by reference into Part III of this Form 10-K to the extent stated herein.

CABELA’S INCORPORATED

FORM 10-K

FOR THE FISCAL YEAR ENDED JANUARY 1, 2005

TABLE OF CONTENTS


		Page

PART I
Item 1.	Business		3
Item 2.	Properties		15
Item 3.	Legal Proceedings		16
Item 4.	Submission of Matters to a Vote of Security Holders		16
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		16
Item 6.	Selected Financial Data		18
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		63
Item 8.	Financial Statements and Supplementary Data		65
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		102
Item 9A.	Controls and Procedures		102
Item 9B.	Other Information		102
PART III
Item 10.	Directors and Executive Officers of the Registrant		102
Item 11.	Executive Compensation		103
Item 12.	Security Ownership of Certain Beneficial Owners and Management		103
Item 13.	Certain Relationships and Related Transactions		103
Item 14.	Principal Accounting Fees and Services		103
PART IV
Item 15.	Exhibits, Financial Statement Schedules		103

SIGNATURES			107
Summary of Compensation
Subsidiaries
Consent of Deloitte & Touche LLP
Certification of CEO
Certification of CFO
Certifications

PART I


ITEM 1.	BUSINESS

Special Note Regarding Forward-Looking Statements

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. Forward-looking statements involve risks and uncertainties that may cause our actual results, performance or financial condition to differ materially from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements. These risks and uncertainties include, but are not limited to: the ability to negotiate favorable lease and economic development arrangements, expansion into new markets; market saturation due to new destination retail store openings; the rate of growth of general and administrative expenses associated with building a strengthened corporate infrastructure to support our growth initiatives; increasing competition in the outdoor segment of the sporting goods industry; the cost of our products; supply and delivery shortages or interruptions; adverse weather conditions which impact the demand for our products; fluctuations in operating results; adverse economic conditions; increased fuel prices; labor shortages or increased labor costs; changes in consumer preferences and demographic trends; increased government regulation; inadequate protection of our intellectual property; other factors that we may not have currently identified or quantified; and other risks, relevant factors and uncertainties identified in the “Factors Affecting Future Results” section of this report. The words “believe,” “may,” “should,” “anticipate,” “estimate,” “expect,” “intend,” “objective,” “seek,” “plan,” “will,” and similar statements are intended to identify forward-looking statements. 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.

Overview

We are the nation’s largest direct marketer, and a leading specialty retailer, of hunting, fishing, camping and related outdoor merchandise. Since our founding in 1961, Cabela’s has grown to become one of the most well-known outdoor recreation brands in the United States, and we have long been recognized as the World’s Foremost Outfitter. Through our well-established direct business and our growing number of destination retail stores, we believe we offer the widest and most distinctive selection of high quality outdoor products at competitive prices while providing superior customer service. Our multi-channel retail model –catalog, Internet and destination retail stores — strategically positions us to meet our customer’s ever-growing needs. We also issue the Cabela’s Club VISA credit card through which we offer a related customer loyalty rewards program as a vehicle for strengthening our customer relationships.

Our extensive product offering consists of approximately 245,000 stock keeping units, or SKUs, and includes hunting, fishing, marine and camping merchandise, casual and outdoor apparel and footwear, optics, vehicle accessories, gifts and home furnishings with an outdoor theme. Our direct business uses catalogs and the Internet to increase brand awareness and generate customer orders via the mail, telephone and the Internet. In fiscal 2004, we circulated over 120 million catalogs with 76 separate titles and our website, cabelas.com, was in the top 1% of sites in the Hitwise Incorporated online measurement sport and fitness category based on market share of visits. We opened our first destination retail store in 1987 and currently operate ten destination retail stores that range in size from 35,000 square feet to 250,000 square feet, including our five large-format destination retail stores which are 150,000 square feet or larger. We currently have plans to open four new destination retail stores in 2005, at least two in 2006, and at least two in 2007.

We were initially incorporated as a Nebraska corporation in 1965 and were reincorporated as a Delaware corporation in January of 2004. In June of 2004, we completed our initial public offering of

common stock, raising over $114 million, of which $38.1 million was used to pay the outstanding balance on our line of credit and the balance was used for retail expansion. Our common stock is listed on the New York Stock Exchange under the symbol “CAB.”

Cabela’s®, Cabela’s Club®, World’s Foremost Outfitter®, World’s Foremost Bank®, and Bargain Cave® are registered trademarks that we own. Other service marks, trademarks and trade names referred to in this report are the property of their respective owners.

Accomplishments in 2004

Fiscal 2004 was a historic year for Cabela’s, as several exciting things happened which set the stage for our future, including;


	•	We raised over $114 million in our initial public offering, which was used for retail expansion and paying down our line of credit.

	•	We initiated plans to open four new stores in 2005, two in 2006, and two in 2007.

	•	We opened our new Wheeling, West Virginia distribution center, strategically located around our customer and retail base.

	•	We opened a new 176,000 square foot destination retail store in Wheeling, West Virginia.

	•	Our direct business continued on a steady growth pattern and increased revenues by 5% in fiscal 2004, on a 53 to 52 week comparison. For the comparative 52 weeks, revenues increased by 6.6%. We added new catalogs featuring home and cabin furnishings, women’s and children’s clothing, and work wear.

	•	Our wholly-owned bank subsidiary, World’s Foremost Bank, reached $1 billion in its managed credit card receivables, and surpassed the one million credit card accounts mark.

Business Strategy

Our business strategy emphasizes the following key components:

Continue to open new destination retail stores. We have grown our destination retail store base from four stores in 1998 to ten in 2004. We currently plan to open four large-format destination retail stores in 2005, all of which have been announced. Through our extensive customer database and analysis of historical sales data generated by our direct business, we are able to identify geographic areas with a high concentration of customers that represent potential new markets for our destination retail stores. We believe that there are many additional markets throughout the United States that could potentially support one of our large-format destination retail stores. Additionally, we believe that smaller-format destination retail stores could provide further opportunities for future expansion. We continue to actively seek additional locations to open new destination retail stores.

Expand our direct business. We plan to expand our direct business through several initiatives regarding existing and new customers. We will seek to increase the amount each customer spends on our merchandise through the continued introduction of new catalog titles and the development and introduction of new products. We have begun to take advantage of web-based technologies such as targeted promotional e-mails, on-line shopping engines and Internet affiliate programs to increase sales. We also plan to improve our customer relationship management system which we expect will allow us to better manage our customer relationships and more effectively tailor our marketing programs.

Improve our operating efficiencies and store productivity. As we continue to grow our business through opening new destination retail stores and building our direct business, we believe that we will improve our operating efficiencies by optimizing and investing in our management information systems, or MIS, distribution and logistics capabilities. In addition, we intend to improve destination retail store productivity by adjusting our in-store staffing levels and refining our destination retail store layout strategies.

Expand the reach of our brand and target market through complementary opportunities. We focus on increasing consumer awareness of our company and maintaining and developing our outdoor lifestyle image by using consistent branding in all of our distribution channels. We also will seek to continue to effectively broaden the application of our brand through opportunistic acquisitions of complementary businesses, as well as through the internal development of relevant businesses and product categories. We will continue to leverage our brand recognition in selected areas through corporate relationships and alliances. We intend to increase the penetration of our Cabela’s Club VISA credit card among our customer base through low cost target marketing and solicitations at our destination retail stores, which we believe, based upon historical results, will reinforce our customer loyalty and retention and thereby increase revenue and net income.

Direct Business

Our direct business uses catalogs and the Internet as marketing tools to generate sales orders via the telephone, the Internet and the mail. Our direct business generated $970.6 million in revenue in fiscal 2004, representing approximately 66% of our total revenue from our direct and retail businesses for fiscal 2004. See Note 20 to our consolidated financial statements and our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional financial information regarding our direct business.

We have been marketing our products through our print catalog distributions to our customers and potential customers for over 40 years. We believe that our catalog distributions have been one of the primary drivers of the growth of our goodwill and brand name recognition and serve as an important marketing tool for our destination retail stores. In fiscal 2004, we mailed more than 120 million catalogs with 76 separate titles to all 50 states and to more than 120 countries. Our general catalogs range from 300 to 1,480 pages and our specialty catalogs range from 52 to 240 pages. Our catalog layouts are designed to increase sales by presenting products in specific categories and sections.

Our specialty catalogs offer products focused on one outdoor activity, such as fly fishing, archery or waterfowl. We carefully analyze our historical sales data and introduce targeted specialty catalogs featuring product lines that have historically generated sufficient customer interest. For example, as a result of the demand for women’s apparel and footwear in our general catalogs, we have designed new specialty catalogs featuring a wide selection of merchandise in that category. We introduced six new specialty catalogs in 2004 that focused on outdoor-themed furniture and home accessories as well as women’s clothing and children’s outdoor clothing.

We use the customer database generated by our direct business to ensure that customers receive catalogs matching their merchandise preferences, identify new customers and cross-sell merchandise to existing customers.

We also market our products through our website which has a number of features, including product information and ordering capabilities and general information on the outdoor lifestyle. This cost-effective medium is designed to offer a convenient, highly visual, user-friendly and secure online shopping option for new and existing customers. Our website was in the top 1% of sites in the Hitwise Incorporated online measurement sport & fitness category based on market share of visits.

Our website offers all of the merchandise included in our catalogs and contains more extensive product descriptions and photographs, as well as additional sizes and colors of selected merchandise. In addition to the ability to order the same products available in our catalogs (including the use of the catalog product identification number for quick ordering), our website gives customers the ability to purchase gift certificates, research outdoor activities and choose from other services we provide. Our website also offers discontinued merchandise through a Bargain Cave link which is advertised in our catalogs.

Our website is our most cost-effective means of offering certain specialized or hard-to-find merchandise that may not be available through our catalogs or destination retail stores. This allows us to

offer rare and highly specialized merchandise to our customers which enhances our reputation as a leading authority in the outdoor recreation market. We have agreements to drop-ship specialized merchandise directly from our vendors to our customers, enabling us to provide unusual, hard-to-ship and hard-to-inventory items, including furniture and perishables, to our customers without having to physically maintain an inventory of these items at our distribution centers.

We have been aggressively expanding our e-mail mailing lists as a way to provide inexpensive communication with customers and as a means to promote our products and our brand. Our promotional e-mails are customized to meet customers’ shopping preferences and merchandise tastes. We believe that with the growing number of households with Internet and e-mail access, we can leverage our website to generate more revenue and connect more frequently with new and existing customers.

Many of our customers read and browse our catalogs, but order products through our website. Based on our customer surveys, we believe that approximately 95% of our customers wish to continue to receive catalogs even though they purchase merchandise and services through our website. Accordingly, we remain committed to marketing our products through our catalog distributions and view our catalogs and the Internet as a unified selling and marketing tool.

We have acquired selected other businesses that comprise a part of our direct business which we believe are an extension of our core competencies. These businesses include Dunn’s, which offers hunting-dog equipment and high-end hunting accessories, Van Dyke’s Restorers, which offers home restoration products, Van Dyke’s Taxidermy, which offers taxidermy supplies, Wild Wings, which offers wildlife prints and other collectibles and the Ducks Unlimited catalog, which offers waterfowl products. In 1996, we acquired the assets of the Gander Mountain direct business and integrated them into our business.

Retail Business

We currently operate ten destination retail stores in eight states. Our retail operations generated $499.1 million in revenue in fiscal 2004 representing 34% of our total revenues from our direct and retail businesses for fiscal 2004. See Note 20 to our consolidated financial statements and our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional financial information regarding our retail business.

Building on our success in the direct business, we opened our first destination retail store in Kearney, Nebraska in 1987. In 1991, we opened a second destination retail store in Sidney, Nebraska. Since 1998, we expanded our retail business by opening eight additional destination retail stores in seven states. For fiscal 2004, our destination retail stores which were open as of January 4, 2004 generated average net sales per gross square foot of $398 as compared to $386 per gross square foot in fiscal 2003.

Store Format and Atmosphere. We have developed a destination retail store concept that is designed to appeal to the entire family and draw customers from a broad geographic and demographic range. Our destination retail stores range in size from 35,000 to 250,000 square feet and our large-format destination retail stores are 150,000 square feet or larger. These destination retail stores are similar in format, merchandise offered and ambiance, despite variations in their size. The sites for our destination retail stores are generally located in close proximity to major traffic arteries and in regions of the country that have large concentrations of existing customers of our direct business. Our large-format destination retail stores have been recognized in some states as one of the top tourist attractions, often attracting the construction and development of hotels, restaurants and other retail establishments in areas adjacent to these stores. The large size of our destination retail stores allows us to offer a broad selection of products, helps to provide us with flexibility to respond to seasonal needs and merchandise trends and enables us to manage the flow of customer traffic. We attempt to adjust our staffing levels to meet customer traffic flows.

We design our destination retail stores to reinforce our outdoor lifestyle image and to create an enjoyable, friendly and interactive shopping experience for both casual customers and outdoor enthusiasts. These stores are designed to communicate an outdoor lifestyle environment characterized by the outdoor

feel of our interior lighting, wood or tile flooring, cedar wood beams, open ceilings, neutral tone decor and lodge type atmosphere. We also present our merchandise in a customer friendly fashion with engaging end-cap displays and effective product category adjacencies and have begun the process of implementing a new space planning software system for our destination retail stores which we believe will help us better utilize the space in our destination retail stores.

In addition, our large-format destination retail stores are designed to simulate an outdoor lifestyle environment by including numerous amenities and interactive areas so that customers can test our products before making a purchase decision. These attributes differentiate our destination retail stores making them appeal to entire families and we believe increase the average shopping time customers spend in our stores. The design, durability and style of our destination retail stores also allow us to keep our remodeling and upkeep costs low.

New Store Site Selection. We have identified locations that may be suitable for new destination retail stores as part of our retail expansion strategy. With only ten destination retail stores in operation at the present time, we believe opening additional destination retail stores provides a significant growth opportunity. Through our extensive customer database generated by our direct business and additional demographic and competitive research, we can identify geographic areas with a high concentration of customers that represent potential new markets for our destination retail stores. We believe that there are many additional markets throughout the United States that could potentially support one of our large-format destination retail stores. We also believe that our customer database gives us a competitive advantage in tailoring product offerings in each of our destination retail stores to reflect our customers’ regional preferences. Additionally, we believe that smaller-format destination retail stores could provide further opportunities for future retail expansion.

In August 2004, we opened a new 176,000 square foot destination retail store in Wheeling, West Virginia. In 2005, we currently plan on opening a 230,000 square foot destination retail store in Ft. Worth, Texas, a 185,000 square foot destination retail store in Buda, Texas, a 150,000 square foot destination retail store in Lehi, Utah, and a 185,000 square foot destination retail store in Rogers, Minnesota. We also continue to actively seek additional locations to open new destination retail stores.

Store Locations and Ownership. We own all of our destination retail stores. However, in connection with some of the economic development packages received from state or local governments where our stores are located, we have entered into agreements granting ownership of the taxidermy, diorama or other portions of our stores to these state and local governments. See Item 2 “Properties” for a listing of locations of our stores. We have evaluated the Securities and Exchange Commission’s (SEC) recently issued clarification of lease accounting and we believe that we have accounted for our limited number of lease agreements appropriately.

Construction and Store Development. Currently, the average initial net investment to construct a large-format destination retail store ranges from approximately $40 million to $80 million depending on the size of the store, the location and the amount of public improvements necessary. This includes the costs of real estate, site work, public improvements such as utilities and roads, buildings, fixtures (including taxidermy) and inventory. As we continue to open new destination retail stores, we believe that the layout for our future destination retail stores will reflect improvements in our construction processes, materials and fixtures, merchandise layout and store design. These improvements may further enhance the appeal of our destination retail stores to our customers and lower our overall costs. Historically, in connection with the acquisition of land for our new stores, we have attempted to acquire and develop additional land for use by complementary businesses, such as hotels and restaurants, which are adjacent to our destination retail stores. We intend to continue to acquire, develop and sell additional land adjacent to some of our future destination retail stores. We have previously aimed to obtain tailored economic development arrangements from local and state governments where our destination retail stores are located and we expect to obtain similar arrangements in connection with the construction of future destination retail stores.

Products and Merchandising

We offer our customers a comprehensive selection of high quality, competitively priced, national and regional brand products, including our own Cabela’s brand. Our product offering includes hunting, fishing, marine and camping merchandise, casual and outdoor apparel and footwear, optics, vehicle accessories, gifts and home furnishings with an outdoor theme.

Our merchandise assortment ranges from products at entry-level price points to premium-priced high-end items and we generally price our products consistently across our direct and retail businesses. Our destination retail stores generally offer the same merchandise available through our direct business augmented by a selection of seasonal specialty items and gifts appropriate for the store. We also tailor the merchandise selection in our destination retail stores to meet the regional tastes and preferences of our customers.

As of fiscal year end 2004, we had 43 product categories, which we have combined into five general product categories that are summarized below. The following chart sets forth the percentage of revenues contributed by each of the five product categories for our direct and retail businesses and in total in fiscal years 2004, 2003 and 2002.


	Direct									Retail									Total

	2004			2003			2002			2004			2003			2002			2004			2003			2002

Hunting Equipment		26.8	%		27.5	%		28.5	%		32.2	%		31.2	%		30.1	%		28.6	%		28.6	%		28.9	%
Fishing & Marine		13.1	%		14.0	%		13.9	%		16.2	%		16.4	%		18.1	%		14.1	%		14.8	%		15.0	%
Camping Equipment		15.0	%		14.8	%		14.5	%		11.1	%		11.0	%		10.8	%		13.7	%		13.7	%		13.5	%
Clothing & Footwear		40.1	%		39.1	%		38.5	%		34.2	%		35.2	%		34.7	%		38.1	%		37.9	%		37.6	%
Gifts		5.0	%		4.6	%		4.6	%		6.3	%		6.2	%		6.3	%		5.5	%		5.0	%		5.0	%

Hunting equipment. We provide equipment, accessories and consumable supplies for almost every type of hunting and sport shooting. Our hunting products are supported by services including gun bore sighting and scope mounting and archery technicians for bow tuning to service the complete needs of our customer.

Fishing and marine equipment. We provide products for fresh water fishing, fly-fishing, salt water fishing and ice-fishing. We carry in excess of 20,000 types of lures and a broad selection of rods, reels and combos. In addition, our fishing and marine equipment offering features a wide selection of electronics, boats and accessories, canoes, kayaks and other floatation accessories.

Camping equipment. We primarily focus on outdoor gear for the outdoor enthusiast, augmented with gear for family camping and the weekend hiker. In addition, we include automobile and ATV accessories in this general category.

Clothing and footwear. Our clothing and footwear merchandise includes both technical gear and lifestyle apparel and footwear for the active outdoor enthusiast as well as apparel and footwear for the casual customer.

Gifts and home furnishings. Our gifts and home furnishings merchandise includes gifts, games, food assortments, books, jewelry and home furnishings with an outdoor theme.

Private Label Products. In addition to national brands, we offer our exclusive Cabela’s private label merchandise. We have a significant penetration of private label merchandise in casual apparel and footwear as well as in selected hard goods categories such as camping, fishing and optics. Where possible, we seek to protect our private label products by applying for trademark or patent protection for these products. Our private label products typically generate higher gross profit margins compared to our branded products. In fiscal 2004, our private label merchandise accounted for approximately one-third of our merchandise revenues. By attempting to have an appropriate mix of branded and private label merchandise, we strive to meet the expectations and needs of our customers.

We have in-house teams that are responsible for the design and development of all private label merchandise. This allows us to exercise significant control over the merchandise development process and the quality of our private label products. The design and development of our products is based on our understanding of our customers’ styles and preferences as well as their price expectations. We have our own quality assurance department that tests the products after the products have been manufactured by third party vendors to help ensure that the merchandise meets our specifications.

We intend to continue to design and develop a variety of new private label products to increase our revenues, enhance our margins, and expand the recognition of the Cabela’s brand. In addition, these private label products are important to our efforts to broaden our customer base and communicate our value position. In certain categories where there is not a dominant national brand, we believe that our Cabela’s private label products have stronger brand recognition than other branded products.

Merchandising and Sourcing. Our merchandising team is comprised of approximately 76 people with an average of eight years of experience working for us. The members of this team are responsible for selecting our products and negotiating the costs of our merchandise. We also have a retail merchandising team that is responsible for the regional and local merchandise needs of each destination retail store. In addition, our merchants provide product quality assurance for our retail and direct businesses. The merchandising teams use historical revenue data from our direct and retail businesses, feedback from our retail store managers and industry trends to determine which products to purchase. Our merchants are outdoor enthusiasts who use our products in the field to gain a better understanding of our customers’ needs as well as the functionality and overall performance of the products. We believe that we are well known to our customers for providing the widest product offering to the outdoor recreation market and we continue to look at category expansion to further serve our customers. We have also expanded our product offering through the acquisition of related businesses.

We have developed strong vendor relationships over the past 43 years. These relationships generally provide us with greater access to technological innovations and new products. We source our merchandise from approximately 4,000 suppliers in over 99 countries. In fiscal 2004, over half of our merchandise was sourced from locations in foreign countries, with approximately 35.3% of our merchandising being sourced from China, Taiwan and Japan. During fiscal 2004, no single vendor represented greater than 10% of total purchases. In order to exert greater control over product quality, we test products prior to the time the product is shipped to us.

Inventory Control. Our inventory control team is comprised of approximately 104 people with an average of seven years of experience working for us. These individuals are responsible for initial inventory planning and allocation decisions. These decisions are made by assessing historical revenue, performance of our direct and retail businesses, and anticipated economic outlook. Our inventory control group is equipped with distribution center and inventory management systems and is able to effectively assess revenue trends, customer demand and current inventory positions and allocate items appropriately. We track revenue at the SKU level on a daily basis and adjust our reorder and markdown strategies accordingly. We are also able to utilize our popular Bargain Cave as a means to sell discontinued and returned merchandise. Our merchandise and inventory control teams work together to make decisions regarding appropriate purchasing levels and the proper flow of merchandise. We believe this joint effort helps us to maximize the effectiveness of our merchandising team and effectively manage our inventory levels.

Marketing

Our marketing strategy focuses on using our multi-channel retail model to build the strength and recognition of our brand by communicating our wide and distinctive offering of quality products to our customers and potential customers in a cost effective manner. Our largest marketing effort consists of distributing over 120 million catalogs annually in order to attract customers to our direct and retail businesses. We have also established our website to market our products to customers and potential customers who shop via the Internet. We use both our catalogs and our website to cross-market our

destination retail stores. Our marketing strategy is designed to convey our outdoor lifestyle image, enhance our brand and emphasize our position in our target markets.

In addition to the use of our catalogs and our website, we also use a combination of promotional events, traditional advertising and media programs as marketing tools.

Competition

We compete in a number of large and highly fragmented and intensely competitive markets, including the outdoor recreation and casual apparel and footwear markets. The outdoor recreation market is comprised of several categories including hunting, fishing and wildlife watching, and we believe it crosses over a wide range of geographic and demographic segments.

We compete directly or indirectly with other broad-line merchants, large-format sporting goods stores and chains, mass merchandisers, warehouse clubs, discount stores and department stores, small specialty retailers and catalog and Internet-based retailers.

Many of our competitors have a larger number of stores and some of them have greater market presence, name recognition, and financial, distribution, marketing and other resources, than we have. We believe that we compete effectively with our competitors on the basis of our wide and distinctive merchandise selection and the superior customer service associated with the Cabela’s brand, as well as our commitment to understanding and providing merchandise that is relevant to our targeted customer base. We cater to the outdoor enthusiast and the casual customer, and believe we have an appealing store environment. We also believe that our multi-channel retail model enhances our ability to compete by allowing our customers to choose the most convenient sales channel. This model also allows us to reach a broader audience in existing and new markets and to continue to build on our nationally recognized Cabela’s brand.

Customer Service

Since our founding in 1961, we have been deeply committed to serving our customers by selling high quality products through sales associates that deliver excellent customer service and in-depth product knowledge. We strive to provide superior customer service at the time of sale and after the sale through our 100 percent money-back guarantee. Our customers can always access well-trained, knowledgeable associates to answer their product use and merchandise selection questions. We believe that our ability to establish and maintain long-term relationships with our customers and encourage repeat visits and purchases is due, in part, to the strength of our customer support and service operations.

Financial Services Business

Through our wholly-owned subsidiary, World’s Foremost Bank, we issue and manage the Cabela’s Club VISA card and related customer loyalty rewards program. We believe the Cabela’s Club VISA card loyalty rewards program is an effective vehicle for strengthening our relationships with our customers, enhancing our brand name and increasing our merchandise revenues. The primary purpose of our financial services business is to provide our merchandise customers with a rewards program that will enhance revenues, profitability and customer loyalty in our direct and retail businesses.

Our bank subsidiary is an FDIC-insured, special purpose, Nebraska state-chartered bank. Our bank’s charter is limited to issuing credit cards and selling brokered certificates of deposit of $100,000 or more and it does not accept demand deposits or make non-credit card loans. During fiscal 2004, we had an average of 618,951 active accounts with an average month-end balance of $1,436. See Note 20 to our consolidated financial statements and our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for financial information regarding our financial services business.

The Cabela’s Club VISA card loyalty program is a rewards based credit card program, which we believe has increased brand loyalty among our customers. Our rewards program is a simple loyalty program that allows customers to earn points whenever and wherever they use their credit card and then redeem

earned points for products and services through our direct business or at our destination retail stores. The rewards points are easy to redeem and never expire as long as the account is in good standing. The rewards program encourages our customers to buy more merchandise at a discount when they redeem their accumulated points. Our rewards program is integrated into our store point of sale system which adds to the convenience of the rewards program as our employees can inform customers of their number of accumulated points when making purchases at our stores. In fiscal 2004, approximately 17.7% of our total merchandise sales in our direct and retail businesses were made to customers who used their Cabela’s Club VISA credit card, compared to 17.1% in fiscal 2003.

Financial Services Marketing. We adhere to a low cost, efficient and tailored credit card marketing program that leverages the Cabela’s brand name. We market the Cabela’s Club VISA card through a number of channels, including inbound telemarketing, retail locations, catalogs and the Internet. Customer service representatives at our customer care centers offer the Cabela’s Club card to qualifying customers. The Cabela’s Club card is marketed throughout our catalogs and Cabela’s Club card offers are inserted in purchases when shipped to a customer. The Cabela’s Club card is also offered at our destination retail stores through an application similar to the offer inserted with customer purchases. We offer customers who apply for a Cabela’s Club card while visiting one of our destination retail stores a voucher for use on merchandise purchased at the store on the same day the customer applies for the Cabela’s Club card.

Underwriting and Credit Criteria. We attempt to underwrite high quality credit customers and have historically maintained attractive credit statistics versus industry averages. We adhere to strict credit policies and target consistent profitability in our financial services business. Fair Isaac & Company, or FICO, scores are a widely-used tool for assessing a person’s credit rating. As of the end of fiscal 2004, our cardholders had a median FICO score of 774, which is well above industry averages. We had net charge-offs as a percent of total outstanding balances of approximately 2.2% in 2004, compared to an industry average of 5.44% in 2004, which we believe is due to our credit and operating practices. In addition, our rewards program has helped reduce customer attrition in our direct and retail businesses, as demonstrated by the fact that our customers who use a Cabela’s Club card are more likely to make another purchase from us over the subsequent twelve months and spend 15% to 20% more than non-Cabela’s Club card customers.

The table below illustrates the historically high credit quality of our managed credit card portfolio, presenting additional data on our credit card portfolio’s performance in 2004 compared with industry averages.


As a Percentage of Managed Receivables	The Bank			Industry(1)

Delinquencies		0.71	%		4.22	%
Gross charge-offs		2.60	%		6.22	%
Net charge-offs		2.21	%		5.44	%


(1)	Source: 2004 data from The Nilson Report, February 2005; Industry includes all VISA and MasterCard accounts.

Financial Services Customer Service. Each inbound call to our bank subsidiary’s customer service department is answered by the interactive voice response, or IVR, available 24 hours per day. Cardholders choose from a menu and receive detailed information including the following: account balance, available credit limit, last payment amount, last payment receipt date, payment due amount, payment due date and point total. Customer service representatives will handle all credit-related requests not answered by the IVR. They are also responsible for referring cardholders to credit analysts to underwrite Gold Card upgrades and credit line increases that do not meet the customer service standard guidelines. Cardholders can pay their bill via the mail, the telephone or the Internet.

Collection and Recoveries. We employ a “cradle to grave” collection approach whereby a collector will work all delinquency categories. We classify an account as delinquent when the minimum payment due on the account is not received by the payment date specified by the statement cycle. Accounts are

placed in collection status with an internal or third party collector at various stages of delinquency. All delinquent accounts enter collections no later than 15 days delinquent.

We have outsourced a small percentage of pre-charge-off, delinquent accounts to third party collection agencies. The account’s reward score determines whether or not it will be outsourced for collection and evaluates the predictability of collecting the delinquent balance.

We outsource the majority of post charged-off collections to third party collection agencies. If not initially resolved, post charged-off accounts will then be placed with secondary and tertiary collection agencies until resolution. We currently employ one collector who works a limited number of post charged-off accounts and manages the various collection agency relationships.

Third Party Card Programs. In 2004, our bank subsidiary entered into agreements to issue new VISA credit accounts for fans of International Speedway Corp. and for customers of Woodworker’s Supply Inc., a retailer of tools for woodworking enthusiasts. These third party programs represented only 0.3% of the total net purchases made on our co-branded VISA cards issued by the bank. In addition, they represented $5.2 million of credit card loans receivable, as currently our securitization program does not accept these co-branded third party receivables. We intend to continue to explore selected similar co-branding opportunities as additional vehicles for growth in our financial services business.

Distribution and Fulfillment

We operate four distribution centers located in Sidney, Nebraska, Prairie du Chien, Wisconsin, Mitchell, South Dakota and Wheeling, West Virginia. These distribution centers comprise nearly 2,502,000 square feet of warehouse space which house all of our inventories. We ship merchandise to our direct customers via UPS and the United States Postal Service. We use common carriers and typically deliver inventory two to three times per week to our destination retail stores. Our primary returns processing facility is located in Oshkosh, Nebraska.

Management Information Systems

Our management information and operational systems manage our direct, retail and financial services businesses. These systems are designed to process customer orders, track customer data and demographics, order, monitor and maintain sufficient amounts of inventory, facilitate vendor transactions, and provide financial reporting. We continually evaluate, modify and update our information technology systems supporting the product pipeline, including design, sourcing, merchandise planning, forecasting and purchase order, inventory, distribution, transportation and price management. We are planning modifications to our technology that will involve updating or replacing our systems with successor systems during the course of several years, including changes to the sortation systems at our distribution centers, updating of the space planning and labor scheduling software for our destination retail stores and improvements to our customer relationship management system.

Employees

As of March 5, 2005, we employed approximately 7,830 employees, approximately 4,675 of whom were employed full time. We use part-time and temporary workers to supplement our labor force at peak times during our third and fourth quarters. None of our employees are represented by a labor union or are parties to a collective bargaining agreement. We have not experienced any work stoppages and consider our relationship with our employees to be good.

Seasonality

We experience seasonal fluctuations in our net revenue and operating results. Due to buying patterns around the holidays and the opening of hunting seasons, our merchandise revenues are traditionally are higher in the third and fourth fiscal quarters than in the first and second fiscal quarters, and we typically earn a disproportionate share of our operating income in the third and fourth fiscal quarters. See Item 7

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Quarterly Results of Operations and Seasonal Influences”.

Government Regulation

Regulation of our Bank Subsidiary. Our wholly-owned bank subsidiary is a Nebraska state chartered bank with deposits insured by the Bank Insurance Fund of the Federal Deposit Insurance Corporation, or the FDIC. Our bank subsidiary is subject to comprehensive regulation and periodic examination by the Nebraska Department of Banking and Finance, or NDBF, and the FDIC. We are also registered as a bank holding company with the NDBF and as such are subject to periodic examination by the NDBF.

Our bank subsidiary does not qualify as a “bank” under the Bank Holding Company Act of 1956, as amended, or the BHCA, because it is in compliance with a credit card bank exemption from the BHCA. If it failed to meet the credit card bank exemption criteria, its status as an insured depository institution would make us subject to the provisions of the BHCA, including restrictions as to the types of business activities in which a bank holding company and its affiliates may engage. We could be required to either divest our bank subsidiary or divest or cease any activities not permissible for a bank holding company and its affiliates, including our direct and retail businesses. While the consequences of being subject to regulation under the BHCA would be severe, we believe that the risk of being subject to the BHCA is minimal as a result of the precautions we have taken in structuring our business.

There are various federal and Nebraska law regulations relating to minimum regulatory capital requirements and requirements concerning the payment of dividends from net profits or surplus, restrictions governing transactions between an insured depository institution and its affiliates, and general federal and Nebraska regulatory oversight to prevent unsafe or unsound practices. At the end of 2004, our bank subsidiary met the requirements for a “well capitalized” institution, the highest of the Federal Deposit Insurance Corporation Improvement Act’s (FDICIA) five capital ratio levels. A “well capitalized” classification should not necessarily be viewed as describing the condition or future prospects of a depository institution, including our bank subsidiary.

FDICIA also requires the FDIC to implement a system of risk-based premiums for deposit insurance pursuant to which the premiums paid by a depository institution will be based on the probability that the FDIC will incur a loss in respect of that institution. The FDIC has since adopted a system that imposes insurance premiums based upon a matrix that takes into account an institution’s capital level and supervisory rating.

Subject to certain limitations, federal bank agencies may also require banking organizations such as our bank subsidiary to hold regulatory capital against the full risk-weighted amount of its retained securitization interests. We understand that these federal bank agencies continue to analyze interests in securitization transactions under their rules to determine the appropriate capital treatment. Any such determination could require our bank subsidiary to hold significantly higher levels of regulatory capital against such interests.

The activities of our bank subsidiary as a consumer lender also are subject to regulation under the various federal laws, including the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the USA Patriot Act, the Fair and Accurate Credit Transactions Act of 2003, the Community Reinvestment Act, the Service members’ Civil Relief Act and the Gramm-Leach-Bliley Act (GLB), as well as various state laws. The Truth-in-Lending Act requires disclosure of the “finance charge” and the “annual percentage rate” and certain costs and terms of credit. The Equal Credit Opportunity Act prohibits discrimination against an applicant for credit because of age, sex, marital status, religion, race, color, national origin or receipt of public assistance. The Fair Credit Reporting Act establishes procedures for correcting mistakes in a person’s credit record and generally requires that the records be kept confidential. The USA Patriot Act, among other things, regulates money laundering and prohibits structuring financial transactions to evade reporting requirements. The Community Reinvestment Act requires federal agencies to encourage depository financial institutions to help meet the credit needs of their communities. The Service members’ Civil Relief Act provides for temporary suspension of legal

proceedings and financial transactions that may adversely affect the civil rights of service members during military service. We spend significant amounts of time ensuring we are in compliance with these laws and work with our service providers to ensure that actions they take in connection with services they perform for us are in compliance with these laws. Depending on the underlying issue and applicable law, regulators are often authorized to impose penalties for violations of these statutes and, in some cases, to order our bank subsidiary to compensate injured borrowers. Borrowers may also have a private right of action to bring actions for some violations. Federal bankruptcy and state debtor relief and collection laws also affect the ability of our bank subsidiary to collect outstanding balances owed by borrowers. The GLB Act requires our bank subsidiary to disclose its privacy policy to customers and consumers, and requires that such customers and consumers be given a choice (through an opt-out notice) to forbid the sharing of non-public personal information about them with non-affiliated third persons. We have a written Privacy Notice posted on our website which is delivered to each of our customers when the customer relationships begin, and annually thereafter, in compliance with the GLB Act.

Certain acquisitions of our capital stock or our bank subsidiary’s capital stock may be subject to regulatory approval or notice under federal or Nebraska law. Investors are responsible for ensuring that they do not, directly or indirectly, acquire shares of our capital stock in excess of the amount which can be acquired without regulatory approval.

Taxation Applicable to Us. We pay applicable corporate income, franchise and other taxes, to states in which our destination retail stores are physically located. Upon entering a new state, we apply for a private letter ruling from the state’s revenue department stating which types of taxes our direct and retail businesses will be required to collect and pay in such state, and we accrue and remit the applicable taxes based upon the private letter ruling. As we open more destination retail stores, we will be subject to tax in an increasing number of state and local taxing jurisdictions. Although we believe we have properly accrued for these taxes based on our current interpretation of the tax code and prior private letter rulings, state taxing authorities may challenge our interpretation, attempt to revoke their private letter rulings or amend their tax laws. If state taxing authorities are successful, additional taxes, interest and related penalties may be assessed. See “Factors Affecting Future Results — Our use tax collection policy for our direct business may expose us to the risk that we may be assessed for unpaid use taxes which would harm our operating results and cash flows” and “— Our destination retail store expansion strategy may result in our direct business establishing nexus with additional states which may cause our direct business to pay additional income taxes and require us to collect use taxes from our direct customers which would have an adverse effect on the profitability and cash flows of our direct business.”

Other Regulations Applicable to Us. We must comply with federal, state and local regulations, including the federal Brady Handgun Violence Prevention Act, which require us, as a federal firearms licensee, to perform a pre-sale background check of purchasers of hunting rifles and other firearms.

We are also subject to a variety of state laws and regulations relating to, among other things, advertising, pricing, and product safety/restrictions. Some of these laws prohibit or limit the sale, in certain states and locations, of certain items we offer such as black powder firearms, ammunition, bows, knives and similar products. State and local government regulation of hunting can also affect our business.

We are subject to certain federal, state and local laws and regulations relating to the protection of the environment and human health and safety. We believe that we are in substantial compliance with the terms of environmental laws and that we have no liabilities under such laws that we expect to have a material adverse effect on our business, results of operations or financial condition.

Our direct business is subject to the Merchandise Mail Order Rule and related regulations promulgated by the Federal Trade Commission, or FTC, which affect our catalog mail order operations. FTC regulations, in general, govern the solicitation of orders, the information provided to prospective customers, and the timeliness of shipments and refunds. In addition, the FTC has established guidelines for advertising and labeling many of the products we sell.

Intellectual Property

Cabela’s®, Cabela’s Club®, Cabelas.com®, World’s Foremost Outfitter®, World’s Foremost Bank®, Bargain Cave®, Dunn’s®, Van Dyke’s®, Wild Wings® and Herters® are among our registered service marks or trademarks with the United States Patent and Trademark Office. We have numerous pending applications for trademarks. In addition, we own several other registered and unregistered trademarks and service marks involving advertising slogans and other names and phrases used in our business. We own several patents associated with various products. We also own trade secrets, domain names and copyrights, which have been registered for each of our catalogs.

We believe that our trademarks are valid and valuable and intend to maintain our trademarks and any related registrations. We do not know of any pending claims of infringement or other challenges to our right to use our marks in the United States or elsewhere. We have no franchises or other concessions which are material to our operations.

Available Information

Our website address is www.cabelas.com. There we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC. Our SEC reports can be accessed through the investor relations section of our website. The information on our website, whether currently posted or in the future, is not part of this or any other report we file with or furnish to the SEC.


ITEM 2.	PROPERTIES

In addition to our destination retail stores listed below, we also operate a corporate headquarters, administrative offices, four distribution centers, a return center, five customer care centers and a taxidermy manufacturing facility. The following table provides information regarding the general location, use and approximate size of our non-retail principal properties:

Total

Segment That

Property

Location

Square Feet

Uses Property

Corporate Headquarters and Customer Care Center

Sidney, NE

294,000

Other, Retail and Direct

Administrative Offices

Sidney, NE

28,000

Other

Distribution Center

Sidney, NE

752,000

Other

Distribution Center

Prairie du Chien, WI

1,071,000

Other

Distribution Center

Mitchell, SD

84,000

Other

Merchandise Return Center

Oshkosh, NE

52,000

Other

Customer Care Center

North Platte, NE

12,000

Direct

Administrative Offices and Customer Care Center (including retail store)

Kearney, NE

186,000

Direct and Retail

Customer Care Center

Grand Island, NE(1)

12,000

Direct

Customer Care Center and Administrative Offices

Lincoln, NE

76,000

Direct, Financial Services and Other

Manufacturing and Administrative Offices

Woonsocket, SD

145,000

Direct

Distribution Center

Wheeling, WV(1)

595,000

Other


(1)	We own all of these properties except the Grand Island, Nebraska customer care center and Wheeling, West Virginia distribution center, which we lease. We have evaluated the SEC’s recent clarification of lease accounting and we believe that we have accounted for our limited number of lease agreements appropriately.

We own all of our destination retail stores. However, in connection with some of the economic development packages received from state or local governments where our stores are located, we have entered into agreements granting ownership of the taxidermy, diorama, or other portions of our stores to these state and local governments. The following table shows the location, opening date, and total square footage of our destination retail stores used in our retail segment:


Location	Opening Date		Total Sq. Ft.

Kearney, NE		October, 1987		35,000
Sidney, NE		July, 1991		89,000
Owatonna, MN		March, 1998		159,000
Prairie Du Chien, WI		September, 1998		53,000
East Grand Forks, MN		September, 1999		59,000
Dundee, MI		March, 2000		228,000
Mitchell, SD		August, 2000		84,000
Kansas City, KS		August, 2002		186,000
Hamburg, PA		September, 2003		247,000
Wheeling, WV		August, 2004		176,000


ITEM 3.	LEGAL PROCEEDINGS

We are party to certain lawsuits in the ordinary course of our business. The subject matter of these proceedings primarily include commercial disputes, employment issues and product liability lawsuits, including the product liability lawsuits regarding tree stands described on page 59. We do not believe that the ultimate dispositions of these proceedings, individually or in the aggregate, will have a material adverse effect on our consolidated financial position, results of operations or liquidity.


ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2004.

PART II


ITEM 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Price Range of Common Stock

We have common stock and non-voting common stock. Our common stock began trading on June 25, 2004 on the NYSE under the symbol “CAB”. Prior to that date, there was no public market for our common stock. Our non-voting common stock is not listed on any exchange and not traded over the counter.

On January 1, 2005, the closing price of our common stock on the NYSE was $22.74 per share. As of March 15, 2005, there were 459 holders of record of our common stock and 6 holders of record of our non-voting common stock. This does not include persons who hold our common stock in nominee or “street name” accounts through brokers or banks.

The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock as reported on the NYSE:


Fiscal 2004	High		Low

Second Quarter (beginning June 25, 2004)	$	28.82	$	25.60
Third Quarter	$	30.27	$	23.25
Fourth Quarter	$	26.42	$	20.96

Use of Proceeds

On June 30, 2004, we closed the initial public offering of 7,812,500 shares of our common stock at a price of $20 per share in a firm commitment underwritten offering. In connection with the offering, certain of our stockholders (the “Selling Stockholders”) sold 1,562,500 of the 7,812,500 shares offered and granted an option to the underwriters to purchase up to an additional 1,171,875 shares at a price of $20 per share to cover over-allotments, which option was exercised in full by the underwriters and also closed on June 30, 2004. Of the total offering, we sold 6,250,000 shares, raising net proceeds of $114.2 million. We did not receive any of the proceeds ($54.7 million before underwriting discounts and commissions) from any shares of our common stock sold by the Selling Stockholders or from the exercise of the over-allotment option. The offering was effected pursuant to a Registration Statement on Form S-1 (File No. 333-113835), which the Securities and Exchange Commission declared effective on June 24, 2004. The proceeds were used to pay the outstanding balance of $38.1 million on our line of credit, with the remainder used for our destination retail store expansion, including the purchase of economic development bonds. The managing underwriters of our offering were Credit Suisse First Boston LLC and J.P. Morgan Securities Inc. The aggregate gross proceeds of the shares offered and sold, including the over-allotment, were $179.7 million. In connection with the offering, an aggregate of $12.1 million in underwriting discounts and commissions was paid to the underwriters by us and the selling stockholders. In addition, the following table sets forth the other material expenses we incurred in connection with the offering:


SEC registration fee	$	48,000
NASD filing fee		23,500
Printing and engraving expenses		316,000
Legal fees and expenses		1,370,000
Accounting fees and expenses		935,000
Blue Sky fees and expenses		50,000
Transfer agent and registrar fees		65,000
Miscellaneous fees and expenses		535,900

	$	3,343,400

On November 16, 2004, certain of our stockholders sold 12,000,000 shares of common stock, including the underwriters over allotment, at a price of $22.50 per share in a firm commitment underwritten offering. We did not receive any proceeds from this sale.

Sales of Unregistered Securities

During the past fiscal year, we issued unregistered securities to a limited number of persons, as described below. None of these transactions involved any underwriters or public offerings.

On February 9, 2004, we issued 18,350 shares of common stock to an employee for an aggregate amount of $182,680 in connection with the exercise of stock options granted under our 1997 Stock Option Plan. These securities were issued pursuant to an employee benefit plan, in a transaction exempt from the registration requirements of the Securities Act in reliance upon Rule 701 of the Securities Act.

On February 10, 2004, we issued 385,056 shares of common stock for an aggregate amount of $1,116,576 in connection with the early exercise of stock options granted under our 1997 Stock Option Plan. These securities were issued pursuant to an employee benefit plan, in a transaction exempt from the registration requirements of the Securities Act in reliance upon Rule 701 of the Securities Act.

On February 16, 2004, we issued 154,140 shares of common stock to an employee for an aggregate amount of $868,080 in connection with the exercise of stock options granted under our 1997 Stock Option Plan. These securities were issued pursuant to an employee benefit plan, in a transaction exempt from the registration requirements of the Securities Act in reliance upon Rule 701 of the Securities Act.

On March 19, 2004, we issued 3,670 shares of common stock for an aggregate of $41,090 in connection with the exercise of stock options under our 1997 Stock Option Plan. These securities were issued pursuant to an employee benefit plan, in a transaction exempt from the registration requirements of the Securities Act in reliance upon Rule 701 of the Securities Act.

In March, April and May of 2004, we issued 1,149,424 shares of common stock to employees for an aggregate amount of $7,284,737.78 in connection with the exercise of stock options granted under our 1997 Stock Option Plan. These securities were issued pursuant to an employee benefit plan, in a transaction exempt from the registration requirements of the Securities Act in reliance upon Rule 701 of the Securities Act.

In May 2004, we granted options to purchase an aggregate of 1,313,860 shares of common stock under our 2004 Stock Plan to employees, non-employee directors and advisors. 550,500 of these options have an exercise price of $13.34 per share and 763,360 of these options have an exercise price of $20.00 per share. We received no payment from optionees upon issuance of these options. These securities were issued pursuant to an employee benefit plan, in a transaction exempt from the registration requirements of the Securities Act in reliance upon Rule 701 of the Securities Act.

Dividend Policy

We have never declared or paid any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. In addition, our revolving credit facility and our senior notes restrict our ability to pay dividends to our stockholders based upon our prior year’s consolidated EBITDA and our consolidated net worth, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Credit Facilities and Other Indebtedness”. We were in compliance with these covenants as of January 1, 2005.

Equity Compensation Plans

The information under the heading “Executive Compensation — Equity Compensation Plan Information as of Fiscal Year-End” in our Proxy Statement relating to our 2005 Annual Meeting of Stockholders is incorporated herein by reference.


ITEM 6.	SELECTED FINANCIAL DATA

You should read the selected historical consolidated financial and other data set forth below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and the related notes included elsewhere in this report. In the opinion of management, the audited consolidated financial statements reflect all adjustments which are necessary to summarize fairly our financial position and our results of operations and cash flows for the periods presented. We have derived the historical consolidated statement of operations data for our fiscal years 2004, 2003 and 2002 and the historical consolidated balance sheet data as of the end of our fiscal years 2004 and 2003 from our audited consolidated financial statements included elsewhere in this report. We have derived the historical consolidated statement of operations data for our fiscal year 2001 and 2000 and the historical consolidated balance sheet data as of the end of our fiscal years 2002, 2001 and 2000 from our audited historical consolidated financial statements that are not

included in this report. The historical results presented below are not necessarily indicative of the results to be expected for any future period.


			Fiscal Year(1)

			2004			2003			2002			2001			2000

Statement of Operations Data:
Revenue:
	Direct revenue		$	970,646		$	924,296		$	867,799		$	787,170		$	735,183
	Retail revenue			499,074			407,238			305,791			262,330			207,574
	Financial services revenue(2)			78,104			58,278			46,387			27,329			—
	Other revenue(3)			8,150			2,611			4,604			770			4,635

		Total revenue		1,555,974			1,392,423			1,224,581			1,077,599			947,392
Cost of revenue				925,665			827,528			735,445			662,186			597,434

Gross profit				630,309			564,895			489,136			415,413			349,958
Selling, general and administrative expenses				533,094			479,964			413,135			353,462			297,986

Operating income				97,215			84,931			76,001			61,951			51,972
	Interest income			601			408			443			404			487
	Interest expense			(8,178	)		(11,158	)		(8,413	)		(7,307	)		(5,604	)
	Other income(4)			10,443			5,612			4,708			4,387			6,749

Income before provision for income taxes				100,081			79,793			72,739			59,435			53,604
Provision for income taxes				35,085			28,402			25,817			21,020			18,824

Net income				64,996			51,391			46,922			38,415			34,780
Less: Cumulative redeemable convertible preferred stock dividend				—			—			—			(3,901	)		(3,569	)

Income available to common stockholders			$	64,996		$	51,391		$	46,922		$	34,514		$	31,211

Basic earnings per share			$	1.06		$	0.99		$	0.94		$	0.77		$	0.74
Diluted earnings per share			$	1.03		$	0.93		$	0.88		$	0.71		$	0.66
Weighted average basic shares outstanding (000’s)				61,277			52,060			49,899			44,920			42,308
Weighted average diluted shares outstanding (000’s)				63,277			55,307			53,400			53,742			52,567
Selected Balance Sheet Data (as of end of period):
Cash and cash equivalents(5)			$	248,184		$	192,581		$	178,636		$	109,755		$	27,724
Working capital				274,746			228,580			188,229			100,082			32,103
Total assets				1,228,231			963,553			834,968			646,690			426,145
Total debt				148,152			142,651			161,452			62,545			24,054
Total redeemable convertible preferred stock(6)				—			—			—			—			42,323
Total stockholders’ equity				566,354			372,515			259,530			212,075			129,911


	Fiscal Year(1)

	2004			2003			2002			2001			2000

Selected Cash Flow Data
Net cash flows from operating activities	$	47,018		$	67,236		$	55,692		$	69,373		$	41,329
Net cash flows from investing activities		(127,170	)		(93,718	)		(84,510	)		(71,678	)		(74,383	)
Net cash flows from financing activities		135,755			40,427			97,699			84,336			17,793
Other Data:
Number of catalogs mailed (000’s)		120,383			103,976			96,723			83,520			76,011
Number of destination retail stores (at end of period)		10			9			8			7			7
Total gross square footage (at end of the period)		1,317,060			1,140,709			893,810			707,868			707,868
Average sales per gross square foot(7)	$	398		$	386		$	381		$	367		$	354
Comparable store sales growth(8)		(0.6	)%		0.2	%		3.7	%		3.8	%		6.2	%
Depreciation and amortization	$	29,843		$	26,715		$	23,539		$	17,355		$	14,681
Capital expenditures		52,568			72,972			53,387			47,257			64,615
Purchases of marketable securities(9)		74,492			18,201			32,821			13,768			7,452
EBITDA(10)	$	137,501		$	117,258		$	104,248		$	83,693		$	73,402
EBITDA margin(11)		8.8	%		8.4	%		8.5	%		7.8	%		7.7	%


	(1)	Our fiscal years are based on the 52-53 week period ending on the Saturday closest to December 31. Our fiscal years 2004, 2002, 2001 and 2000 consisted of 52 weeks and our fiscal year 2003 consisted of 53 weeks.

	(2)	On March 23, 2001, we purchased the remaining 50% ownership interest in Cabela’s Card, LLC that we did not previously own and formed a new wholly-owned bank subsidiary, World’s Foremost Bank. The financial results of the bank were consolidated with our results beginning March 23, 2001.

	(3)	Other revenue consists primarily of revenue from our real estate and travel businesses.

	(4)	Other income primarily consists of interest earned on economic development bonds, gains on sales of marketable securities and equity in undistributed net earnings (losses) of equity method investees.

	(5)	At fiscal year end 2004, 2003, 2002 and 2001, cash and cash equivalents at World’s Foremost Bank were $58.1 million, $77.2 million, $35.0 million and $34.4 million, respectively, which is included in our consolidated cash and cash equivalents. Due to regulatory restrictions, our ability to use this cash for non- banking operations, including for working capital for our direct or retail businesses or for destination retail store expansion, may be limited. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Bank Dividend Limitations and Minimum Capital Requirements”.

	(6)	In September 2001, all outstanding shares of cumulative redeemable convertible preferred stock were converted to non-voting common stock.

	(7)	Average sales per gross square foot includes sales and square footage of stores that are open at the beginning of the period and at the end of the period.

	(8)	Stores are included in our comparable store sales base the first day of the month following the fifteen month anniversary of its opening or expansion by greater than 25% of total square footage. The percentages shown are based on a 52 to 52 week comparison. We previously reported 2003 on a 53 to 52 week basis as 2.4%.


	(9)	This amount consists primarily of purchases of economic development bonds, the proceeds of which are used to construct our destination retail stores and related infrastructure. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Retail Store Expansion”.

(10)

When we use the term “EBITDA”, we are referring to net income minus interest income plus interest expense, income taxes and depreciation and amortization. We present EBITDA because we consider it an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. We also use EBITDA to determine our compliance with some of the covenants under our revolving credit facility.

EBITDA has limitations as an analytical tool and you should not consider it in isolation or as a substitute for net income, operating income, cash flows from operating, investing or financing activities or any other measure calculated in accordance with generally accepted accounting principles. Some of these limitations are:


	•	EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or capital commitments;

	•	EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

	•	EBITDA does not reflect the interest expense or cash requirements necessary to service interest or principal payments on our debt;

	•	Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and

	•	Other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business and we rely primarily on our GAAP results and use EBITDA only supplementally.

The following table reconciles EBITDA to net income:


		Fiscal Year(1)

		2004			2003			2002			2001			2000

					(Dollars in thousands)
Net income		$	64,996		$	51,391		$	46,922		$	38,415		$	34,780
	Deprecation and amortization		29,843			26,715			23,539			17,355			14,681
	Interest income		(601	)		(408	)		(443	)		(404	)		(487	)
	Interest expense		8,178			11,158			8,413			7,307			5,604
	Income taxes		35,085			28,402			25,817			21,020			18,824

EBITDA		$	137,501		$	117,258		$	104,248		$	83,693		$	73,402


(1)	EBITDA margin is defined as our consolidated EBITDA as a percentage of our consolidated revenue.


ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 appearing elsewhere in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties, including information with respect to our plans, intentions and strategies for our businesses. See “Special Note Regarding Forward-Looking Statements.” For additional information regarding some of the risks and uncertainties that affect our business and the industries in which we operate, please see “Factors Affecting Future Results”. Our actual results may differ materially from those estimated or projected in any of these forward-looking statements.

Overview

We are the nation’s largest direct marketer, and a leading specialty retailer, of hunting, fishing, camping and related outdoor merchandise. Since our founding in 1961, Cabela’s has grown to become one of the most well-known outdoor recreation brands in the United States. Through our well-established direct business and our growing number of destination retail stores, we believe we offer the widest and most distinctive selection of high quality outdoor products at competitive prices while providing superior customer service. Our multi-channel retail model — catalog, Internet and destination retail stores — strategically positions us to meet our customer’s ever-growing needs. Our extensive product offering consists of approximately 245,000 stock keeping units, or SKUs, and includes hunting, fishing, marine and camping merchandise, casual and outdoor apparel and footwear, optics, vehicle accessories, gifts and home furnishings with an outdoor theme. Our co-branded credit card provides revenue from credit and interchange fees and offers us the opportunity to enhance our merchandising business revenue by reinforcing our brand and increasing customer loyalty. To best reflect our operations, we organize the financial reporting of our business into the following three segments:


	•	Direct, which consists of our catalogs and website;

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

	•	Financial Services, which consists of our credit card business, which is managed and administered by our wholly-owned bank subsidiary, World’s Foremost Bank.

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

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

Revenue

Revenue consists of sales of our products and services. Direct revenue includes sales from orders placed over the phone, by mail and through our website and includes customer shipping charges. Retail revenue includes all sales made at our destination retail stores and is driven by sales at new stores and changes in comparable store sales. A store is included in our comparable store sales base on the first day

of the month following the fifteen month anniversary of its opening or expansion by greater than 25% of total square footage. Financial Services revenue includes securitization income, interest income and interchange and other fees net of reward program costs, interest expense and credit losses from our credit card operations.

Cost of Revenue

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

Gross Profit

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


	•	our Financial Services segment does not have costs classified as cost of revenue which results in a disproportionate gross profit contribution for this segment;

	•	we do not include occupancy costs, depreciation, direct labor or warehousing costs in cost of revenue, which affects comparability to other retailers who may account differently for some or all of these costs; and

	•	we have historically attempted to price our customer shipping charges to generally match our shipping expenses, which reduces gross profit as a percentage of Direct revenue.

Selling, General and Administrative Expenses

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

Operating Income

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

Trends and Opportunities

Competitors aggressively building new stores. Our competitors are actively building retail stores in our markets. We seek to increase our merchandising revenue by continuing to make significant investments

in new destination retail stores, in initiatives to improve our website and enhance our customer database and in analysis tools to improve our catalog marketing, which is the primary form of marketing for our merchandising business.

Increased gas prices. Increases in gas prices could affect us more negatively than our other retail competition. We rely on destination retail store formats where some of our customers must drive hundreds of miles to visit our stores. If gas prices continue to increase, customers may opt to shop at competitors located closer to large populations.

Catalog production and circulation costs. Over the last several years, catalog production and circulation costs have increased more rapidly than Direct revenues. This has been caused by a variety of factors, including our strategy to use our catalog as an advertising and marketing tool for our entire business, including mailing additional catalogs into markets where we have destination retail stores, the established nature of our Direct business, and an increase in competition from new brick and mortar retail stores as well the presence of our own destination retail stores in new markets. Due to the benefit the catalogs provide to our Retail business, and additional revenues in our Direct business related to increased circulation, we plan to continue to increase our catalog circulation despite this increase in cost. In order to compensate for increased costs, we plan to maximize the operating efficiencies of our Direct business by decreasing operating costs in other areas of the business, such as reducing order processing and distribution costs.

Effect of retail expansion on direct business. When we open a destination retail store in a new market, our Direct revenues in that market generally experience a decline during the first twelve months of the new store opening despite a substantial increase in our Retail revenues in that market due to the presence of our destination retail store. The new retail store serves as a marketing tool in that geographic area. As a result, in the year following the opening of the destination retail store, Direct revenues in that market have historically resumed their historical growth rates.

Investment in infrastructure. We anticipate that we will continue investing in our infrastructure to support our new destination retail stores and management information systems department to support growth in our website customer base. We expect that we will make investments in our data systems, and we expect to hire additional employees in our shared services and corporate overhead areas, in a manner appropriate to support our revenue growth.

Our new destination retail store expansion plans will require significant capital expenditures and effort. We have developed and refined our destination retail store model and we anticipate that based upon historical data and construction analyses for anticipated new destination retail stores the average initial investment to construct a large-format destination retail store will range from approximately $40 million to $80 million depending on the size of the store and the amount of public improvements necessary. This investment includes the cost of real estate, site work, public improvements such as utilities and roads, buildings, equipment, fixtures (including taxidermy) and inventory. See “— Liquidity and Capital Resources — Retail Store Expansion.” Where appropriate, we intend to continue to utilize economic development arrangements with state and local governments to offset some of these costs and improve the return on investment on new destination retail stores. We also will seek to improve our Retail segment operating performance through investments in new systems, including product analysis software, which we believe will help us analyze and expand our product margins, and store associate scheduling analysis tools, which we believe will help increase our labor efficiencies as we expand into new markets.

We currently operate ten destination retail stores, including our new 176,000 square foot destination retail store in Wheeling, West Virginia, which we opened in August 2004. In addition, we currently intend to open four new large-format destination retail stores in 2005. Our failure to obtain or negotiate economic development packages with local and state governments could cause us to significantly alter our destination retail store strategy or format and/or delay the construction of one or more of our destination retail stores and could adversely affect our revenues, cash flows and profitability. Our Wheeling, West Virginia destination retail store added 15.4% to our retail square footage in 2004. We anticipate that the four large-

format destination retail stores we currently plan to open in 2005 will add approximately 750,000, or 57%, to our retail square footage in 2005.

Saturation of our credit card. We anticipate that Financial Services revenue will increase as our portfolio of managed receivables matures, and we will seek to further increase Financial Services revenue by attracting new cardholders through low cost targeted marketing and enhancing our loyalty program to encourage increased customer usage of our credit cards. We are also exploring the further expansion of our Financial Services segment by offering to manage co-branded VISA credit cards for selected other businesses, similar to our recent arrangements with International Speedway Corporation and Woodworkers Supply, Inc. See “Business — Financial Services Business — Third Party Card Programs”. We will seek to control costs in our Financial Services segment by managing default rates, delinquencies and charge-offs by continuing our underwriting and account management standards and practices. We anticipate that we will continue to sell our credit card loans in the securitization markets and manage those customer accounts at the bank.

Automated payment opportunities for consumers and fee changes. In our Financial Services segment, we have experienced a downward trend in the quantity of transactions and the amount of fee income as a percentage of outstanding managed credit card loans. We believe that the reason for this trend is the increase in the number of payment options, such as payment via the Internet, which has decreased the amount of fee income collected. During fiscal 2004, in response to the declines in the quantity of fee transactions, we adjusted our fee schedules to reduce further decline in fee income as a percentage of managed credit card loans. We do not believe that this trend will have a material effect on the results of our Financial Services segment in the future.

We have also experienced an increase in interchange fee income as VISA has raised the interchange rate charged to merchants. In 2004, this change accounted for a $1.4 million increase in revenue, or 1.8% of our total Financial Services revenue.

Influences on Period Comparability

We believe that the following factors have the potential to materially impact the comparability of our results of operations if they differ from period to period:


	•	New destination retail store openings. The timing and number of our new destination retail store openings will have an impact on our results. First, we incur one-time expenses related to opening each new destination retail store. New store expenses for our large-format destination retail stores, the majority of which are incurred prior to the store’s opening, have averaged approximately $4.3 million per store and are expensed as incurred. Historically, we have received support from our vendors in a variety of forms including merchandise, purchase volume discounts and cooperative advertising allowances. This support has helped to offset the cost of opening our new destination retail stores and is typically recorded in selling, general and administrative expenses, but as we begin to open more than one destination retail store in a year the support that we receive is likely to decrease on a per store basis. Second, most destination retail store expenses vary proportionately with revenue, but there is also a fixed cost component, consisting primarily of occupancy costs, utilities and management overhead. These fixed costs typically result in lower store profitability when a new destination retail store opens. Due to both of these factors, a new destination retail store opening may result in temporary declines in operating income, both in dollars and/or as a percentage of revenue. As the number of destination retail stores increases, the fixed costs will be spread over a broader Retail revenue base and should not represent the same disproportionate percentage of revenue in the future.

	•	Securitization of credit card receivables. During the first quarter of 2003, we completed two securitization transactions, which resulted in a reduction in securitization income of $1.3 million. We completed a securitization transaction in the second quarter of 2004 in which we sold $75.0 million of fixed rate notes and $175.0 million of floating rate notes, which contributed to a reduction in securitization income of $3.1 million. These reductions in securitization income do not

have a material impact on the full fiscal year 2004 results when compared to the prior full fiscal year results. We expect to complete a securitization transaction in the third or fourth fiscal quarter of 2005.

• Rapid interest rate changes. During periods of falling interest rates, our Financial Services segment generally benefits as the variable rate of interest paid in connection with our securitization programs and borrowings generally falls more rapidly than the interest rates charged to our cardholders. During periods of rising interest rates, we generally experience the opposite effect. Interest rates have generally declined or been steady in the periods presented in our selected financial data. The recent increases in interest rates have not materially impacted the operating results of our Financial Services segment as we have obtained favorable fixed interest rates for a portion of our securitizations and borrowings and have been able to increase the interest rates paid by our cardholders. We cannot assure you that we will be able to obtain similar fixed interest rates for our securitizations and borrowings in the future. See “Factors Affecting Future Results — Risks Related to Our Financial Services Business — Changes in interest rates could have a negative impact on our earnings.”

• Changes in segment mix. We record direct labor expenses of our Retail segment and all of the costs of our Financial Services segment in selling, general and administrative expenses. Therefore, an increase in the revenue of those segments will generally be accompanied by an increase in selling, general and administrative expenses. In addition, as discussed above, our Financial Services segment does not have costs classified as cost of revenue. If revenues in our Retail or Financial Services segments grow at a disproportionate rate compared to our Direct segment, our results will reflect the disproportionate effect on gross profit and selling, general and administrative expenses that results from our classification of these expenses.

• Seasonality. Our revenues are seasonal in nature due to holiday buying patterns and hunting and fishing season openings across the country. Our merchandise revenues are typically higher in the third and fourth quarters than in the first and second quarters. See “Quarterly Results of Operations and Seasonal Influences.”

• Compensation Charge. On May 1, 2004, we granted options to purchase 550,500 shares of our common stock with an exercise price of $13.34 per share. These options vest in five equal annual installments commencing on January 1, 2005. We will incur a total pre-tax compensation charge of approximately $3.7 million which is equal to the difference between the initial public offering price of $20.00 per share and the exercise price of $13.34 per share multiplied by the number of options granted. This charge will be amortized to expense over the vesting period of the options. A pre-tax compensation charge of $1.7 million was incurred in fiscal 2004, and we anticipate pre-tax compensation charges of $0.9 million, $0.6 million, $0.3 million and $0.2 million will be incurred in fiscal years 2005, 2006, 2007 and 2008, respectively.

• Compensation Charges for New Accounting Pronouncements. On December 15, 2004, the FASB issued FASB Statement 123R, Share Based Payment (“FASB 123R”). This revises the previously issued FASB 123. It requires public companies to record compensation at fair value for newly issued options and for the remaining outstanding unvested options as of the effective date, which is for periods beginning after June 15, 2005. We expect to incur a total non-cash pre-tax compensation charge for the outstanding unvested options of $2.0 to $3.0 million during fiscal 2005, which is in addition to the amount incurred relating to our May 1, 2004 option grants discussed above. This does not include charges for any new option grants that may be approved during fiscal 2005.

• Land sales impact on other revenue. In fiscal 2004, the amount of land sales increased over fiscal 2003 by $5.2 million to $7.5 million compared to $2.3 million in fiscal 2003. These land sales are included in other revenue and pertain to development of land around our destination retail stores. The cost of the land is reflected in cost of sales as this land was held for sale. The timing and gross profit of these land sales can have an impact on our annual and quarterly results. The primary

increase in 2004 came from a sale of land that was sold at our cost, due to the timing of the purchase and the sale of the land being in close proximity — it was sold at its fair market value. Therefore, there was no gross profit related to the sale of that land. However, we expect the development of that land to help drive customers to our destination retail stores. Total gross profit on our land sales in fiscal 2004 was $2.8 million, or 37.3%, of land sales.

• Number of weeks in our fiscal periods. Our fiscal year ends on the Saturday closest to December 31 and, as a result, a 53^rd week is added every five or six years. Fiscal year 2003 consisted of 53 weeks ended on January 3, 2004. Fiscal years 2004, 2002, 2001 and 2000 consisted of 52 weeks. In 2004, with one less week than 2003, the week impacted our total revenue growth by 1.7%. See the chart, “Fiscal 2004 vs. Fiscal 2003 Information” for information on revenue impact by segment. Our fiscal year policy only impacts our retail and direct segments. Our bank’s fiscal year ends on December 31 and therefore is not impacted by the 53^rd week.

Recapitalization Transaction

On September 23, 2003, we entered into a recapitalization transaction pursuant to which we purchased 10,922,617 shares of our common stock from existing stockholders for a price of $13.73 per share. We funded this redemption by selling 7,063,282 shares of our common stock and 7,531,273 shares of our non-voting common stock to J.P. Morgan Partners (BHCA) and its affiliates and affiliated parties of Michael R. McCarthy, one of our directors, as well as other investors at a price of $13.73 per share. As a result of this recapitalization, we received net proceeds of approximately $47.7 million, approximately $40.1 million of which was paid to employees in connection with a change in our deferred compensation plan that was required by the terms of the recapitalization documents and the remainder of which was used for general corporate purposes.

Initial Public Offering and Secondary Offering

On June 30, 2004, we sold 6,250,000 shares of common stock at a price of $20.00 per share in our initial public offering, which consisted of a total of 8,984,375 shares of common stock. We received net proceeds of $114.2 million after payment of underwriting discounts and other expenses. We used $38.1 million of the net proceeds to repay the then outstanding balance on our line of credit. We used the remaining net proceeds for the capital expenditures and the purchase of marketable securities relating to the construction and opening of new destination retail stores.

On November 16, 2004, certain of our stockholders sold 12,000,000 shares of their common stock, including the underwriters over allotment, at a price of $22.50 per share in a firm commitment underwritten offering. We did not receive any proceeds from this sale. We incurred $0.6 million in transaction costs, which were expensed as incurred and recorded in selling, general and administrative costs in our Other segment.

Results of Operations

Our fiscal year ends on the Saturday closest to December 31. Fiscal year 2003 consisted of 53 weeks, while fiscal years 2002 and 2004 each consisted of 52 weeks. Our operating results for fiscal years 2004, 2003 and 2002, expressed as a percentage of revenue, were as follows:


		Fiscal Years

		2004			2003			2002

Revenue			100.0	%		100.0	%		100.0	%
Cost of revenue			59.5			59.4			60.1

	Gross profit		40.5			40.6			39.9
Selling, general and administrative expenses			34.3			34.5			33.7

Operating income			6.2			6.1			6.2

	Interest income		0.0			0.0			0.0
	Interest expense		(0.5	)		(0.8	)		(0.7	)
	Other income (net)		0.7			0.4			0.4

Total other expense			0.2			(0.4	)		(0.3	)

Income before provision for income taxes			6.4			5.7			5.9
Income tax expense			2.3			2.0			2.1

Net income			4.1	%		3.7	%		3.8	%

Segment Information

The following table sets forth the revenue and operating income of each of our segments for fiscal years 2004, 2003 and 2002.


		Fiscal Years

		2004			2003			2002

		(Dollars in thousands)
Direct revenue		$	970,646		$	924,296		$	867,799
Retail revenue			499,074			407,238			305,791
Financial services revenue			78,104			58,278			46,387
Other revenue			8,150			2,611			4,604

	Total revenue	$	1,555,974		$	1,392,423		$	1,224,581

Direct operating income		$	146,765		$	143,996		$	134,011
Retail operating income			72,136			56,193			41,428
Financial services operating income			31,099			19,271			12,949
Other operating income (loss)			(152,785	)		(134,529	)		(112,387	)

	Total operating income	$	97,215		$	84,931		$	76,001

As a Percentage of Total Revenue:
Direct revenue			62.4	%		66.4	%		70.8	%
Retail revenue			32.1			29.2			25.0
Financial services revenue			5.0			4.2			3.8
Other revenue			0.5			0.2			0.4

	Total revenue		100.0	%		100.0	%		100.0	%


	Fiscal Years

	2004			2003			2002

	(Dollars in thousands)
As a Percentage of Segment Revenue:
Direct operating income		15.1	%		15.6	%		15.4	%
Retail operating income		14.5	%		13.8	%		13.5	%
Financial services operating income		39.8	%		33.1	%		27.9	%
Total operating income(1)		6.2	%		6.1	%		6.2	%


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

For credit card loans securitized and sold, the loans are removed from our balance sheet and the net earnings on these securitized assets after paying outside investors are reflected as a component of our securitization income on a GAAP basis. The following table summarizes the results of our Financial Services segment for fiscal year 2004, 2003 and 2002 on a GAAP basis with interest and fee income, interest expense and provision for loan losses for the credit card receivables we own reported in net interest income. Non-interest income on a GAAP basis includes servicing income, gains on sales of loans and income recognized on retained interest for the entire securitized portfolio, as well as, interchange income on the entire managed portfolio.

Financial Services Revenue as reported in the Financial Statements:


			Fiscal Years

			2004			2003			2002

			(Dollars in thousands)
Interest and fee income			$	12,735		$	7,858		$	5,284
Interest expense				(3,063	)		(3,226	)		(3,474	)

Net interest income				9,672			4,632			1,810

Non-interest income:
	Securitization income(1)			96,466			74,472			60,727
	Other non-interest income			24,905			19,050			14,979

		Total non-interest income		121,371			93,522			75,706

Less: Customer rewards costs				(52,939	)		(39,876	)		(31,129	)

Financial Services revenue			$	78,104		$	58,278		$	46,387


(1)	For the fiscal years ended 2004, 2003 and 2002, we recognized gains on sale of credit card loans of $8.9 million, $5.9 million and $7.7 million respectively, which are reflected as a component of securitization income.

Our “managed” credit card loans represent credit card loans we own plus securitized credit card loans. Since the financial performance of the managed portfolio has a significant impact on the earnings we will receive from servicing the portfolio, we believe the following table on a “managed” basis is important information to analyze our revenue in the Financial Services segment. This non-GAAP presentation reflects the financial performance of the credit card loans we own plus those that have been sold for the fiscal years ended 2004, 2003 and 2002 and includes the effect of recording the retained interest at fair value. Interest, interchange (net of customer rewards) and fee income on both the owned and securitized portfolio is recorded in their respective line items. Interest paid to outside investors on the securitized credit card loans is included with other interest costs and included in interest expense. Credit

losses on the entire managed portfolio are included in provision for loan losses. Although our financial statements are not presented in this manner, management reviews the performance of its managed portfolio in order to evaluate the effectiveness of its origination and collection activities, which ultimately affects the income we will receive for servicing the portfolio. The securitization of credit card loans primarily converts interest income, interchange income, credit card fees, credit losses and other income and expense related to the securitized loans into securitization income.

Managed Financial Services Revenue:


	Fiscal Year

	2004			2003			2002

	(Dollars in thousands except other data)
Interest income	$	71,309		$	54,412		$	42,579
Interchange income, net of customer reward costs		36,493			28,945			19,034
Other fee income		16,841			13,605			12,905
Interest expense		(26,750	)		(21,361	)		(15,352	)
Provision for loan losses		(20,208	)		(17,380	)		(13,167	)
Other		419			57			388

Managed Financial Services revenue	$	78,104		$	58,278		$	46,387

As a Percentage of Managed Credit Card Loans Managed Financial Services Revenue:
Interest income		8.0	%		7.7	%		7.9	%
Interchange income, net of customer reward costs		4.1	%		4.1	%		3.6	%
Other fee income		1.9	%		1.9	%		2.4	%
Interest expense		(3.0	)%		(3.0	)%		(2.9	)%
Provision for loan losses		(2.3	)%		(2.4	)%		(2.5	)%
Other		0.0	%		0.0	%		0.1	%

Managed Financial Services revenue		8.7	%		8.3	%		8.6	%

Average reported credit card loans	$	82,526		$	61,850		$	47,734
Average managed credit card loans	$	888,730		$	705,265		$	536,682

Fiscal 2004 vs. Fiscal 2003 Information:

Information on the extra week of the fiscal year ended January 3, 2004 is provided to allow investors to separate the impact of this extra week on reported results in comparison to reported results for the fiscal year ended January 1, 2005. Management believes these measurements are an important analytical tool to aid in understanding underlying operating trends without distortion due to the extra week included in fiscal 2003.


		Period Ending							Excluding Extra Week

		January 1,		January 3,										Comparable
		2005		2004		%			January 3,		%			Store Sales
		(52 weeks)		(53 weeks)		Incr/(Decr)			2004		Incr/(Decr)			Growth(2)

52 weeks vs. 53 weeks
Direct revenue(1)		$	970,646	$	924,296		5.0	%	$	910,270		6.6	%
Retail revenue(1)			499,074		407,238		22.6	%		401,233		24.4	%		(0.6	)%
Financial services revenue(3)			78,104		58,278		34.0	%		58,278		34.0	%
Other revenue			8,150		2,611		n/a			2,611		n/a

	Total revenue	$	1,555,974	$	1,392,423		11.7	%	$	1,372,392		13.4	%


(1)	In the 52-week vs. 53-week period we take out week 1 of our fiscal year 2003 in order to show a comparable like calendar year. Week 1 of fiscal year 2003 accounted for $14.0 million and $6.0 million, respectively, of Direct and Retail revenue.

(2)	Comparable store sales growth is calculated on a 52-week basis.

(3)	Our Financial Services revenue is not adjusted for the extra week as the year end of our wholly-owned bank subsidiary, World’s Foremost Bank, corresponds to a calendar year end of December 31, therefore there is no adjustment for the extra week.

Fiscal Year 2004 Compared to Fiscal Year 2003

Revenue

Revenue increased by $163.6 million, or 11.7%, to $1,556.0 million in fiscal 2004 from $1,392.4 million in fiscal 2003 as we experienced revenue growth in each of our segments. We had 53 weeks in fiscal 2003 versus 52 weeks in fiscal 2004. On a comparative 52 week basis, revenue increased by 13.4%.

Direct Revenue. Direct revenue increased by $46.3 million, or 5.0%, to $970.6 million in fiscal 2004 from $924.3 million in fiscal 2003 primarily due to growth in sales through our website. When we adjust for the extra week in fiscal 2003, our direct revenues grew by 6.6%. The number of customer packages shipped increased by 5.3% to 8.1 million in fiscal 2004. Circulation of our catalogs increased by 3.3 billion pages, or 10.6%, to 34.5 billion pages in fiscal 2004 from 31.2 billion pages in fiscal 2003. The number of active customers, which we define as those customers who have purchased merchandise from us in the last twelve months, increased by 6.1% to approximately 4.2 million in fiscal 2004 over fiscal 2003. The product categories that contributed the largest dollar volume increase to our Direct revenue growth included work wear, home furnishings and archery with paint ball being our fastest growing category in the Direct segment for fiscal 2004.

Retail Revenue. Retail revenue increased by $91.8 million, or 22.5%, to $499.1 million in fiscal 2004 from $407.2 million in fiscal 2003 due to increased new store sales of $99.8 million. Retail revenue increased 24.4% on a comparative 52 week basis. Revenue for stores in our comparable base decreased by $8.0 million compared to fiscal 2003. We believe that the decrease is primarily attributable to the extra week in fiscal 2003. Our comparable store sales on a 52 week basis decreased 0.6%. The product categories that contributed the largest dollar volume increase to our Retail revenue growth included firearms, archery, and optics with paint ball being our fastest growing category in the Retail segment for fiscal 2004.

Financial Services Revenue. Financial Services revenue increased by $19.8 million, or 34.0%, to $78.1 million in fiscal 2004 from $58.3 million in fiscal 2003, due to an increase in securitization income of $22.0 million, an increase in other non-interest income of $5.9 million and an increase in net interest and fee income of $5.0 million. The 29.5% increase in securitization income was primarily a result of interchange income increasing by $20.6 million as our customers’ VISA net purchases increased by 26.9%. In addition, an increase in VISA rates improved interchange income by $1.4 million for the fiscal year. The increase in securitization income was partially offset by an increase in customer reward costs of $13.1 million, or 32.8%. These costs generally increase proportionately with the amount of customer VISA purchases. We had various promotions in the fourth fiscal quarter where customers earned additional rewards, which caused reward points expense to increase at a higher rate than VISA purchases. Compared to fiscal 2003, the number of average active accounts grew by 18.5% to 618,951 and the average balance per active account grew by 6.3% to approximately $1,436.

Gross Profit

Gross profit increased by $65.4 million, or 11.6%, to $630.3 million in fiscal 2004 from $564.9 million in fiscal 2003. As a percentage of revenue, gross profit declined slightly to 40.5% for fiscal 2004, compared to 40.6% in fiscal 2003. Our Financial Services revenue growth of $19.8 million, which does not have any

corresponding increase in cost of revenue, provided for an increase of 0.5% to the gross profit as a percent of revenue. However, this was offset by a decline in merchandising margin as discussed below of 0.4% of revenue and a decline of 0.2% in gross profit on our other revenue due to a sale of land with no gross profit.

Merchandising Business. The gross profit of our merchandising business increased by $46.8 million, or 9.3%, to $551.5 million in fiscal 2004 from $504.7 million in fiscal 2003. As a percentage of revenue, gross profit declined by 0.4% to 37.5% in fiscal 2004, from 37.9% in fiscal 2003. The decline was attributable to increased promotional activities, increased freight costs and a decrease in our net shipping margin. Promotional activity recorded in net revenue had a negative impact on gross merchandising margin of 0.8%. Increased freight costs of $5.5 million contributed to 0.3% of the decrease in our gross profit margin. And finally, a decrease in net shipping margin (shipping income less shipping expense) decreased our merchandising gross profit by 0.1%. These decreases were partially offset by improved merchandising practices.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $53.1 million, or 11.1%, to $533.1 million in fiscal 2004 from $480.0 million in fiscal 2003. Selling, general and administrative expenses were 34.3% of revenue in fiscal 2004, compared to 34.5% in fiscal 2003. The most significant factors contributing to the increase in selling, general and administrative expenses included:


	•	Selling, general and administrative expenses attributed to shared services comprised $17.0 million of the total increase in selling, general and administrative expense and increased primarily as a result of the addition of new employees, which increased salary and wages, related taxes, insurance and benefits, and 401(k) matching expense by $14.7 million. The additional new employees were hired primarily in the distribution department, relating to the new distribution center in Wheeling, West Virginia. In addition to new employees, there was a $1.7 million compensation charge related to stock options granted at less than fair market value under our 2004 stock plan, which was included in the increase in salary and wages. Professional fees increased over the prior year by $1.9 million. $0.6 million is attributable to costs of the secondary offering that were expensed in the fourth fiscal quarter. We also incurred increases in various selling, general and administrative expense line items, which in total were $0.8 million, and were related to moving an operation to a new location.

	•	Direct selling, general and administrative expenses comprised $12.9 million of the total increase in selling, general and administrative expense and increased primarily as a result of an increase in catalog production costs of $12.4 million, or 9.2%. Catalog costs increased to $146.4 million, or 15.1% of Direct revenue in fiscal 2004, from $134.0 million, or 14.5% of Direct revenue in fiscal 2003. This increase in catalog costs as a percent of our Direct revenue was primarily due to the following factors: sales in the first half of the year that were below our expectations and our continued use of our catalog as a marketing tool to increase brand awareness and to encourage customers to visit our destination retail stores. Our credit card discount fees increased by $1.1 million but were still in line with the increase as a percentage of revenue. All other costs remained flat as a percentage of revenue.

	•	Retail selling, general and administrative expenses comprised $15.2 million of the total increase in selling, general and administrative expense primarily due to new store operating costs of $16.4 million, which were offset by a reduction in comparable store costs of $1.2 million. Included in the new store costs were our pre-opening and expansion costs, which decreased by $3.4 million over fiscal 2003. In 2004, we opened a 176,000 square foot store as compared to 2003 when we opened a 247,000 square foot store. The size of the store impacted the pre-opening costs. The pre-opening costs include vendor cooperative payments and direct reimbursement advertising that reduced the pre-opening costs of our stores. Included in the comparable store costs was a reduction in salary and wages of $2.1 million due to better payroll management and scheduling practices. Total advertising remained flat as a percent of revenue for the year at 1.8% of revenue. Total salary

and wages, including new stores, decreased as a percent of retail revenue by 0.8% to 11.2% in fiscal 2004, from 12.0% in fiscal 2003.

• Financial Services selling, general and administrative expenses comprised $8.0 million of the total increase in selling, general and administrative expense. Third-party data processing services increased by $2.3 million, as the number of credit card transactions increased. Salary and wages along with bonus and other related wage costs increased $2.2 million with the growth of the bank. Advertising and promotion costs related to new account acquisitions increased by $1.7 million and bad debt expense increased by $0.9 million as the amount of managed receivables outstanding increased. As a percentage of managed receivables our bad debt expense decreased and continued to be well below industry standards. Postage increased by $0.8 million, but as a percentage of revenue it decreased.

Operating Income

Operating income increased by $12.3 million, or 14.5%, to $97.2 million in fiscal 2004 from $84.9 million in fiscal 2003 primarily due to the factors discussed above.

Other Income

Other income increased by $4.8 million to $10.4 million in fiscal 2004 from $5.6 million in fiscal 2003 primarily due to an increase in interest earned from economic development bonds of $2.5 million and due to a gain on the sale of our investment in Great Wolf Lodge, LLC.

Interest Expense

Interest expense decreased by $3.0 million in fiscal 2004 to $8.2 million as compared with $11.2 million in fiscal 2003. The interest expense decrease was primarily due to changes made to our deferred compensation plan in 2003, which reduced interest by $2.4 million, a reduction in long-term and short-term borrowings and the discontinuance of our employee savings plan in December of 2003.

Income Taxes

Our effective tax rate was 35.1% in fiscal 2004 as compared to 35.6% in fiscal 2003. This decline in the effective rate was due to prior year tax audits that were settled in our favor. We expect our effective rate to increase in fiscal 2005 as we enter more states with our destination retail stores.

Fiscal Year 2003 Compared to Fiscal Year 2002

Revenue

Revenue increased by $167.8 million, or 13.7%, to $1,392.4 million in fiscal 2003 from $1,224.6 million in fiscal 2002 as we experienced revenue growth in our merchandising business and Financial Services segment. Revenue for fiscal 2003 included one extra week of revenue as compared to fiscal 2002. The extra week accounted for an increase of approximately 1% over fiscal 2002 revenue.

Direct Revenue. Direct revenue increased by $56.5 million, or 6.5%, to $924.3 million in fiscal 2003 from $867.8 million in fiscal 2002 primarily due to an increased number of customer purchases or orders, particularly through our website. The number of customer orders shipped increased by 7.2% from 6.4 million in 2002 to 6.9 million in 2003. Circulation of our catalogs increased by 2.2 billion pages, or 7.7%, to 31.2 billion pages in fiscal 2003 from 29.0 billion pages in fiscal 2002 as we increased customer mailings, particularly to customers located near our destination retail stores. The number of active customers, which we define as those customers who have purchased merchandise from us in the last twelve months, increased by 4.9% to approximately 4.0 million in fiscal 2003 over fiscal 2002. The product categories that contributed the largest dollar volume increase to our Direct revenue growth included

women’s and children’s casual clothing, camping, and auto/ ATV accessories with women’s and children’s casual clothing being our fastest growing category in the Direct segment in 2003.

Retail Revenue. Retail revenue increased by $101.4 million, or 33.2%, to $407.2 million in fiscal 2003 from $305.8 million in fiscal 2002 primarily as a result of increased new store sales of $89.4 million. The product categories that contributed the largest dollar volume increase to our Retail revenue growth by dollar volume included hunting equipment, camping equipment, optics and tree stands with women’s and children’s casual clothing being our fastest growing category in the Retail segment in 2003.

Financial Services Revenue. Financial Services revenue increased by $11.9 million, or 25.6%, to $58.3 million in fiscal 2003 from $46.4 million in fiscal 2002 primarily as a result of an increase in both the number of active accounts and the average balance for these accounts, a decline in interest rates and an increase in interchange income. During fiscal 2003, the number of active accounts grew by 20.7% to 523,458 and the average balance per active account grew by 9.0% to approximately $1,347. We believe the growth in average balance resulted from customers’ desire to receive benefits under our rewards program and due to the continued maturation of our account base.

Gross Profit

Gross profit increased by $75.8 million, or 15.5%, to $564.9 million in fiscal 2003 from $489.1 million in fiscal 2002. As a percentage of revenue, gross profit increased by 0.7% to 40.6% in fiscal 2003 from 39.9% in fiscal 2002 as a result of an increase in Financial Services revenue, which represented $11.9 million of the increase in gross profit and has no cost of revenue.

Merchandising Business. The gross profit of our merchandising business increased by $66.3 million or 15.1%, to $504.7 million in fiscal 2003 from $438.3 million in fiscal 2002. As a percentage of revenue, gross profit increased by 0.6% to 37.9% in fiscal 2003 from 37.3% in fiscal 2002 as we utilized better merchandising practices.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $66.9 million, or 16.2%, to $480.0 million in fiscal 2003 from $413.1 million in fiscal 2002. Selling, general and administrative expenses were 34.5% of revenue in fiscal 2003, compared to 33.7% in fiscal 2002. As a percentage of revenue, Direct selling, general and administrative expenses increased while Retail and Financial Services selling, general and administrative expenses remained consistent with fiscal 2002 levels. The most significant factors contributing to the increase in selling, general and administrative expenses included:


	•	Selling, general and administrative expenses attributed to shared services comprised $19.7 million of the total increase in selling, general and administrative expenses and increased primarily as a result of our increased payroll and benefits of $15.3 million primarily relating to the hiring of new employees in our management information systems department. Our property taxes increased by $2.9 million, and depreciation expense increased by $1.3 million as a result of additional infrastructure. In addition, an increase in the equity and interest based components of our deferred compensation plan, which is no longer available, resulted in an increase of $2.0 million in benefit expense as compared to fiscal 2002.

	•	Direct selling, general and administrative expenses comprised $18.9 million of the total increase in selling, general and administrative expense and increased primarily as a result of an increase of $9.7 million, or 7.8%, in catalog production costs, such as printing, postage and labor, as we increased catalog circulation and increased payroll and benefits of $4.4 million relating to the hiring of additional employees in this segment. Our advertising expenses increased by $2.1 million, which was generally proportional to our increase in Direct revenues. Credit card interchange fees paid by us increased by $0.9 million. Interchange fees paid by us grew because more customers purchased products through our website, for which we are charged a higher interchange rate.


	•	Retail selling, general and administrative expenses comprised $22.7 million of the total increase in selling, general and administrative expense and increased primarily as a result of new store operating costs of $17.6 million. Advertising expenses increased by $2.3 million in connection with new store events. Depreciation expense and property taxes increased by $2.1 million and $1.5 million, respectively, as we added new stores and related equipment. These increases were partially offset by a decrease in pre-opening expenses, as expenses incurred in fiscal 2003 were $0.9 million lower than the expenses incurred in fiscal 2002.

	•	Financial Services selling, general and administrative expenses comprised $5.6 million of the total increase in selling, general and administrative expense and increased primarily as a result of increased costs of $1.7 million for third-party data processing services as a result of an increased number of credit card transactions. In addition, we incurred increased professional fees of $1.0 million, increased costs of advertising and promotional events of $0.7 million, increased postage expenses of $0.6 million and increased wages and benefits of $1.0 million as we added employees in this segment to support its growth.

Operating Income

Operating income increased by $8.9 million, or 11.7%, to $84.9 million in fiscal 2003 from $76.0 million in fiscal 2002 primarily due to the factors described above.

Interest Expense

Interest expense was $11.2 million in fiscal 2003 as compared with $8.4 million in fiscal 2002 predominantly due to the full year impact of interest expense on our $125 million of long-term debt issued in a private placement in September 2002.

Income Taxes

Our effective tax rate was 35.6% in fiscal 2003 as compared to 35.5% in fiscal 2002. We have experienced a gradual increase in our effective tax rate as we have opened stores in new states and incurred additional state income taxes.

Quarterly Results of Operations and Seasonal Influences

Due to holiday buying patterns and hunting and fishing season openings across the country, merchandise revenues are typically higher in the third and fourth quarters than in the first and second quarters. We anticipate our revenues will continue to be seasonal in nature.

The following table sets forth unaudited financial and operating data in each quarter during fiscal years 2004 and 2003. This quarterly information has been prepared on a basis consistent with our audited financial statements and includes all normal recurring adjustments that we consider necessary for a fair presentation of the information shown. This information should be read in conjunction with our selected financial data and audited consolidated financial statements and the notes thereto appearing elsewhere in this report. Our quarterly operating results may fluctuate significantly as a result of these and a variety of other factors, and operating results for any quarter are not necessarily indicative of results for a full fiscal year. See “— Factors Affecting Future Results” and “— Influences on Period Comparability”.


		Unaudited

		2004 (52 Weeks)												2003 (53 Weeks)

		First			Second			Third			Fourth			First			Second			Third			Fourth
		Quarter			Quarter(2)			Quarter			Quarter			Quarter(1)			Quarter			Quarter			Quarter

								(Dollars in thousands except EPS)
Net revenue		$	313,917		$	279,139		$	383,810		$	579,108		$	262,303		$	250,846		$	331,209		$	548,065
Gross profit			125,242			106,853			156,421			241,793			103,331			97,788			132,259			231,517
Operating income			12,703			3,232			25,495			55,785			6,315			5,342			17,559			55,715
Net income			8,046			1,987			16,503			38,460			3,077			3,090			10,237			34,987
Earnings per share — basic(3)		$	0.14		$	0.03		$	0.26		$	0.60		$	0.06		$	0.06		$	0.20		$	0.62
Earnings per share — diluted(3)		$	0.14		$	0.03		$	0.25		$	0.58		$	0.06		$	0.06		$	0.19		$	0.60
As a percentage of full year results:
	Revenue		20.2	%		17.9	%		24.7	%		37.2	%		18.8	%		18.0	%		23.8	%		39.4	%
	Gross profit		19.9	%		17.0	%		24.8	%		38.3	%		18.3	%		17.3	%		23.4	%		41.0	%
	Operating income		13.1	%		3.3	%		26.2	%		57.4	%		7.4	%		6.3	%		20.7	%		65.6	%
	Net income		12.4	%		3.1	%		25.4	%		59.1	%		6.0	%		6.0	%		19.9	%		68.1	%


(1)	We recognized an offset to revenue in the first fiscal quarter of fiscal 2003 of $1.3 million as a result of the completion of a securitization transaction in that quarter. See “— Influences on Period Comparability.”

(2)	We recognized an offset to revenue in the second fiscal quarter of fiscal 2004 as a result of the completion of a securitization transaction in that quarter.

(3)	Basic and diluted earnings per share are computed independently for each of the quarters presented. Due to the recapitalization transaction in 2003 and our initial public offering in the second fiscal quarter of 2004, the sum of the quarterly earnings per share may not total the amounts for the applicable periods.

Bank Asset Quality

We securitize a majority of our credit card receivables. On a quarterly basis, we transfer eligible receivables into a securitization trust. We are required to own at least a minimum twenty day average of 5% of the interests in the securitization trust. Therefore, these retained receivables have the same characteristics as those receivables sold to outside investors. Certain accounts are ineligible for securitization because they are delinquent at the time of addition, originated from sources other than Cabela’s Club credit cards and various other requirements. The total amount of ineligible receivables we owned were $6.1 million and $1.5 million at fiscal year end 2004 and fiscal year end 2003, respectively. Of the $6.1 million in ineligible receivables outstanding at fiscal year end 2004, $5.2 million were originated from sources other than Cabela’s Club credit cards. The following table shows credit card receivables available for sale along with those securitized as of fiscal year end 2004, 2003 and 2002:


		2004				2003				2002

		Receivables		>90 Days		Receivables		>90 Days		Receivables		>90 Days
		Outstanding		Delinquent		Outstanding		Delinquent		Outstanding		Delinquent

Receivables held for sale (median FICO score of 765 in 2003 and 776 in 2004)		$	4,202		—	$	4,223		—	$	5,003		—
Receivables securitized and transferor’s interest (median FICO score of 771 in 2003; and 774 in 2004)			1,072,910	$	1,808		867,982		1,433		670,554		1,294
	Total	$	1,077,112	$	1,808	$	872,205	$	1,433	$	675,557	$	1,294

As reflected in the preceding table, the credit quality of our reported credit card receivables does not have a significant effect on the overall quality of our entire managed portfolio. As a result, we generally only monitor the asset quality of the managed portfolio.

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

Our average managed receivables outstanding increased by $184 million, or 26.1%, to $889 million in fiscal 2004 from $705 million in fiscal 2003. We believe that as credit card accounts mature they are less likely to charge-off and less likely to be closed. The following table shows our managed receivables outstanding at fiscal year end 2004 and 2003 by months since the account opened.


		2004					2003

		Receivables		Percentage of			Receivables		Percentage of
		Outstanding		Total			Outstanding		Total

				(Dollars in thousands)
Months Since Account Opened
6 months or Less		$	53,803		5.0	%	$	53,382		6.1	%
7 — 12 months			70,600		6.5	%		64,177		7.3	%
13 — 24 months			155,500		14.4	%		151,633		17.4	%
25 — 36 months			169,804		15.7	%		170,959		19.6	%
37 — 48 months			183,254		16.9	%		223,776		25.6	%
49 — 60 months			233,624		21.5	%		79,719		9.1	%
61 — 72 months			82,640		7.6	%		28,564		3.3	%
73 — 84 months			28,514		2.6	%		19,553		2.2	%
85 + months			105,381		9.8	%		81,910		9.4	%

	Total	$	1,083,120		100.0	%	$	873,673		100.0	%

Delinquencies

We consider the entire balance of an account, including any accrued interest and fees, delinquent if the minimum payment is not received by the payment due date. Our aging methodology is based on the number of completed billing cycles during which a customer has failed to make a required payment. Delinquencies not only have the potential to reduce earnings by increasing the unrealized loss recognized to reduce the loans to market value and reduction in securitization income, but they also result in additional operating costs dedicated to resolving the delinquencies. The following chart shows the percentage of our managed accounts that have been delinquent as of the end of fiscal years 2004, 2003 and 2002.


		Fiscal Year

		2004			2003			2002

Number of days delinquent
	Greater than 30 days		0.71	%		0.80	%		0.94	%
	Greater than 60 days		0.41	%		0.43	%		0.49	%
	Greater than 90 days		0.19	%		0.18	%		0.21	%

Charge-offs

Gross charge-offs reflect the uncollectible principal, interest and fees on a customer’s account. Recoveries reflect the amounts collected on previously charged-off accounts. We believe that most bankcard issuers charge off accounts at 180 days. We generally charge off accounts the month after an account becomes 90 days contractually delinquent, except in the case of cardholder bankruptcies and cardholder deaths, which are charged off at the time of notification. As a result, our charge-off rates are

not directly comparable to other participants in the bankcard industry. Our charge-off activity for the managed portfolio for fiscal years 2004, 2003 and 2002 is summarized below:


	Fiscal Year

	2004			2003			2002

Gross charge-offs	$	23,134		$	19,554		$	15,074
Recoveries		3,477			2,499			1,907
Net charge-offs		19,658			17,055			13,167
Net charge-offs as a percentage of average managed loans		2.21	%		2.42	%		2.45	%

Liquidity and Capital Resources

Overview

Our merchandising business and our Financial Services segment have significantly different liquidity and capital needs. The primary cash requirements of our merchandising business relate to purchase of inventory, capital for new destination retail stores, purchases of economic development bonds related to the development of new destination retail stores, investments in our management information systems and other infrastructure, and other general working capital needs. We historically have met these requirements by generating cash from our merchandising business operations, borrowing under revolving credit facilities, issuing debt and equity securities, obtaining economic development grants from state and local governments in connection with developing our destination retail stores and collecting principal and interest payments on our economic development bonds. The cash flow we generate from our merchandising business is seasonal, with our peak cash requirements for inventory occurring between May and September. While we have consistently generated overall positive annual cash flow from our operating activities, other sources of liquidity are generally required by our merchandising business during these peak cash use periods. These sources historically have included short-term borrowings under our revolving credit facility and access to debt markets, such as the private placement of long-term debt securities we completed in September 2002. While we generally have been able to manage our cash needs during peak periods, if any disruption occurred to our funding sources, or if we underestimated our cash needs, we would be unable to purchase inventory and otherwise conduct our merchandising business to its maximum effectiveness which would result in reduced revenues and profits.

The primary cash requirements of our Financial Services segment relate to the generation of credit card receivables and the purchase of points used in the customer loyalty rewards program from our merchandising business. The bank obtains funds for these purposes through various financing activities, which include engaging in securitization transactions, borrowing under federal funds bank credit facilities, selling certificates of deposit and generating cash from operations. Due to the limited nature of its state charter, the bank is prohibited from making commercial or residential loans. Consequently, it cannot lend money to Cabela’s Incorporated or our other affiliates. The bank is subject to capital requirements imposed by Nebraska banking law and the VISA membership rules, and its ability to pay dividends is limited by Nebraska and federal banking law.

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

Operating, Investing and Financing Activities

Cash provided by operating activities was $47.0 million in fiscal 2004 as compared with $67.2 million in fiscal 2003. Cash decreased primarily due to an increase in cash used to originate credit card loans in excess of cash received from the sale of interests in credit card loans in connection with securitization transactions of $49.6 million. We increased the amount of cash spent for inventory by $5.4 million. Total inventory was up $50.2 million in fiscal 2004 compared to an increase of $44.9 million in fiscal 2003.

Retail inventory increased $12.3 million primarily due to our new destination retail store, which added $8.5 million. The remainder of the retail inventory increase is attributable to a build up in inventory for our credit card club events that ran from the week after Christmas to January 9, 2005. These credit card club events did not take place in this same time frame in fiscal 2003. The remainder of the overall increase is attributable to an increase in special buys and private label inventory, which increase our lead times and are purchased and held in inventory in larger quantities. These two increased uses of cash were offset by the difference in net payouts under our deferred compensation plan of $31.0 million. In 2003, related to our recapitalization, we had a net pay out of $29.6 million, while in 2004 we had a net increase in our deferred compensation plan of $1.4 million.

Cash provided by operating activities was $67.2 million in fiscal 2003 as compared with $55.7 million in fiscal 2002. Cash increased partly due to an excess of cash received from the sale of interests in credit card loans in connection with securitization transactions over cash used to fund credit card loans of $22.8 million. Cash provided by operating activities in fiscal 2003 included a substantial decrease in our deferred compensation plan account balance of $29.6 million. This net change was due to a $40.1 million cash payment of deferred compensation funds to employees that was required by the recapitalization transaction, which was partially offset by $10.5 million in deposits. The entire amount of the payment to employees had reduced income in the current and prior years when the employees earned the amounts contributed to the plan and interest on such amounts and the plan was amended in 2003 to limit this type of payout in future years. See “— Contractual Obligations and Commercial Commitments”. Excluding this payout, cash provided by operating activities would have been $96.8 million in fiscal 2003. Other increases included the accrual for compensation and benefits expense in fiscal 2003 of $21.5 million, an increase in gift certificates and credit card rewards in fiscal 2003 of $3.2 million, and an increase in accounts payable and accrued expenses in fiscal 2003 of $15.4 million, each of which occurred as a result of the growth of our business. In addition, our inventory levels increased by $13.4 million during fiscal 2003 to stock our new large-format destination retail store. In all three years, one of the largest generators of cash provided by operating activities was net income, and operating cash has been consumed as we have continued to grow and maintain inventory levels to support our destination retail store expansion and revenue growth, trends we expect will continue for as long as we implement our retail growth strategies.

Cash used in investing activities was $127.2 million in fiscal 2004 as compared with $93.7 million in fiscal 2003. The increase in cash used was primarily due to an increase in the purchase of economic development bonds of $56.3 million related to our destination retail stores. An additional increase in cash used for investing activities was due to increased credit card loans receivable of $5.3 million. These credit card loans are related to our new third party loans carried by our bank. These credit card loans receivable are currently not included in our securitization programs and therefore are held on our books. These two increases in cash used for investing activities were offset by a decrease in our capital expenditures of $20.4 million and the proceeds from our sale of our investment in Great Wolf Lodge, LLC of $8.8 million.

Cash used in investing activities was $93.7 million in fiscal 2003 as compared with $84.5 million in fiscal 2002, primarily due to an increase in capital expenditures of $19.6 million in fiscal 2003 primarily as a result of a higher level of spending attributable to destination retail stores. These increases were partially offset by a decrease in the amount of economic development bonds purchased in fiscal 2003 of $14.6 million.

We invested significant amounts of cash in all three years as we have continued to execute on our destination retail store expansion strategy and invest in infrastructure. Our total capital expenditures, including the purchase of the bonds, to develop new destination retail stores in fiscal 2004 and fiscal 2003 was $172.9 million. See “— Retail Store Expansion — Economic Development Bonds”.

Cash provided by financing activities was $135.8 million in fiscal 2004 as compared with $40.4 million in fiscal 2003. This increase in financing activities is primarily attributable to our initial public offering, which raised net proceeds of $114.2 million. In addition, our debt payments decreased by $15.5 million primarily due to an early payoff of a note that occurred in 2003. In addition, we had a decrease in cash paid for our employee savings plan of $7.9 million. We terminated this plan in 2003 and paid most of the

balances by the end of fiscal 2003. Finally, there was an increase in the time deposit activity at our bank, as we sold additional time deposits of $6.8 million. These increases to our financing activities were offset by a net decrease in activity in our employee stock options of $48.9 million. This includes the amount of stock exercised and paid for by our employees and stock that was subsequently repurchased by us from our employees. This decrease in activity is primarily due to activities related to the recapitalization transaction that occurred in 2003, whereby a significant number of employee stock options were exercised.

Cash provided by financing activities was $40.4 million in fiscal 2003 as compared with $97.7 million in fiscal 2002. The decrease in cash from financing activities in fiscal 2003 versus fiscal 2002 was primarily due to the $125.0 million of net proceeds we received from the private placement in fiscal 2002. This decrease was offset by the receipt of cash proceeds from the issuance of common stock in excess of cash used to repurchase common stock, the net amount of which was $61.6 million. This net receipt of proceeds from stock issuances related primarily to the recapitalization transaction we completed in September 2003, in which new investors purchased newly-issued common stock for approximately $200.0 million and we repurchased shares of common stock from Mr. R. Cabela and Mr. J. Cabela, resulting in net proceeds after professional fees to us of $47.7 million. In addition, we realized $13.9 million from the exercise of options by employees net of repurchases.

As of January 1, 2005, we had entered into material commitments in the amount of $182.3 million for fiscal 2005 and $96.3 million for fiscal 2006, for estimated capital expenditures and the purchase of future economic development bonds in connection with the construction and development of new destination retail stores. In addition, we are obligated to fund $28.0 million of future economic development bonds relating to expansion of our distribution center in Wheeling, West Virginia throughout fiscal 2005 and 2006.

Retail Store Expansion

Significant amounts of cash will be needed in order to open new destination retail stores and implement our retail growth strategy. Depending upon the location and a variety of other factors, including store size and the amount of public improvements necessary, and based upon our prior experience, opening a single large-format store may require expenditures of $40 million to $80 million. This includes the cost of real estate, site work, public improvements such as utilities and roads, buildings, equipment, fixtures (including taxidermy) and inventory.

Historically, we have been able to negotiate economic development arrangements relating to the construction of a number of our new destination retail stores, including free land, monetary grants and the recapture of incremental sales, property or other taxes through economic development bonds, with many local and state governments. We are able to negotiate these agreements as we generally have located our destination retail stores in towns and municipalities that do not have a large base of commercial businesses. We attempt to design our destination retail stores to provide exciting tourist and entertainment shopping experiences for the entire family. Our destination retail stores employ many people from the local community, draw customer traffic from a broad geographic range and serve as a catalyst for the opening of additional retail businesses such as restaurants, hotels and gas stations in the surrounding areas. We believe all of these factors increase the revenue for the state and the local municipality where the destination retail store is located, making us a compelling partner for community development and expansion. The structure, amounts and terms of these arrangements vary greatly by location.

Grants. Under various grant programs, state or local governments provide funding for certain costs associated with developing and opening a new destination retail store. We generally have received grant funding in exchange for commitments, such as assurance of agreed employment and wage levels at our destination retail stores or that the destination retail store will remain open, made by us to the state or local government providing the funding. The commitments typically phase out over approximately five to ten years, but if we fail to maintain the commitments during the applicable period, the funds we received may have to be repaid or other adverse consequences may arise. Our failure to comply with the terms of current economic development packages could result in our repayment of grant money or other adverse

consequences that would affect our cash flows and profitability. As of January 1, 2005 and January 3, 2004, the total amount of grant funding subject to a specific contractual remedy was $17.7 million and $18.5 million respectively. Portions of three of our destination retail stores, such as wildlife displays and museums, are subject to forfeiture provisions. In addition, there are 35.2 acres of undeveloped property subject to forfeiture.

Economic Development Bonds. Through economic development bonds, the state or local government sells bonds to provide funding for land acquisition, readying the site, building infrastructure and related eligible expenses associated with the construction and equipping of our destination retail stores. We typically have been the sole purchaser of these bonds. The bond proceeds that are received by the governmental entity are then used to fund the construction and equipping of new destination retail stores and related infrastructure development. While purchasing these bonds involves an initial cash outlay by us in connection with a new store, some or all of these costs can be recaptured through the repayments of the bonds. The payments of principal and interest on the bonds are typically tied to sales, property or lodging taxes generated from the store and, in some cases, from businesses in the surrounding area, over periods which range between 20 and 30 years. In addition, some the bonds that we have purchased may be repurchased for par value by the governmental entity prior to the maturity date of the bonds. However, the governmental entity from which we purchase the bonds is not otherwise liable for repayment of principal and interest on the bonds to the extent that the associated taxes are insufficient to pay the bonds. In one location, the bonds will become subordinated to other bonds associated with the development if we fail to continue to operate the store over a prescribed period. After purchasing the bonds, we typically carry them on our balance sheet as “available for sale” marketable securities and value them based upon management’s projections of the amount of tax revenue that will be generated to support principal and interest payments on the bonds. We have limited experience in valuing these bonds and, because of the unique features of each project, there is no independent market data for valuation of these types of bonds. If sufficient tax revenue is not generated by the subject properties, we will not receive scheduled payments and will be unable to realize the full value of the bonds carried on our balance sheet. See “— Critical Accounting Policies and Use of Estimates — Economic Development Bonds and Factors Affecting Future Results — Risks Related to our Merchandising Business — The failure of properties to generate sufficient taxes to amortize the economic development bonds owned by us that relate to the development of such properties would have an adverse impact on our cash flows and profitability.” As of January 1, 2005 and January 3, 2004, we carried $144.6 million and $71.6 million, respectively, of economic development bond receivables on our balance sheet.

The negotiation of these economic development arrangements has been important to our destination retail store expansion in the past, and we believe it will continue to be an important factor to our ability to execute our destination retail store expansion strategy because we believe they will allow us to avoid or recapture a portion of the costs involved with opening a new store. If similar packages are unavailable in the future or the terms are not as favorable to us, our return on investment in new stores would be adversely affected and we may choose to significantly alter our destination retail store expansion strategy.

Credit Card Loan Receivable Securitizations

Our Financial Services segment historically has funded most of its growth in credit card receivables through an asset securitization program. Asset securitization is a practice commonly used by credit card issuers to fund credit card receivables at attractive rates. The bank enters into asset securitization transactions, which involve the two-tier sale of a pool of credit card receivables from the bank to a wholly owned special purpose entity, and from that wholly owned special purpose entity to a second special purpose entity that is organized as a trust. The trust is administered by an independent trustee. Because the trust qualifies as a “qualified special purpose entity” within the meaning of Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“SFAS 140”), its assets and liabilities are not consolidated in our balance sheet in accordance with SFAS 140.

The trust issues to outside investors various forms of certificates or credit card receivable interests (the “Certificates”) each of which has an undivided interest in the assets of the trust. The trust pays to the holders of the Certificates a portion of future scheduled cash flows under preset terms and conditions, the receipt of which is dependent upon cash flows generated by the underlying performance of the assets of the trust. We have recently converted our securitization structure to permit the issuance of asset-backed notes. This involved the formation of a Delaware statutory trust which will purchase a certificate from the trust, and issue notes secured by that certificate to investors.

In each securitization transaction, we retain a “transferor interest” in the securitized receivables, which ranks equal with the investor certificates, and an “interest only strip” which represents the right to receive excess cash available after repayment of all amounts to the investors. Neither the investors nor the trust have recourse against us beyond the assets of the trust, other than for breaches of certain customary representations, warranties and covenants and minimum account balance levels which must be maintained to support our retained interests. These representations, warranties, covenants, and the related indemnities, do not protect the trust or the outside investors against credit-related losses on the receivables.

In accordance with SFAS 140 we record our interest only strip as an asset at fair value which is an amount equal to the estimated present value of cash flows to be received by us over the expected outstanding period of the receivables. These cash flows essentially represent finance charges and late fees in excess of the amounts paid to Certificate holders, credit losses, and servicing and administration fees. We use certain valuation assumptions related to the average lives of the receivables sold and anticipated credit losses, as well as the appropriate market discount rate, in determining the estimated present value of the interest only strip. Changes in the average life of the receivables sold, discount rate, and credit-loss percentage could adversely impact the actual value of the interest only strip. Accordingly, actual results could differ materially from the estimates, and changes in circumstances could result in significant future changes to the assumptions currently being used.

Gains on securitization transactions, fair value adjustments and earnings on our securitizations are included in consolidated revenue in the consolidated statement of income and the interest only strip is included on our consolidated balance sheet as “retained interests in securitized receivables.” All of the bank’s securitization transactions are currently accounted for as sale transactions. As a result, the receivables relating to those pools of assets are not reflected on our balance sheet, other than our transferor interest and interest only strip.

A credit card receivable represents a financial asset. Unlike a mortgage or other closed-end loan account, the terms of a credit card account permit a customer to borrow additional amounts and to repay each month an amount the customer chooses, subject to a monthly minimum payment requirement. The credit card account remains open after repayment of the balance and the customer may continue to use it to borrow additional amounts. We reserve the right to change the credit card account terms, including interest rates and fees, in accordance with the terms of the credit card agreement and applicable law. The credit card account is, therefore, separate and distinct from the loan receivable. In a credit card securitization, the credit card account relationships are not sold to the securitization entity. We retain ownership of the credit card account relationship, including the right to change the terms of the credit card account.

We sell our credit card receivables in the ordinary course of business through a commercial paper conduit program and we have from time to time entered into longer term fixed and floating rate securitization transactions. In a conduit securitization, our credit card receivables 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 the term credit card securitizations as of the end of fiscal 2004 are as follows:

Initial

Certificate

Series

Type

Amount

Rate

Expected Final

Series 2001-2

Term

250,000

Floating

November 2006

Series 2003-1

Term

300,000

Fixed

January 2008

Series 2003-2

Variable Funding

300,000

Floating

March 2005

Series 2003-2

Variable Funding

50,000

Floating

February 2005*

Series 2004-I

Term

75,000

Fixed

March 2009

Series 2004-II

Term

175,000

Floating

March 2009


*	The Series 2003-2, which matured in February of 2005, was a temporary three month increase in that series.

We have been, and will continue to be, particularly reliant on funding from securitization transactions for our Financial Services business. 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. We expect to renew our $300,000 variable funding commercial paper facility that expires in March 2005.

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

Certificates of Deposit. We utilize certificates of deposit to partially finance the operating activities of our bank. Our bank issues certificates of deposit in a minimum amount of $100,000 in various maturities. As of January 1, 2005, we had $100.7 million of certificates of deposit outstanding with maturities ranging from January 2005 to May 2014 and with weighted average effective annual fixed rate of 3.34%. Certificate of deposit borrowings are subject to regulatory capital requirements.

Credit Facilities and other Indebtedness

We have a revolving credit facility with a group of banks that provides us with a $230 million unsecured line of credit, which is available for our operations. This revolving facility, which expires on June 30, 2007, provides for a LIBOR-based rate of interest plus a spread of between 0.80% and 1.425% based upon our achievement of certain cash flow leverage ratios. During the term of the facility, we are also required to pay a facility fee, which ranges from 0.125% to 0.25%. Our credit facility also permits the issuance of up to $100 million in letters of credit and standby letters of credit, which are applied against the overall credit limit available under the revolver. We utilize these letters of credit to support purchases from our suppliers in the ordinary course of our business. The average outstanding amount under these letters of credit during fiscal 2004 was $44.5 million. There were no outstanding principal amounts under the credit facility as of fiscal year end 2004. Our total remaining borrowing capacity under the credit facility, after subtracting outstanding letters of credit of $31.1 million, and standby letters of credit of $6.5 million, as of fiscal year end 2004 was $192.4 million.

Our credit agreement requires that we comply with several financial and other covenants, including requirements that we maintain the following financial ratios as set forth in our credit agreement:


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

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

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

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

In addition, our credit agreement includes a limitation that we may not pay dividends to our stockholders in excess of 50% of our prior year’s consolidated EBITDA and a provision that permits acceleration by the lenders in the event there is a “change in control.” Our credit agreement defines “EBITDA” to mean our net income before deductions for income taxes, interest expense, depreciation and amortization. Based upon this EBITDA calculation for fiscal 2004, dividends would not be permissible in fiscal 2005 in excess of $68.8 million. Our credit agreement defines a “change in control” to mean any circumstances under which we cease to own 100% of the voting stock in each of our subsidiaries that have or have had total assets in excess of $5.0 million, any event in which any person or group of persons (other than our stockholders as of May 6, 2004 and their affiliates) acting in concert acquires beneficial ownership of, or control over, 20% or more of the combined voting power of all of our securities entitled to vote in the election of directors and such voting percentage exceeds the percentage of our common stock owned by Mr. R. Cabela and Mr. J. Cabela as of the date of such acquisition, or any change in a majority of the members of our board of directors within any twelve month period for any reason (other than by reason of death, disability or scheduled retirement). As of January 1, 2005, Mr. R. Cabela and Mr. J. Cabela collectively own 12,641,227 shares (not including 8,663,964 shares beneficially owned by Mr. R. Cabela through Cabela’s Family, LLC) of common stock, which represents 19.5% of our total outstanding common stock and non-voting common stock. Our credit agreement provides that all loans or deposits from us or any of our subsidiaries to the bank do not exceed $20.0 million in the aggregate at any time when loans are outstanding under the revolving credit facility.

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

In addition to our credit facilities, we have from time to time accessed the private placement debt markets. We currently have two such note issues outstanding. In September 2002, we issued $125.0 million in senior unsecured notes bearing interest at a fixed rate of 4.95%, repayable in five annual installments of $25.0 million beginning on September 5, 2005. The entire principal amount under these notes remains unpaid. In January 1995, we issued $20.0 million in senior unsecured notes bearing interest at fixed rates ranging between 8.79% and 9.19% per year. The notes amortize, with principal and interest payable in the amount of $0.3 million per month through January 1, 2007, thereafter decreasing to $0.1 million per month through January 1, 2010. The aggregate principal balance of these notes as of January 1, 2005 was $8.1 million. Both note issuances provide for prepayment penalties based on yield maintenance formulas.

These notes require that we comply with several financial and other covenants, including requirements that we maintain the following financial ratios as set forth in the note purchase agreement:


	•	a consolidated adjusted net worth in an amount not less than the sum of (i) $150 million plus (ii) 25% of positive consolidated net earnings on a cumulative basis for each fiscal year beginning with the fiscal year ended 2002; and

	•	a fixed charge coverage ratio (the ratio of consolidated cash flow to consolidated fixed charges for each period of four consecutive fiscal quarters) of no less than 2.00 to 1.00 as of the last day of any fiscal quarter.

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

As of January 1, 2005, we were in compliance with all of the covenants under our credit agreements and unsecured notes. We may or may not engage in future long-term borrowing transactions to fund our operations or our growth plans. Whether or not we undertake such borrowings will depend on a variety of factors, including prevailing interest rates, our retail growth plans, our financial strength, alternative sources and costs of funding and our management’s assessment of potential returns on investment that may be realized from the proceeds of such borrowings.

Impact of Inflation

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

Contractual Obligations and Commercial Commitments

The following tables provide summary information concerning our future contractual obligations and commercial commitments, respectively, as of fiscal year end 2004.

Contractual Obligations


		2005		2006		2007		2008		2009		Thereafter		Total

						(Dollars in thousands)
Long-term debt		$	28,183	$	28,901	$	26,643	$	26,583	$	26,467	$	2,736	$	139,513
Interest payments(1)			7,423		5,986		4,513		3,152		1,785		4,882		27,741
Capital lease obligations			500		500		500		500		500		12,000		14,500
Operating leases			2,611		2,159		1,123		336		336		869		7,434
Time deposits by maturity			48,953		28,201		10,705		7,200		5,200		400		100,659
Obligations under economic development arrangements(2)			307,807		2,252		1,272		2,769		962		4,096		319,158
Purchase obligations(3)			299,852		60,976		2,552		1		—		—		363,379
Deferred compensation			3,069		1,669		108		36		—		5,054		9,936

	Total	$	698,398	$	130,644	$	47,416	$	40,577	$	35,250	$	30,037	$	982,320


(1)	These amounts do not include estimated interest payments due under our revolving credit facility described below in “— Other Commercial Commitments” because the amount that will be borrowed under this facility in future years is uncertain at this time.


(2)	In 2005, these obligations include approximately $72.9 million of contractual obligations, including the purchase of bonds, associated with our Buda, Texas destination retail store; $65.4 million of contractual obligations, including the purchase of bonds, associated with our Fort Worth, Texas destination retail store; $44.0 million of contractual obligations, including the purchase of bonds, associated with our Lehi, Utah destination retail store; and $28.0 million of contractual obligations, including the purchase of bonds, associated with our Wheeling, West Virginia distribution center. In 2006, these obligations include approximately $96.3 million of contractual obligations, including the purchase of bonds, associated with our Wheat Ridge, Colorado destination retail store.

(3)	Our purchase obligations relate primarily to purchases of inventory, shipping and other goods and services in the ordinary course of business under binding purchase orders. The amount of purchase obligations shown is based on assumptions regarding the legal enforceability against us of purchase orders we had outstanding as of fiscal year end 2004. Under different assumptions regarding our rights to cancel our purchase orders or different assumptions regarding the enforceability of the purchase orders under applicable laws, the amount of purchase obligations shown in the table above would be less.

The foregoing table does not include any amounts for contractual obligations associated with our Rogers, Minnesota, Gonzales, Louisiana, Reno, Nevada and East Rutherford, New Jersey destination retail stores, which obligations were either entered into subsequent to fiscal 2004, or are in the process of negotiations. The cost of the Rogers, Minnesota store to be opened in 2005 is estimated at $52.3 million. The remainder of the locations, which are still being negotiated, will be subject to ordinary conditions to closing. If the respective conditions are met, we expect the total costs of each of these destination retail stores, including the cost of economic development bonds, to fall in our estimated range of $40 to $80 million each. We expect the costs for our Rogers, Minnesota store to be incurred in 2005, the costs for our Gonzales, Louisiana and Reno, Nevada stores to be incurred in 2006 and the costs for our East Rutherford, New Jersey store to be incurred in 2007.

Other Commercial Commitments


		2005		2006		2007		2008		2009		Thereafter		Total

		(Dollars in thousands)
Revolving line of credit(1)		$	—		—		—		—		—		—	$	—
Bank — federal funds lines(2)			—		—		—		—		—		—		—
Letters of credit			31,088		—		—		—		—		—		31,088
Standby letters of credit			6,525		—		—		—		—		—		6,525

	Total(1)	$	37,613		—		—		—		—		—	$	37,613


(1)	The total amount of our revolving line of credit, including lender letters of credit and standby letters of credit, is $230.0 million. As of fiscal year end 2004, approximately $192.4 million was available for borrowing under this revolving line of credit including letters of credit and standby letters of credit.

(2)	The maximum amount of funds on the bank federal funds lines which can be outstanding is $65.0 million of which no amounts were outstanding at fiscal year end 2004.

Off-Balance Sheet Arrangements

Operating leases — We lease various items of office equipment and buildings, all of which are recorded in our selling, general and administrative expenses. Future obligations are shown in the contractual obligations table above.

Credit Card Limits — The bank bears off-balance sheet risk in the normal course of its business. One form of this risk is through the bank’s commitment to extend credit to cardholders up to the maximum amount of their credit limits. The aggregate of such potential funding requirements totaled $6.0 billion

at fiscal year end 2004 and $4.9 billion at fiscal year end 2003, which amounts were in addition to existing balances cardholders had at such dates. These funding obligations are not included on our consolidated balance sheet. While the bank has not experienced, and does not anticipate that it will experience, a significant draw down of unfunded credit lines by customers, a significant draw down would create a cash need at the bank which likely could not be met by our available cash and funding sources. The bank has the right to reduce or cancel these available lines of credit at any time.

Securitizations — As described above under “— Credit Card Loan Receivable Securitizations,” all of the bank’s securitization transactions have been accounted for as sale transactions and the receivables relating to those pools of assets are not reflected on our consolidated balance sheet.

Bank Dividend Limitations and Minimum Capital Requirements

The ability of the bank to pay dividends to us is limited. Such dividends, which would only be made at the discretion of our board of directors and the bank’s board of directors, may be limited by a variety of factors, such as regulatory capital requirements, dividend restriction statutes, broad enforcement powers possessed by regulatory agencies and requirements imposed by membership in VISA. Under the Nebraska Banking Act, dividends may only be paid out of “net profits on hand,” which the Nebraska Banking Act defines to mean, the remainder of all earnings from current operations plus actual recoveries on loans and investments and other assets, after deducting from the total thereof all current operating expenses, losses and bad debts, accrued dividends on preferred stock, if any, and federal and state taxes for the present and two immediately preceding calendar years.

Based on these various restrictions, and assuming the same net profit levels in 2005 as in 2004, the bank would not be permitted to pay us more than $18.8 million in dividends during 2005. Based on this assumption, the bank currently intends to pay us at least $2.5 million per fiscal quarter in dividends for fiscal 2005. The bank had $45.5 million in retained earnings at the end of 2004. Due to minimum capital requirements under banking laws and the VISA membership rules, we may be required from time to time to put additional capital into the bank in order to enable the bank to continue to grow its credit card portfolio.

Critical Accounting Policies and Use of Estimates

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

Our significant accounting policies are described in Note 1 to the consolidated financial statements. The accounting policies discussed below are the ones we believe are the most critical to understanding our consolidated financial statements.

Merchandising Revenue Recognition

Revenue is recognized for retail sales at the time of the sale in the store. For direct sales, revenue is recognized when the merchandise is delivered to the customer, with the time of delivery being based on our estimate of shipping time from our distribution facility to the customer. We record a reserve for estimated product returns in each reporting period. The amount of this reserve is based upon our historical return experience and our future expectations. If our estimates for these returns are too low, and we receive more returns than we estimated, we would have a significant mismatching of revenue and expenses in the following period. Shipping fees charged to customers are included in revenue and shipping costs are included in cost of revenues. Our policy regarding gift certificates is to record revenue as the certificates

are redeemed for merchandise. Prior to their redemption, the certificates are recorded as a liability for the full-face amount of the certificates.

Inventory

Merchandise inventories, net of an allowance for shrink, returned or damaged goods and obsolescence, are stated at the lower of cost or market. Cost is determined using the last-in-first-out method, or LIFO, for all inventories except for those inventories owned by our wholly-owned subsidiaries Van Dyke Supply Company, Inc., and Wild Wings, LLC which use the first-in, first-out method. We use a dollar value, link chain method in calculating LIFO. Current year prices are determined using an internally developed index applying the first purchase price method. We estimate a provision for shrink based on historical cycle count adjustments and periodic physical inventories. These estimates may vary significantly due to a variety of internal and external factors. The allowance for damaged goods from returns is estimated based on historical experience. Most items that are returned and slightly damaged are sent to our Retail segment, marked down and sold. We also reserve our inventory for obsolete or slow moving inventory based on inventory aging reports and, in certain cases, by specific identification of slow moving or obsolete inventory. The aged inventory is grouped and analyzed in various categories, with particular attention given to fashion-sensitive categories. All categories that are subject to obsolescence are reserved for based upon management’s estimates, which estimates reflect past experience and management’s assessment of future merchandising trends. Our most fashion-sensitive categories of merchandise are apparel and footwear. However, a significant percentage of our inventory has a low fashion component, such as hunting, camping, and fishing gear, with a correspondingly lower rate of obsolescence. Slow moving inventory is marked down and sold in the Bargain Cave section of our merchandising business.

Catalog Amortization

Prepaid catalog expenses consist of internal and third party incremental direct costs incurred in the development, production and circulation of our direct mail catalogs. These costs are primarily composed of creative design, prepress/production, paper, printing, postage and mailing costs relating to the catalogs. All such costs are capitalized as prepaid catalog expenses and are amortized over their expected period of future benefit or twelve months, whichever is shorter. Such amortization is based upon sales lag pattern forecasts, which are developed using prior similar catalog offerings as a guide. Prepaid catalog expenses are evaluated for realizability at each reporting period by comparing the carrying amount associated with each catalog to actual sales data and to the estimated probable remaining future revenue (net revenue less merchandise cost of goods sold, selling expenses and catalog completions costs) associated with that catalog. If the carrying amount


		have a material impact on the full fiscal year 2004 results when compared to the prior full fiscal year results. We expect to complete a securitization transaction in the third or fourth fiscal quarter of 2005.

	•	Rapid interest rate changes. During periods of falling interest rates, our Financial Services segment generally benefits as the variable rate of interest paid in connection with our securitization programs and borrowings generally falls more rapidly than the interest rates charged to our cardholders. During periods of rising interest rates, we generally experience the opposite effect. Interest rates have generally declined or been steady in the periods presented in our selected financial data. The recent increases in interest rates have not materially impacted the operating results of our Financial Services segment as we have obtained favorable fixed interest rates for a portion of our securitizations and borrowings and have been able to increase the interest rates paid by our cardholders. We cannot assure you that we will be able to obtain similar fixed interest rates for our securitizations and borrowings in the future. See “Factors Affecting Future Results — Risks Related to Our Financial Services Business — Changes in interest rates could have a negative impact on our earnings.”

	•	Changes in segment mix. We record direct labor expenses of our Retail segment and all of the costs of our Financial Services segment in selling, general and administrative expenses. Therefore, an increase in the revenue of those segments will generally be accompanied by an increase in selling, general and administrative expenses. In addition, as discussed above, our Financial Services segment does not have costs classified as cost of revenue. If revenues in our Retail or Financial Services segments grow at a disproportionate rate compared to our Direct segment, our results will reflect the disproportionate effect on gross profit and selling, general and administrative expenses that results from our classification of these expenses.

	•	Seasonality. Our revenues are seasonal in nature due to holiday buying patterns and hunting and fishing season openings across the country. Our merchandise revenues are typically higher in the third and fourth quarters than in the first and second quarters. See “Quarterly Results of Operations and Seasonal Influences.”

	•	Compensation Charge. On May 1, 2004, we granted options to purchase 550,500 shares of our common stock with an exercise price of $13.34 per share. These options vest in five equal annual installments commencing on January 1, 2005. We will incur a total pre-tax compensation charge of approximately $3.7 million which is equal to the difference between the initial public offering price of $20.00 per share and the exercise price of $13.34 per share multiplied by the number of options granted. This charge will be amortized to expense over the vesting period of the options. A pre-tax compensation charge of $1.7 million was incurred in fiscal 2004, and we anticipate pre-tax compensation charges of $0.9 million, $0.6 million, $0.3 million and $0.2 million will be incurred in fiscal years 2005, 2006, 2007 and 2008, respectively.

	•	Compensation Charges for New Accounting Pronouncements. On December 15, 2004, the FASB issued FASB Statement 123R, Share Based Payment (“FASB 123R”). This revises the previously issued FASB 123. It requires public companies to record compensation at fair value for newly issued options and for the remaining outstanding unvested options as of the effective date, which is for periods beginning after June 15, 2005. We expect to incur a total non-cash pre-tax compensation charge for the outstanding unvested options of $2.0 to $3.0 million during fiscal 2005, which is in addition to the amount incurred relating to our May 1, 2004 option grants discussed above. This does not include charges for any new option grants that may be approved during fiscal 2005.

	•	Land sales impact on other revenue. In fiscal 2004, the amount of land sales increased over fiscal 2003 by $5.2 million to $7.5 million compared to $2.3 million in fiscal 2003. These land sales are included in other revenue and pertain to development of land around our destination retail stores. The cost of the land is reflected in cost of sales as this land was held for sale. The timing and gross profit of these land sales can have an impact on our annual and quarterly results. The primary


		increase in 2004 came from a sale of land that was sold at our cost, due to the timing of the purchase and the sale of the land being in close proximity — it was sold at its fair market value. Therefore, there was no gross profit related to the sale of that land. However, we expect the development of that land to help drive customers to our destination retail stores. Total gross profit on our land sales in fiscal 2004 was $2.8 million, or 37.3%, of land sales.

	•	Number of weeks in our fiscal periods. Our fiscal year ends on the Saturday closest to December 31 and, as a result, a 53^rd week is added every five or six years. Fiscal year 2003 consisted of 53 weeks ended on January 3, 2004. Fiscal years 2004, 2002, 2001 and 2000 consisted of 52 weeks. In 2004, with one less week than 2003, the week impacted our total revenue growth by 1.7%. See the chart, “Fiscal 2004 vs. Fiscal 2003 Information” for information on revenue impact by segment. Our fiscal year policy only impacts our retail and direct segments. Our bank’s fiscal year ends on December 31 and therefore is not impacted by the 53^rd week.