CABELAS INC - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Edgar Glimpses Via Acquire Media NewsEdge) 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 report.

Forward Looking Statements - Our discussion contains forward-looking statements with respect to our plans and strategies for our businesses and the business environment that are impacted by risks and uncertainties. Refer to "Special Note Regarding Forward-Looking Statements" preceding PART I, ITEM 1, and to ITEM 1A "Risk Factors" for information regarding certain of the risks and uncertainties that affect our business and the industries in which we operate. Please note that our actual results may differ materially from those we may estimate or project in any of these forward-looking statements.

Cabela's® We are a leading specialty retailer, and the world's largest direct marketer, of hunting, fishing, camping, and related outdoor merchandise. We provide a quality service to our customers who enjoy an outdoor lifestyle by supplying outdoor products through our omni-channel retail business consisting of our Retail and Direct segments. As of the end of 2012, our Retail business segment consisted of 40 stores, including the six stores that we opened during 2012 in: •Wichita, Kansas, on March 14, 2012, •Tulalip, Washington, on April 19, 2012, •Saskatoon, Saskatchewan, Canada, on May 10, 2012, •Charleston, West Virginia, on August 9, 2012, •Rogers, Arkansas, on August 30, 2012, and •our first Outpost store in Union Gap, Washington, on October 4, 2012.

We have 37 stores located in the United States and three in Canada with total retail square footage of 5.1 million square feet at the end of 2012. Our Direct business segment is comprised of our highly acclaimed Internet website and supplemented by our catalog distributions as a selling and marketing tool.

World's Foremost Bank ("WFB", "Financial Services segment", or "Cabela's CLUB") also plays an integral role in supporting our merchandising business. The Financial Services segment is comprised of our credit card services which reinforces our strong brand and strengthens our customer loyalty through our credit card loyalty programs.

Fiscal 2012 Executive Overview Increase 2012 2011 (Decrease) % Change (Dollars in Thousands Except Earnings Per Diluted Share) Revenue: Retail $ 1,849,582 $ 1,550,442 $ 299,140 19.3 % Direct 930,943 956,834 (25,891 ) (2.7 ) Total 2,780,525 2,507,276 273,249 10.9 Financial Services 319,399 291,746 27,653 9.5 Other revenue 12,758 12,144 614 5.1 Total revenue $ 3,112,682 $ 2,811,166 $ 301,516 10.7 Operating income $ 275,699 $ 231,548 $ 44,151 19.1 Net income $ 173,513 $ 142,620 $ 30,893 21.7 Earnings per diluted share $ 2.42 $ 2.00 $ 0.42 21.0 28-------------------------------------------------------------------------------- Revenues for 2012 totaled $3.1 billion, an increase of $302 million, or 10.7%, over 2011. Total merchandise sales increased $273 million, or 10.9%, in 2012 compared to 2011. The net increase in total merchandise sales comparing 2012 to 2011 was primarily due to: • a net increase of $195 million in revenue from new retail stores, and • an increase of $102 million, or 6.9%, in comparable store sales, led by an increase in sales in the hunting equipment product category.

These increases were partially offset by a decrease of $26 million in Direct revenue, primarily due to a decrease in the clothing and footwear product category.

Financial Services revenue increased $28 million, or 9.5%, in 2012 compared to 2011 due to lower interest expense and increases in interest income and interchange income, partially offset by higher customer reward costs due to an increase in credit card purchases. Interchange income in 2012 was reduced by $12.5 million pursuant to the proposed settlement regarding the Visa litigation.

Operating income for 2012 increased $44 million, or 19.1%, compared to 2011, and operating income as a percentage of revenue increased 70 basis points to 8.9% in 2012 compared to 8.2% in 2011. These increases in total operating income and total operating income as a percentage of total revenue were primarily due to increases in revenue from our Retail and Financial Services segments as well as an increase in our merchandise gross profit. These increases were partially offset by lower revenue from our Direct business segment, higher consolidated operating expenses, and higher impairment losses primarily related to land held for sale. Selling, distribution, and administrative expenses were higher due to increases in comparable and new store costs and related support areas.

Cabela's 2012 Vision During 2012, we assessed our progress on our 2012 Vision. Looking at our current strategic initiatives, we evaluated what was successful, what we could have done better, and what lessons we have learned in the past three years. Throughout 2012, management confirmed that these strategic initiatives are the key areas to maintain our focus for improvement, and we have therefore continued to emphasize these key financial metrics: merchandise gross margin, Retail segment operating margin, total revenue growth, retail expansion, and growth of our Cabela's CLUB Visa loyalty program. Improvements in these metrics have led to an increase in our return on invested capital, an important measure of how effectively we have deployed capital in our operations in generating cash flows. Increases in our return on invested capital, on an after-tax basis, indicate improvements in our use of capital, thereby creating value in our Company.

Achievements on our 2012 Vision follow: • Focus on Core Customers: Improve customer experiences - every customer, every interaction, every day. Use the product expertise we have developed over the years, along with a focused understanding of our core customers, to improve customer loyalty, enhance brand awareness, and offer the best possible assortment of products in every merchandise category.

As we focus on our core customers, we are targeting marketing efforts that are directed to different customer interests by improving our modeling methodologies. We are also using historic sales information to select and size markets while focusing on areas with large concentrations of core customers.

We offer our customers integrated opportunities to access and use our retail store, Internet, and catalog channels. Our in-store pick-up program allows customers to order products through our catalogs, Internet site, and store kiosks and have them delivered to the retail store of their choice without incurring shipping costs, thereby helping to increase foot traffic in our stores. Conversely, our expanding retail stores introduce customers to our Internet and catalog channels. We are capitalizing on our omni-channel model by building on the strengths of each channel, primarily through improvements in our merchandise planning system. This system, along with our replenishment system, allows us to identify the correct product mix in each of our retail stores, and also helps maintain the proper inventory levels to satisfy customer demand in both our Retail and Direct business channels, and to improve our distribution efficiencies. In addition, free shipping offered to our Cabela's CLUB Visa customers, which started in the last half of June 2012 and continued through the last six months of 2012, resulted in increased merchandise sales, greater order frequency, and increases in the number of new Visa cardholder accounts. We intend to concentrate more resources behind these efforts to help drive improvements to the customer shopping experience even more quickly.

29 --------------------------------------------------------------------------------• Improve Merchandise Performance: Improve margins and minimize unproductive inventory by focusing on vendor performance, assortment planning, and inventory management. Optimizing merchandise performance allows us to maximize margins, which requires detailed preseason planning, as well as in-season monitoring of sales and management of inventory.

Our efforts continue in detailed pre-season planning, in-season monitoring of sales, and management of inventory to focus product assortment on our core customer base. We also continue to work with vendors to negotiate the best prices on products and to manage inventory levels, as well as to ensure vendors deliver all products and services as expected. As a result, our merchandise gross margin as a percentage of merchandise revenue increased 70 basis points to 36.3% in 2012 compared to 35.6% in 2011. This increase was primarily attributable to improved in-season and pre-season merchandise inventory planning, improvements in vendor collaboration, an ongoing focus of private label products, and improvements in price optimization to ensure we are pricing correctly in the marketplace. The increase in our merchandise gross profit as a percentage of merchandise sales was partially offset by an adverse product mix shift due to increased sales of firearms and ammunition, which carry a lower margin.

• Retail Profitability: Improve retail profitability by concentrating on sales, advertising, and costs while providing excellent customer experiences.

Identify the best practices that produce the best results and apply those findings to all of our retail stores. We have to execute on the balance that allows us to deliver the best possible selection of products and expected level of customer service in each store while managing labor, advertising, and other store costs.

We have improved our retail store merchandising processes, information technology systems, and distribution and logistics capabilities. We have also improved our visual merchandising within the stores and coordinated merchandise at our stores by adding more regional product assortments. To enhance customer service at our retail stores, we have increased our staff of outfitters and have continued our management training and mentoring programs for our retail store managers.

Comparing Retail segment results for 2012 to 2011: • operating income increased $82 million, or 31.2%, • operating income as a percentage of Retail segment revenue increased 170 basis points to 18.7%, and • comparable store sales increased 6.9%.

• Retail Expansion: Capitalize on our brand strength by developing a profitable retail expansion strategy focused on site locations and appropriate sized stores in our top markets. Increase our retail presence across the United States and Canada by developing a profitable retail expansion strategy that considers site location and the strategic size for each store in its given market.

We opened five retail stores during 2012 in the next-generation store format. We also opened our first Outpost store in Union Gap, Washington, on October 4, 2012, with store results exceeding our expectations. Our total retail store square footage at the end of 2012 was 5.1 million square feet, an increase of 9.8% compared to the end of 2011. Our next-generation store format improves our return on invested capital and better serves our customers by providing shopper-friendly layouts with regionalized product mixes, concept shops, and new product displays and fixtures with enhanced features. Our new Outpost store format will be approximately 40,000 square feet in size and have a "core-flex" merchandise strategy (selected core assortment of products and flexible seasonal merchandise) that will allow us to effectively serve smaller markets with a large concentration of Cabela's customers and is in addition to our next-generation format. The new store formats are more productive and generate higher returns which will help to increase our return on invested capital.

We have also announced plans to open additional retail stores as follows: • in 2013, seven next-generation stores located in Columbus, Ohio; Grandville, Michigan; Louisville, Kentucky; Green Bay, Wisconsin; Thornton, Colorado; Lone Tree, Colorado; and Regina, Saskatchewan, Canada; as well as two Outpost stores located in Saginaw,Michigan; and Waco, Texas; and • in 2014, five next-generation stores located in Christiana, Delaware; Greenville, South Carolina; Anchorage, Alaska; Woodbury, Minnesota; and Bristol, Virginia.

30-------------------------------------------------------------------------------- We will be relocating our existing 44,000 square foot Winnipeg, Manitoba, store in the second quarter of 2013 to a more desirable location and increasing the size to 70,000 square feet. We have also announced plans to open an Outpost store in Kalispell, Montana, at a date yet to be determined. Looking to 2013, we expect to increase retail square footage up to 13% over 2012, as well as generate an increased profit per square foot compared to the legacy store base, with the planned openings of these next-generation and Outpost stores.

• Direct Business Initiatives: Grow our Direct business by capitalizing on quick-to-market Internet and electronic marketing opportunities and expanding international business. Continue to fine tune our catalogs, as well as the number of pages and product mix in each, in order to improve the profitability of each title. Create steady, profitable growth in our Direct channels, while reducing marketing expenses and significantly increasing the percentage of market share we capture through the Internet.

We are adapting our marketing activities to capitalize on the changes in the way our customers want to shop. As such, we are focusing on improving our customers' digital shopping experiences on Cabelas.com and via mobile devices. Our marketing focus will continue to be on developing a seamless omni-channel experience for our customers regardless of their transaction channel. Our digital transformation continues with efforts around enhancing our Internet website to support the Direct business. Cabelas.com continues to be the most visited website in the sporting goods industry according to Hitwise, Inc., an online measurement company. The amount of traffic now coming through mobile devices is growing significantly. As a result, we continue to utilize best-in-class technology to improve our customers' digital shopping experience and build on the advances we have made to capitalize on the variety of ways customers are shopping at Cabela's today. We have seen early successes in our social marketing initiatives and now have over 2.2 million fans on Facebook.

Our omni-channel marketing efforts are resulting in increases in new customers, as well as customer engagement across multiple channels with a consistent experience across all channels.

In 2012, we realized improvements in Internet traffic, growth in multi-channel customers, and very early progress in our print to digital transformation. We have developed a multi-year approach to reverse the down trend in our Direct segment and transform our 51 year old legacy catalog business into an omni-channel enterprise supporting transformation to digital, e-commerce, and mobile while optimizing the customer experience with our growing retail footprint. We are in the very early stages of this effort. Near term efforts have been focusing on our print-to-digital transformation and testing targeted shipping offers.

Comparing Direct segment results for 2012 to 2011: • revenue decreased $26 million, or 2.7%, • operating income decreased $17 million to $155 million, and • operating income as a percentage of Direct segment revenue decreased 130 basis points to 16.7%.

The free shipping offer to our Cabela's CLUB Visa customers, which started in the last half of June 2012 and continued through the last six months of 2012, resulted in increased merchandise sales. However, the decrease in sales in clothing and footwear, and a decrease in revenue from our catalog and call centers, offset the sales increase from our Cabela's CLUB Visa free shipping promotion.

• Growth of Cabela's CLUB: Our goal is to continue to attract new cardholders through our Retail and Direct businesses. We want to increase the amount of merchandise or services customers purchase with their CLUB Visa cards while maintaining the profitability of Cabela's CLUB and preserving customer loyalty by providing exclusive experiences, and offering vendor promotions and partnership programs to best serve our customers' needs and give us brand exposure.

Cabela's CLUB continues to manage credit card delinquencies and charge-offs below industry average by adhering to our conservative underwriting criteria and active account management. Our number of average active accounts increased 8.5% to 1.5 million compared to 2011. Financial Services revenue increased $28 million, or 9.5%, in 2012 compared to 2011. In 2012, the Financial Services segment issued $156 million in certificates of deposit, renewed its $225 million variable funding facility for an additional year, and completed two $500 million term securitizations that will mature in February and June of 2017.

31 --------------------------------------------------------------------------------Our New Vision Over our history, we have established name recognition and a quality brand that is renowned and respected in the outdoor industry. Two vital components of our corporate strategy are our core purpose and our core values. Our core purpose states, "We passionately serve people who enjoy the outdoor lifestyle by delivering innovation, quality, and value in our products and services." Our core values - "superior customer service," "quality products and services," "integrity and honesty," "respect for individuals," and "excellence in performance" - are our foundation for how we operate our business on a daily basis. Our core purpose and core values have served us well and these core statements will not change.

After evaluating the progress on our 2012 Vision, management put into place Cabela's future strategic plan. We decided that our new vision will not be time bound. We wanted a vision statement that can relate to our outfitters today and something that we can continue to strive towards. Our new vision is below.

"Our Vision is to be the best omni-channel retail company in the world by creating intense customer loyalty for our outdoor brand. This loyalty will be created through two pillars of excellence: highly engaged outfitters and shareholders who support our short and long term goals." We will focus on these areas to achieve our new vision: • Intensify Customer Loyalty. We will deepen our customer relationships, aggressively serve current and developing market segments, and increase our innovation in Cabela's products and services.

• Grow Profitably and Sustainably. Through sustaining and adapting our culture, we will continuously seek ways to improve profitability and increase revenue in all business segments.

• Enhance Technology Capability. We will implement a strategic technology road map, streamline our systems, and accelerate customer-facing technologies.

• Simplify Our Business. As we focus on our priorities, we will align our goals to foster collaboration and streamline cross-functional processes.

• Improve Marketing Effectiveness. We will optimize all marketing channels and expand our digital and e-commerce capabilities while continuing to strengthen the Cabela's brand.

Current Business Environment Worldwide Credit Markets and Macroeconomic Environment - We believe that general improvements in the United States economy helped lead to a lower level of delinquencies and a decrease in charge-offs comparing 2012 to 2011. We expect our charge-off and delinquency levels to remain below industry standards. The Financial Services segment continues to monitor developments in the securitization and certificates of deposit markets to ensure adequate access to liquidity. On November 2, 2011, we entered into a new five-year credit agreement providing for a $415 million revolving credit facility that replaced our $350 million credit facility set to expire June 30, 2012. Advances under the credit facility will be used for the Company's general business purposes, including working capital support.

Developments in Legislation and Regulation - In late 2012 and into 2013, there has been significant discussion regarding potential gun control legislation, primarily aimed at modern sporting rifles, certain semiautomatic pistols, and high capacity magazines. For example, in January 2013, the State of New York enacted legislation that expanded the state's existing prohibition on the sale of certain firearms and prohibited the sale of magazines that hold more than seven rounds. In January 2013, legislation was introduced in the United States Senate that would, if enacted, prohibit the sale of certain modern sporting rifles, certain semiautomatic pistols, and magazines that hold more than 10 rounds. We do not expect the recently enacted New York legislation to have a significant impact on our business. Any new federal legislation that prohibits the sale of certain modern sporting rifles, semiautomatic pistols, or ammunition could negatively impact our hunting equipment sales. Our mix of modern sporting rifles, semiautomatic pistols, and ammunition, most likely to be impacted by any legislative changes, is a small percentage of our total hunting equipment sales.

We expect demand for firearms, ammunition, and accessories to remain strong as gun control continues to be a legislative focus.

32 -------------------------------------------------------------------------------- On June 7, 2012, the FDIC and the other federal banking agencies announced they are seeking comment on proposed rules that would revise and replace the agencies' current capital rules. Among other things, the proposed rules would revise the agencies' prompt corrective action framework by introducing a common equity tier 1 capital requirement and a higher minimum tier 1 capital requirement. In addition, the proposed rules include a supplementary leverage ratio for depository institutions subject to the advanced approaches capital rules. It is not clear how the final rules will differ from the proposed rules, if at all, or the impact of the final rules on WFB and its ability to comply with a new common equity tier 1 capital requirement and a higher minimum tier 1 capital requirement.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Reform Act") was signed into law in July 2010 and has made extensive changes to the laws regulating financial services firms and credit rating agencies and requires significant rule-making. In addition, the Reform Act along with the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the "CARD Act") mandated multiple studies which could result in additional legislative or regulatory action.

The Reform Act imposes a moratorium on the approval of applications for Federal Deposit Insurance Corporation ("FDIC") insurance for an industrial bank, credit card bank, or trust bank that is owned by a commercial firm. Furthermore, the FDIC must, under most circumstances, disapprove any change in control that would result in direct or indirect control by a commercial firm of a credit card bank, such as WFB. For purposes of this provision, a company is a "commercial firm" if its consolidated annual gross revenues from activities that are financial in nature and, if applicable, from the ownership or control of one or more insured depository institutions, in the aggregate, represent less than 15% of its consolidated annual gross revenues. The Reform Act does not, however, eliminate the exception from the definition of "bank" under the Bank Holding Company Act of 1956, as amended (the "BHCA") for credit card banks, such as WFB. As directed by the Reform Act, the United States Government Accountability Office released a report on January 20, 2012, that examines the potential implications of eliminating certain exceptions under the BHCA, including the exception for credit card banks. It is unclear whether this report will lead to any additional legislative or regulatory action. If the credit card bank exception were eliminated or modified, we may be required to divest our ownership of WFB unless we were willing and able to become a bank holding company under the BHCA. Any such required divestiture may materially adversely affect our business and results of operations.

The Reform Act established the new independent Consumer Financial Protection Bureau (the "Bureau") which has broad rulemaking, supervisory, and enforcement authority over consumer products, including credit cards. The Bureau has extensive rulemaking authority and enforcement authority, and WFB is subject to the Bureau's regulation. While the Bureau will not examine WFB, it will receive information from WFB's primary federal regulator. The Bureau is specifically authorized to issue rules identifying as unlawful acts or practices it defines as "unfair, deceptive or abusive acts" in connection with any transaction with a consumer or in connection with a consumer financial product or service. It is uncertain what rules will be adopted by the Bureau, how such rules will be enforced and whether or not such rules will require WFB to modify existing practices or procedures.

In 2012, the Bureau, acting in conjunction with the FDIC and other agencies, announced its first high-profile enforcement actions against credit card issuers for deceptive marketing and other illegal practices related to the advertising of ancillary products, collection practices and other matters. By these recent public enforcement actions, the Bureau and the FDIC have signaled a heightened scrutiny of credit card issuers. We anticipate increased activity by regulators in pursuing consumer protection claims going forward.

The Reform Act will also affect a number of significant changes relating to asset-backed securities, including additional oversight and regulation of credit rating agencies and additional reporting and disclosure requirements. The changes resulting from the Reform Act or any rules or regulations adopted by the Bureau may impact our profitability, require changes to certain of the Financial Services segment's business practices, impose upon the Financial Services segment more stringent capital, liquidity, and leverage ratio requirements, increase FDIC deposit insurance premiums, or otherwise adversely affect the Financial Services segment's business. These changes may also require the Financial Services segment to invest significant management attention and resources to evaluate and make necessary changes.

Several rules and regulations have recently been proposed or adopted that may substantially affect issuers of asset-backed securities.

33 -------------------------------------------------------------------------------- The Jumpstart Our Business Startups Act (the "JOBS Act") was signed into law on April 5, 2012, and will implement extensive changes to the laws regulating private offerings of securities, including Rule 144A private offerings such as the private offerings of asset-backed securities of the Cabela's Master Credit Card Trust and related entities (collectively referred to as the "Trust") that WFB sponsors. On August 29, 2012, the SEC issued proposed regulations to amend Rule 144A to provide that securities may be offered pursuant to Rule 144A by means of general solicitation or general advertising, including to persons other than qualified institutional buyers, so long as the issuer reasonably believes that each ultimate purchaser is a qualified institutional buyer. The impact that the JOBS Act will have on the securitization market and the Financial Services segment is unclear at this time.

On October 11, 2011, the Federal Reserve, the Office of the Comptroller of Currency, the FDIC, and the Securities and Exchange Commission ("SEC") issued proposed regulations implementing certain provisions under the Reform Act limiting proprietary trading and sponsorship or investment in hedge funds and private equity funds (the "Volcker Rule"). The proposed regulations are complex and have been the subject of extensive comment. As proposed, these regulations may apply to us and could limit our ability to engage in the types of transactions covered by the Volcker Rule and may impose potentially burdensome compliance, monitoring, and reporting obligations. There remains considerable uncertainty regarding whether the final regulations implementing the Volcker Rule will differ from the proposed regulations, and the effect of any final regulations on our Retail and Direct businesses and the business of the Financial Services segment, and its ability and willingness to sponsor securitization transactions in the future.

The Trust is structured to qualify for the exemption from the Investment Company Act of 1940, as amended (the "Investment Company Act") provided by Investment Company Act Rule 3a-7. On August 31, 2011, the SEC issued an advance notice of proposed rulemaking regarding possible amendments to Investment Company Act Rule 3a-7. At this time, it is uncertain what form the related proposed and final rules will take, whether the Trust would continue to be eligible to rely on the exemption provided by Investment Company Act Rule 3a-7, and whether the Trust would qualify for any other Investment Company Act exemption.

On July 26, 2011, the SEC re-proposed certain rules for asset-backed securities offerings ("SEC Regulation AB II") which were originally proposed by the SEC on April 7, 2010. If adopted, SEC Regulation AB II would substantially change the disclosure, reporting, and offering process for private offerings of asset-backed securities that rely on the Rule 144A safe harbor, including the Trust's private offerings of asset-backed securities. As currently proposed, SEC Regulation AB II would, among other things, alter the safe harbor standards for private placements of asset-backed securities imposing informational requirements similar to those applicable to registered public offerings. The final form that SEC Regulation AB II may take is uncertain at this time, but it may impact the Financial Services segment's ability and/or desire to sponsor securitization transactions in the future.

On March 29, 2011, pursuant to the provisions of the Reform Act, the SEC, the Federal Reserve, the FDIC, and certain other federal agencies issued proposed regulations requiring securitization sponsors to retain an economic interest in assets that they securitize. Subject to certain exceptions, the proposed regulations would generally require the sponsor of a securitization transaction to retain at least 5% of the credit risk of the securitized assets and would provide securitization sponsors with a number of options for satisfying this requirement. Each of these options would require the sponsor to provide certain disclosures to investors a reasonable time prior to sale and upon request to the SEC and the sponsor's applicable federal banking regulator. In addition, the sponsor would be subject to certain prohibitions on hedging, transferring, or financing the retained credit risk. If adopted, the proposed regulations will likely affect most types of private securitization transactions, including those sponsored by the Financial Services segment. It is not clear how the final regulations will differ from the proposed regulations, if at all, or the impact of the final regulations on the Financial Services segment and its ability and willingness to continue to rely on the securitization market for funding.

On January 20, 2011, under provisions of the Reform Act, the SEC adopted rules that require issuers of asset-backed securities to disclose demand, repurchase, and replacement information through the periodic filing of a new form with the SEC. One of these rules, Rule 17g-7 under the Securities Exchange Act of 1934, as amended, requires rating agencies to disclose in any report accompanying a credit rating for an asset-backed security the representations, warranties, and enforcement mechanisms available to investors and how they differ from those in similar securities. Also pursuant to the provisions of the Reform Act, on January 20, 2011, the SEC issued rules that require issuers of asset-backed securities to make publicly available the findings and conclusions of any third-party due diligence report obtained by the issuer.

34 -------------------------------------------------------------------------------- On September 19, 2011, the SEC proposed a new rule under the Securities Act of 1933, as amended, to implement certain provisions of the Reform Act. Under the proposed rule, an underwriter, placement agent, initial purchaser, or sponsor of an asset-backed security, or any affiliate of any such person, shall not at any time within one year after the first closing of the sale of the asset-backed security, engage in any transaction that would involve or result in any material conflict of interest with respect to any investor in a transaction arising out of such activity. The proposed rule would exempt certain risk mitigating hedging activities, liquidity commitments, and bona fide market-making activity. It is not clear how the final rule will differ from the proposed rule, if at all. The final rule's impact on the securitization market and the Financial Services segment is also unclear at this time.

Proposed Settlement of Visa Litigation - In June 2005, a number of entities, each purporting to represent a class of retail merchants, sued Visa and several member banks, and other credit card associations, alleging, among other things, that Visa and its member banks have violated United States antitrust laws by conspiring to fix the level of interchange fees. On July 13, 2012, the parties to this litigation announced that they had entered into a memorandum of understanding, which subject to certain conditions, including court approval, obligates the parties to enter into a settlement agreement to resolve the claims brought by the class members. On November 9, 2012, the settlement received preliminary court approval. The settlement agreement requires, among other things, (i) the distribution to class merchants of an amount equal to 10 basis points of default interchange across all credit rate categories for a period of eight consecutive months, which otherwise would have been paid to issuers like WFB, (ii) Visa to change its rules to allow merchants to charge a surcharge on credit card transactions subject to a cap, and (iii) Visa to meet with merchant buying groups that seek to negotiate interchange rates collectively. To date, WFB has not been named as a defendant in any credit card industry lawsuits.

Management believes that the 10 basis point reduction of default interchange across all credit rate categories for a period of eight consecutive months would result in a reduction of interchange income of approximately $12.5 million in the Financial Services segment. Accordingly, the Company has recorded a liability of $12.5 million as of December 29, 2012, to accrue for such proposed settlement as a reduction of interchange income in the Financial Services segment.

Impact of Change in Accounting Principles in 2010 - The accounting guidance on consolidations and accounting for transfers of financial assets and the criteria for determining whether to consolidate a variable interest entity resulted in the consolidation of the Trust effective January 3, 2010, which resulted in an increase in total assets and liabilities of $2.15 billion and $2.25 billion, respectively, and a decrease in retained earnings and other comprehensive income of $93 million, after tax. In 2010, we began reporting the results of operations of our Financial Services segment in a manner similar to our historical managed presentation for financial performance of the total managed portfolio of credit card loans, excluding income derived from the changes in the valuation of our interest-only strip, cash reserve accounts, and cash accounts associated with the securitized loans.

Operations Review Our operating results expressed as a percentage of revenue were as follows for the years ended: 2012 2011 2010 Revenue 100.00 % 100.00 % 100.00 % Cost of revenue 56.86 57.39 59.16 Gross profit (exclusive of depreciation and amortization) 43.14 42.61 40.84 Selling, distribution, and administrative expenses 33.63 33.94 33.62 Impairment and restructuring charges 0.65 0.43 0.21 Operating income 8.86 8.24 7.01 Other income (expense): Interest expense, net (0.65 ) (0.87 ) (1.03 ) Other income, net 0.20 0.26 0.28 Total other income (expense), net (0.45 ) (0.61 ) (0.75 ) Income before provision for income taxes 8.41 7.63 6.26 Provision for income taxes 2.83 2.56 2.05 Net income 5.58 % 5.07 % 4.21 % 35-------------------------------------------------------------------------------- Results of Operations - 2012 Compared to 2011 Revenues Retail revenue includes sales realized and customer services performed at our retail stores, sales from orders placed through our retail store Internet kiosks, and sales from customers utilizing our in-store pick-up program. Direct revenue includes Internet and call center (catalog) sales from orders placed through our website, over the phone, and by mail where the merchandise is shipped to non-retail store locations. Financial Services revenue is comprised of interest and fee income, interchange income, other non-interest income, interest expense, provision for loan losses, and customer rewards costs from our credit card operations. Other revenue sources include fees for our hunting and fishing outfitter services, fees for our full-service travel agency business, real estate rental income and land sales, and other complementary business services.

Comparisons and analysis of our revenues are presented below for the years ended: Increase 2012 % 2011 % (Decrease) % Change (Dollars in Thousands) Retail $ 1,849,582 59.4 % $ 1,550,442 55.2 % $ 299,140 19.3 % Direct 930,943 29.9 956,834 34.0 (25,891 ) (2.7 ) Financial Services 319,399 10.3 291,746 10.4 27,653 9.5 Other 12,758 0.4 12,144 0.4 614 5.1 $ 3,112,682 100.0 % $ 2,811,166 100.0 % $ 301,516 10.7 Product Sales Mix - The following table sets forth the percentage of our merchandise revenue contributed by major product categories for our Retail and Direct segments and in total for the years ended: Retail Direct Total 2012 2011 2012 2011 2012 2011 Product Category: Hunting Equipment 49.5 % 45.7 % 37.1 % 33.4 % 45.3 % 41.1 % General Outdoors 28.7 30.7 32.0 32.7 29.8 31.5 Clothing and Footwear 21.8 23.6 30.9 33.9 24.9 27.4 Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % The hunting equipment merchandise category includes a wide variety of firearms, ammunition, optics, archery products, and related accessories and supplies. The general outdoors merchandise category includes a full range of equipment and accessories supporting all outdoor activities, including all types of fishing and tackle products, boats and marine equipment, camping gear and equipment, food preparation and outdoor cooking products, all-terrain vehicles and accessories for automobiles and all-terrain vehicles, and gifts and home furnishings. The clothing and footwear merchandise category includes fieldwear apparel and footwear, sportswear, casual clothing and footwear, and workwear products.

Retail Revenue - Retail revenue increased $299 million, or 19.3%, in 2012 primarily due to an increase of $195 million in revenue from new retail stores comparing year over year and an increase in comparable store sales of $102 million. Retail revenue growth, including the increase in comparable store sales, was led by increases in the hunting equipment product category in large part due to increased sales of firearms and ammunition.

We recognize revenue as gift certificates, gift cards, and e-certificates ("gift instruments") are redeemed for merchandise or services. We record gift instrument breakage as Retail revenue when the probability of redemption is remote. Gift instrument breakage recognized was $8 million, $7 million, and $5 million for 2012, 2011, and 2010, respectively. Our gift instrument liability at the end of 2012 and 2011 was $135 million and $118 million, respectively.

36 -------------------------------------------------------------------------------- Comparable store sales and analysis are presented below for the years ended: Increase 2012 2011 (Decrease) (Dollars in Thousands) Comparable stores sales $ 1,573,824 $ 1,472,032 $ 101,792 Comparable stores sales growth percentage 6.9 % 2.8 % Comparable store sales increased $102 million, or 6.9%, in 2012 principally because of the strength in our hunting equipment category. A store is included in our comparable store sales base on the first day of the month following the fifteen month anniversary of 1) its opening or acquisition, or 2) any changes to retail store space greater than 25% of total square footage of the store.

Average sales per square foot for stores that were open during the entire year were $362 for 2012 compared to $328 for 2011. The increase in average sales per square foot resulted from the increase in comparable store sales. In addition, our next-generation stores are performing better on a sales per square foot basis than our legacy stores.

Direct Revenue - Direct revenue decreased $26 million, or 2.7%, in 2012 compared to 2011. The decrease in Direct revenue compared to 2011 was primarily due to a decrease in the clothing and footwear product category and a decrease in revenue from our catalog and call centers. These decreases in Direct revenue were partially offset by increased sales attributable to the CLUB Visa free shipping offer and advertising promotions in digital marketing. The free shipping offer to our Cabela's CLUB Visa customers resulted in increased merchandise sales, greater order frequency, and increases in the number of new Visa cardholder accounts.

Internet sales increased in 2012 compared to 2011. The number of web site visitors increased 18.3% during 2012 as we continued to focus our efforts on utilizing Direct marketing programs to increase traffic to our website and social media networks. Our hunting equipment and clothing and footwear categories were the largest dollar volume contributor to our Direct revenue for 2012. The number of active Direct customers, which we define as those customers who have purchased merchandise from us in the last twelve months, remained even compared to 2011.

We continue to focus on smaller, more specialized catalogs, and we have reduced the number of pages mailed and decreased total circulation, leading to continued reductions in catalog related costs. Mostly offsetting the reductions in catalog related costs were increases in Internet related expenses due to our expanded use of digital marketing channels and enhancements to our website.

Increase 2012 2011 (Decrease) % Change Percentage increase year over year in Internet website visitors 18.3 % 4.5 % Pages of paper circulation (in millions) 17,433 22,218 (4,785 ) (21.5 )% Number of separate titles circulated 108 102 6 37--------------------------------------------------------------------------------Financial Services Revenue - The following table sets forth the components of our Financial Services revenue for the years ended: Increase 2012 2011 (Decrease) % Change (Dollars in Thousands) Interest and fee income $ 301,699 $ 277,242 $ 24,457 8.8 % Interest expense (54,092 ) (70,303 ) (16,211 ) (23.1 ) Provision for loan losses (42,760 ) (39,287 ) 3,473 8.8 Net interest income, net of provision for loan losses 204,847 167,652 37,195 22.2 Non-interest income: Interchange income 292,151 267,106 25,045 9.4 Other non-interest income 12,364 13,620 (1,256 ) (9.2 ) Total non-interest income 304,515 280,726 23,789 8.5 Less: Customer rewards costs (189,963 ) (156,632 ) 33,331 21.3 Financial Services revenue $ 319,399 $ 291,746 $ 27,653 9.5 Financial Services revenue increased $28 million, or 9.5%, in 2012 compared to 2011. The increase in interest and fee income of $24 million was due to an increase in credit card loans, partially offset by changes in the mix of credit card loan balances at each interest rate. Interest expense decreased $16 million due to decreases in interest rates. The provision for loan losses increased $3 million in 2012 compared to 2011 due to growth in our credit card loan balances, even though our net charge-off rates and allowance for loan losses have decreased. The increase in interchange income of $25 million was due to an increase in credit card purchases, partially offset by $12.5 million pursuant to the proposed settlement regarding the Visa litigation. Customer rewards costs increased $33 million due to an increase in credit card purchases.

The following table sets forth the components of our Financial Services revenue as a percentage of average credit card loans, including any accrued interest and fees, for the years ended: 2012 2011 Interest and fee income 9.7 % 10.1 % Interest expense (1.7 ) (2.6 ) Provision for loan losses (1.4 ) (1.4 ) Interchange income 9.4 9.7 Other non-interest income 0.4 0.5 Customer rewards costs (6.1 ) (5.7 ) Financial Services revenue 10.3 % 10.6 % Excluding the affect of the $12.5 million adjustment reducing interchange income from the proposed Visa settlement, interchange income and Financial Services revenue as a percentage of average credit card loans, including any accrued interest and fees, would have been 9.8% and 10.7%, respectively.

Our Cabela's CLUB Visa credit card loyalty program allows customers to earn points whenever and wherever they use their credit card, and then redeem earned points for products and services at our retail stores or through our Direct business. The percentage of our merchandise sold to customers using the Cabela's CLUB Visa credit card approximated 29% for 2012. The dollar amounts related to points are accrued as earned by the cardholder and recorded as a reduction in Financial Services revenue. The dollar amount of unredeemed credit card points and loyalty points was $128 million at the end of 2012 compared to $109 million at the end of 2011.

38--------------------------------------------------------------------------------Key statistics reflecting the performance of Cabela's CLUB are shown in the following chart for the years ended: 2012 2011 Increase (Decrease) % Change (Dollars in Thousands Except Average Balance per Account) Average balance of credit card loans (1) $ 3,095,781 $ 2,745,118 $ 350,663 12.8 % Average number of active credit card accounts 1,537,209 1,416,887 120,322 8.5 Average balance per active credit card account (1) $ 2,014 $ 1,937 $ 77 4.0 Net charge-offs on credit card loans (1) $ 57,803 $ 64,520 $ (6,717 ) (10.4 ) Net charge-offs as a percentage of average credit card loans (1) 1.87 % 2.35 % (0.48 )% (1) Includes accrued interest and fees.

The average balance of credit card loans increased to $3.1 billion, or 12.8%, for 2012 compared to 2011 due to an increase in the number of active accounts and the average balance per account. The average number of active accounts increased to 1.5 million, or 8.5%, compared to 2011 due to our successful marketing efforts in new account acquisitions. Net charge-offs as a percentage of average credit card loans decreased to 1.87% for 2012, down 48 basis points compared to 2011, due to improvements in delinquencies and delinquency roll-rates. See "Asset Quality of Cabela's CLUB" in this report for additional information on trends in delinquencies and non-accrual loans and analysis of our allowance for loan losses.

Other Revenue Other revenue increased $1 million in 2012 to $13 million compared to 2011 primarily due to an increase of $1 million in real estate sales revenue in 2012 compared to 2011.

Merchandise Gross Profit Merchandise gross profit is defined as merchandise sales less the costs of related merchandise sold and shipping costs. Comparisons of gross profit and gross profit as a percentage of revenue for our operations, year over year, and to the retail industry in general, are impacted by: • shifts in customer preferences; • retail store, distribution, and warehousing costs (including depreciation and amortization), which we exclude from our cost of revenue; • royalty fees we include in merchandise sales for which there are no costs of revenue; • Financial Services revenue we include in revenue for which there are no costs of revenue; • real estate land sales we include in revenue for which costs vary by transaction; • customer service related revenue we include in revenue for which there are no costs of revenue; and • customer shipping charges in revenue.

Comparisons and analysis of our gross profit on merchandising revenue are presented below for the years ended: Increase 2012 2011 (Decrease) % Change (Dollars in Thousands) Merchandise sales $ 2,778,903 $ 2,505,733 $ 273,170 10.9 % Merchandise gross profit 1,009,742 892,492 117,250 13.1 Merchandise gross profit as a percentage of merchandise sales 36.3 % 35.6 % 0.7 % 39-------------------------------------------------------------------------------- Merchandise Gross Profit - Our merchandise gross profit increased $117 million, or 13.1% to $1 billion in 2012 compared to 2011. The increase in our merchandise gross profit was primarily due to better inventory management, which reduced the need to mark down product, continued improvements in vendor collaboration, an ongoing focus on private label products, and further improvements in price optimization.

Our merchandise gross profit as a percentage of merchandise sales increased to 36.3% in 2012 from 35.6% in 2011. The increase in the merchandise gross profit in 2012 compared to 2011 was primarily due to continued improvements in pre-season and in-season inventory management and vendor collaboration, which allowed us to avoid significant end of season markdowns as we transitioned from fall to spring merchandise. The increase in our merchandise gross profit as a percentage of merchandise sales was partially offset by an adverse product mix shift due to increased sales of firearms, ammunition, and power sports products, which carry a lower margin.

Selling, Distribution, and Administrative Expenses Selling, distribution, and administrative expenses include all operating expenses related to our retail stores, Internet website, distribution centers, product procurement, Cabela's CLUB credit card operations, and overhead costs, including: advertising and marketing, catalog costs, employee compensation and benefits, occupancy costs, information systems processing, and depreciation and amortization.

Comparisons and analysis of our selling, distribution, and administrative expenses are presented below for the years ended: 2012 2011 Increase (Decrease) % Change (Dollars in Thousands) Selling, distribution, and administrative expenses $ 1,046,861 $ 954,125 $ 92,736 9.7 % SD&A expenses as a percentage of total revenue 33.6 % 33.9 % (0.3 )% Retail store pre-opening costs $ 12,523 $ 9,700 $ 2,823 29.1 Selling, distribution, and administrative expenses increased $93 million, or 9.7%, in 2012 compared to 2011. However, expressed as a percentage of total revenue, selling, distribution, and administrative expenses decreased 30 basis points to 33.6% in 2012 compared to 33.9% in 2011. The most significant factors contributing to the changes in selling, distribution, and administrative expenses in 2012 compared to 2011 included: • an increase of $59 million in employee compensation, benefits, and contract labor primarily due to the opening of new retail stores and increases in staff for other retail stores, merchandising support areas, distribution centers, credit card growth support, and general corporate overhead support; • an increase of $15 million in building costs and depreciation primarily related to the operations and maintenance of our new and existing retail stores as well as corporate offices; • an increase of $11 million in advertising and direct marketing costs, in advertising and promotional costs to support customer relationships, for new store openings, and from an increase in account origination costs in our Financial Services segment; and • an increase of $3 million in equipment and software expense primarily to support operational growth.

Significant changes in our selling, distribution, and administrative expenses related to specific business segments included the following: Retail Segment: • An increase of $29 million in employee compensation, benefits, and contract labor primarily due to the opening of new retail stores and increases in staff for other retail stores and merchandising teams.

• An increase of $12 million in building costs primarily related to the operations and maintenance of our new and existing retail stores.

• An increase of $15 million in advertising and promotional costs related to new and existing retail stores.

40--------------------------------------------------------------------------------Direct Segment: • A net increase of $3 million in advertising and direct marketing costs primarily due to increases in Internet related expenses due to our expanded use of digital marketing channels and enhancements to our website, partially offset by reduced catalog related costs.

• An increase of $1 million in building costs and depreciation primarily related to improvements to our distribution centers.

• A decrease of $2 million in employee compensation, benefits, and contract labor.

Financial Services Segment: • An increase of $8 million in employee compensation, benefits, and contract labor principally for positions added to support the growth of credit card operations.

• A decrease of $7 million in advertising and promotional costs primarily due to the classification of new account origination costs.

• An increase of $2 million in losses from fraudulent transactions on Cabela's CLUB Visa cards.

Corporate Overhead, Distribution Centers, and Other: • An increase of $24 million in employee compensation, benefits, and contract labor in general corporate and the distribution centers to support operational growth.

• An increase of $4 million in equipment and software expense primarily related to new equipment and updates to support operational growth.

• An increase of $2 million in building costs primarily related to the maintenance and expansion of our administrative buildings.

Impairment and Restructuring Charges Impairment and restructuring charges consisted of the following for the years ended: 2012 2011 Impairment losses relating to: Land held for sale $ 17,694 $ 4,617 Property, equipment, and other assets 1,321 154 Accumulated amortization of deferred grant income 1,309 6,538 20,324 11,309 Restructuring charges for severance and related benefits - 935 Total $ 20,324 $ 12,244 Long-lived assets of the Company are evaluated for possible impairment (i) whenever changes in circumstances may indicate that the carrying value of an asset may not be recoverable and (ii) at least annually for recurring fair value measurements and for those assets not subject to amortization. In 2012, 2011, and 2010, we evaluated the recoverability of land held for sale, economic development bonds, property (including existing store locations and future retail store sites), equipment, goodwill, and other intangible assets.

In December 2012, we received an appraisal report that updated the value from a previous appraisal on one property held for sale. Results from the 2012 appraisal report concluded that the carrying value was higher than the estimated fair value, resulting in an impairment loss. This 2012 appraisal was based on the sales comparison approach to estimate the "as-is" fee simple market value of the subject property. This approach involved a process in which a market value estimate was derived from analyzing the market for similar properties that have sold or that are available for sale (Level 2 inputs). In the fourth quarter of 2012, we also impaired a second property held for sale based on an arms-length sales contract of adjoining land anticipated to close in mid-2013 (Level 2 inputs). In 2011, we wrote down the carrying value of certain land held for sale properties based on signed agreements for their sale. We recognized impairment losses on land held for sale of $18 million and $5 million in 2012 and 2011, respectively.

41 -------------------------------------------------------------------------------- In the fourth quarter of 2012, we received information on one project that the development will be delayed thus reducing the amount expected to be received and delaying the timing of projected cash flows. Therefore, the fair value of this economic development bond was determined to be below carrying value, with the decline in fair value deemed to be other than temporary. In the fourth quarter of 2011, we received information on three projects that development was either delayed or that actual tax revenues were lower than estimated, thus reducing the amount expected to be received and delaying the timing of projected cash flows.

Therefore, the discounted cash flows indicated that the fair value of these three economic development bonds was below carrying value, with the decline in fair value deemed to be other than temporary. These fair value adjustments totaling $5 million and $24 million in 2012 and 2011, respectively, reduced the carrying value of the economic development bond portfolio at the end of 2012 and 2011 and resulted in corresponding reductions in deferred grant income. These reductions in deferred grant income resulted in increases in depreciation expense of $1 million and $7 million in 2012 and 2011, respectively, which have been included in impairment and restructuring charges in the consolidated statements of income. The discounted cash flow models for our other bonds did not result in other-than-temporary impairments. In 2010, none of the bonds with a fair value below carrying value were deemed to have other than a temporary impairment. At the end of 2012 and 2011, the total amount of impairment adjustments that were made to deferred grant income, which has been recorded as a reduction of property and equipment, was $39 million and $34 million, respectively. These impairment adjustments made to deferred grant income resulted from events or changes in circumstances that indicated the amount of deferred grant income may not be recovered or realized in cash through collection, sales, or other proceeds from the economic development bonds.

In 2011, we incurred charges totaling $1 million for severance and related benefits primarily from outplacement costs and a voluntary retirement plan. All impairment and restructuring charges were recorded to the Corporate Overhead and Other segment.

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

Comparisons and analysis of operating income are presented below for the years ended: 2012 2011 Increase (Decrease) % Change (Dollars in Thousands) Total operating income $ 275,699 $ 231,548 $ 44,151 19.1 % Total operating income as a percentage of total revenue 8.9 % 8.2 % 0.7 % Operating income by business segment: Retail $ 345,040 $ 263,010 $ 82,030 31.2 Direct 155,237 172,163 (16,926 ) (9.8 ) Financial Services 74,182 59,032 15,150 25.7 Operating income as a percentage of segment revenue: Retail 18.7 % 17.0 % 1.7 % Direct 16.7 18.0 (1.3 ) Financial Services 23.2 20.2 3.0 Operating income increased $44 million, or 19.1%, in 2012 compared to 2011, and operating income as a percentage of revenue increased 70 basis points to 8.9% for 2012. The increases in total operating income and total operating income as a percentage of total revenue were primarily due to increases in revenue from our Retail and Financial Services segments as well as an increase in our merchandise gross profit. These increases were partially offset by lower revenue from our Direct business, higher consolidated operating expenses, and higher impairment losses primarily related to land held for sale. In addition, interchange income in 2012 in our Financial Services segment was reduced by $12.5 million pursuant to the proposed settlement regarding the Visa litigation.

Selling, distribution, and administrative expenses increased in 2012 compared to 2011 primarily due to increases in comparable and new store costs and related support areas.

42 -------------------------------------------------------------------------------- Prior to January 1, 2012, under an Intercompany Agreement, the Financial Services segment had incurred a marketing fee that was paid to the Retail and Direct segments. Effective January 1, 2012, this Intercompany Agreement was amended with the marketing fee component eliminated and replaced with a fixed license fee equal to 70 basis points on all originated charge volume of the Cabela's CLUB Visa credit card portfolio. In addition, among other changes, the agreement requires the Financial Services segment to reimburse the Retail and Direct segments for certain operating and promotional costs. Reported operating income by segment, and the components of operating income for each segment, were not materially impacted for 2012 compared to prior years by the amendments to the Intercompany Agreement. Fees paid under the Intercompany Agreement by the Financial Services segment to these two segments increased $14 million in 2012 compared to 2011; an $16 million increase to the Retail segment and a $2 million decrease to the Direct segment.

Interest (Expense) Income, Net Interest expense, net of interest income, decreased $4 million to $20 million in 2012 compared to $24 million in 2011. Interest expense is accrued on our revolving credit facilities and long-term debt as well as on unrecognized tax benefits. The decrease in interest expense was primarily due to an increase in capitalized interest in 2012 compared to 2011.

Other Non-Operating Income, Net Other non-operating income was $6 million in 2012 compared to $7 million in 2011. This income is primarily from interest earned on our economic development bonds.

Provision for Income Taxes Our effective tax rate was 33.7% in 2012 compared to 33.5% in 2011. The effective tax rates for both years differed from our statutory rate primarily due to the mix of taxable income between the United States and foreign tax jurisdictions. The balance of unrecognized tax benefits, which is classified with long-term liabilities in the consolidated balance sheet, totaled $39 million at December 29, 2012, compared to $38 million at December 31, 2011.

Results of Operations - 2011 Compared to 2010 Revenues Increase 2011 % 2010 % (Decrease) % Change (Dollars in Thousands) Retail $ 1,550,442 55.2 % $ 1,412,715 53.0 % $ 137,727 9.7 % Direct 956,834 34.0 999,771 37.5 (42,937 ) (4.3 ) Financial Services 291,746 10.4 227,675 8.6 64,071 28.1 Other 12,144 0.4 23,081 0.9 (10,937 ) (47.4 ) $ 2,811,166 100.0 % $ 2,663,242 100.0 % $ 147,924 5.6 Product Sales Mix - The following table sets forth the percentage of our merchandise revenue contributed by major product categories for our Retail and Direct segments and in total for the years ended: Retail Direct Total 2011 2010 2011 2010 2011 2010 Product Category: Hunting Equipment 45.7 % 44.5 % 33.4 % 33.7 % 41.1 % 40.2 % General Outdoors 30.7 31.5 32.7 32.9 31.5 32.1 Clothing and Footwear 23.6 24.0 33.9 33.4 27.4 27.7 Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 43-------------------------------------------------------------------------------- Retail Revenue - Retail revenue increased $138 million, or 9.7%, in 2011 primarily due to an increase of $93 million in revenue from the addition of new retail stores comparing year over year and an increase in revenue from comparable store sales of $39 million. Retail revenue growth was led by increases in all major product categories. Gift instrument breakage recognized was $7 million, $5 million, and $5 million for 2011, 2010, and 2009, respectively.

Increase 2011 2010 (Decrease) (Dollars in Thousands) Comparable stores sales $ 1,416,133 $ 1,377,527 $ 38,606 Comparable stores sales growth percentage 2.8 % 1.6 % Comparable store sales increased $39 million, or 2.8%, in 2011 principally because of the strength in our hunting equipment and clothing and footwear categories and the success of our Retail operations focus. Average sales per square foot for stores that were open during the entire year were $328 for 2011 compared to $314 for 2010. The increase in average sales per square foot resulted from the increase in comparable store sales.

Direct Revenue - Our Direct revenue decreased $43 million, or 4.3%, in 2011 compared to 2010 primarily due to a decrease in revenue originated from our call centers, partially offset by an increase in Internet sales. We divested our non-core home restoration products business in October 2010. For comparative purposes, Direct revenue in 2011 compared to 2010, adjusted for the effect of this divestiture, decreased $29 million, or 3.0%. The decrease in Direct revenue comparing 2011 to 2010 was due to expected declines in ammunition and shooting products, and to decreases in the clothing and footwear, fishing and marine, and camping categories.

Internet sales increased in 2011 compared to 2010. Visitors to our websites increased 4.5% during 2011 as we continued to focus our efforts on utilizing Direct marketing programs to increase traffic to our website and social media networks. Our hunting equipment and clothing and footwear categories were the largest dollar volume contributor to our Direct revenue for 2011. In October 2010, we launched our new website featuring significant enhancements, including guided navigation to improve customers' movement throughout the site, managed content to aid in customizing the individual shopping experience, better promotional capability, and international commerce capabilities. We continued to focus on smaller, more specialized catalogs, and we reduced the number of catalog pages mailed and decreased total circulation, leading to reductions in catalog related costs. Mostly offsetting the reductions in catalog related costs were increases in Internet related expenses due to our expanded use of digital marketing channels and enhancements to our website.

Increase 2011 2010 (Decrease) % Change Percentage increase year over year in Internet website visitors 4.5 % 5.8 % Catalog circulation in pages (in millions) (1) 22,218 24,028 (1,810 ) (7.5 )% Number of separate catalog titles circulated (1) 102 98 4 (1) 2010 amounts were adjusted to reflect the activity related to the divestiture of our non-core home restoration products business.

44--------------------------------------------------------------------------------Financial Services Revenue - The following table sets forth the components of our Financial Services revenue for the years ended: Increase 2011 2010 (Decrease) % Change (Dollars in Thousands) Interest and fee income $ 277,242 $ 271,651 $ 5,591 2.1 % Interest expense (70,303 ) (86,494 ) (16,191 ) (18.7 ) Provision for loan losses (39,287 ) (66,814 ) (27,527 ) (41.2 ) Net interest income, net of provision for loan losses 167,652 118,343 49,309 41.7 Non-interest income: Interchange income 267,106 231,347 35,759 15.5 Other non-interest income 13,620 12,247 1,373 11.2 Total non-interest income 280,726 243,594 37,132 15.2 Less: Customer rewards costs (156,632 ) (134,262 ) 22,370 16.7 Financial Services revenue $ 291,746 $ 227,675 $ 64,071 28.1 Financial Services revenue increased $64 million, or 28.1%, in 2011 compared to 2010. The increase in interest and fee income of $6 million was due to an increase in credit card loans and a reduction in charge-offs of cardholder fees and interest, partially offset with a decrease in interest and fees charged as a result of the CARD Act. Interest expense decreased $16 million due to decreases in interest rates. The provision for loan losses decreased $28 million due to favorable charge-off trends and an improved outlook on the quality of our credit card portfolio as of the end of 2011 compared to 2010, evidenced by lower delinquencies and delinquency roll-rates comparing the respective periods. The increase in interchange income of $36 million and customer rewards costs of $22 million was due to an increase in credit card purchases.

The following table sets forth the components of our Financial Services revenue as a percentage of average managed credit card loans, including any accrued interest and fees, for the years ended: 2011 2010 Interest and fee income 10.1 % 11.0 % Interest expense (2.6 ) (3.5 ) Provision for loan losses (1.4 ) (2.7 ) Interchange income 9.7 9.4 Other non-interest income 0.5 0.5 Customer rewards costs (5.7 ) (5.5 ) Financial Services revenue 10.6 % 9.2 % 45--------------------------------------------------------------------------------Key statistics reflecting the performance of our Financial Services business are shown in the following chart for the years ended: 2011 2010 Increase (Decrease) % Change (Dollars in Thousands Except Average Balance per Account) Average balance of managed credit card loans (1) $ 2,745,118 $ 2,470,493 $ 274,625 11.1 % Average number of active credit card accounts 1,416,887 1,317,890 98,997 7.5 Average balance per active credit card account (1) $ 1,937 $ 1,875 $ 62 3.3 Net charge-offs on managed loans (1) $ 64,520 $ 104,416 $ (39,896 ) (38.2 ) Net charge-offs as a percentage of average managed credit card loans (1) 2.35 % 4.23 % (1.88 )% (1) Includes accrued interest and fees.

The average balance of credit card loans increased to $2.7 billion, or 11.1%, for 2011 compared to 2010, due to an increase in the number of active accounts and the average balance per account. The average number of active accounts increased to 1.4 million, or 7.5%, compared to 2010 due to our marketing efforts. Net charge-offs as a percentage of average credit card loans decreased to 2.35% for 2011, down 188 basis points compared to 2010, due to improvements in delinquencies and delinquency roll-rates.

Other Revenue Other revenue decreased $11 million in 2011 to $12 million compared to $23 million in 2010 primarily due to a decrease of $10 million in real estate sales revenue. After adjusting for the cost of real estate, pre-tax gains on the sale of real estate totaled $2 million in 2010 with no sales in 2011. Pre-tax gains on the sale of real estate are reflected in operating income.

Merchandise Gross Profit Comparisons and analysis of our gross profit on merchandising revenue are presented below for the years ended: Increase 2011 2010 (Decrease) % Change (Dollars in Thousands) Merchandise sales $ 2,505,733 $ 2,412,486 $ 93,247 3.9 % Merchandise gross profit 892,492 846,321 46,171 5.5 Merchandise gross profit as a percentage of merchandise sales 35.6 % 35.1 % 0.5 % Merchandise Gross Profit - Our merchandise gross profit increased $46 million, or 5.5% in 2011 compared to 2010. The increase in our merchandise gross profit was due to better inventory management, which reduced the need to mark down product, continued improvements in vendor collaboration, and advancements in price optimization.

Our merchandise gross profit as a percentage of merchandise sales increased to 35.6% in 2011 from 35.1% in 2010. The increase in the merchandise gross profit in 2011 compared to 2010 was primarily due to ongoing improvements in pre-season and in-season inventory management, vendor collaboration, and advancements in price optimization. In addition, we also reduced promotional discounts in 2011 compared to 2010 by eliminating unprofitable retail store promotions.

46 -------------------------------------------------------------------------------- Selling, Distribution, and Administrative Expenses Selling, distribution, and administrative expenses were as follows for the years ended: Increase 2011 2010 (Decrease) % Change (Dollars in Thousands) Selling, distribution, and administrative expenses $ 954,125 $ 895,405 $ 58,720 6.6 % SD&A expenses as a percentage of total revenue 33.9 % 33.6 % 0.3 % Retail store pre-opening costs $ 9,700 $ 4,760 $ 4,940 103.8 Selling, distribution, and administrative expenses increased $59 million, or 6.6%, in 2011 compared to 2010. Expressed as a percentage of total revenue, selling, distribution, and administrative expenses increased 30 basis points to 33.9% in 2011 compared to 33.6% in 2010. The most significant factors contributing to the changes in selling, distribution, and administrative expenses in 2011 compared to 2010 included: • an increase of $36 million in employee compensation and benefits primarily due the opening of new retail stores and increases in staff for other retail stores, merchandising and distribution centers, and general corporate overhead support; • an increase of $12 million in building costs primarily related to the operations and maintenance of our new and existing retail stores; • an increase of $10 million in advertising and promotional costs to support customer relationships, for new store openings, and from an increase in account origination costs in our Financial Services segment; and • a decrease of $8 million related to matters arising out of the 2009 FDIC compliance examination.

Significant selling, distribution, and administrative expense increases and decreases related to specific business segments included the following: Retail Segment: • An increase of $20 million in employee compensation and benefits primarily due to the opening of new retail stores and increases in staff for other retail stores and merchandising teams.

• An increase of $7 million in building costs primarily related to the operations and maintenance of our new and existing retail stores.

• An increase of $5 million in advertising and promotional costs relating to new store openings.

Direct Segment: • A decrease of $3 million in employee compensation and benefits.

Financial Services Segment: • A decrease of $8 million in operating expenses relating to the matters arising out of the 2009 FDIC compliance examination.

• An increase of $5 million in advertising and promotions expense due to an increase in account origination costs.

• An increase of $3 million in employee compensation and benefits principally for positions added to support the growth of credit card operations.

Corporate Overhead, Distribution Centers, and Other: • An increase of $16 million in employee compensation and benefits in general corporate and the distribution centers to support operational growth.

• An increase of $5 million in costs primarily related to the operations and maintenance of our corporate offices.

• An increase of $3 million in contract labor and equipment and software expenses primarily due to costs relating to information technology system changes in support of our customer relationship management system.

47-------------------------------------------------------------------------------- Impairment and Restructuring Charges Impairment and restructuring charges consisted of the following for the years ended: 2011 2010 Impairment losses relating to: Land held for sale $ 4,617 $ 1,834 Property, equipment, and other assets 154 3,792 Accumulated amortization of deferred grant income (1) 6,538 - 11,309 5,626 Restructuring charges for severance and related benefits 935 - Total $ 12,244 $ 5,626 (1) In 2011, deferred grant income was reduced by $24 million due to other-than-temporary impairment losses of the same amount that were recognized on our economic development bonds. This reduction in deferred grant income resulted in an increase in depreciation expense of $7 million in 2011, which has been included in impairment and restructuring charges in the consolidated statements of income.

In accordance with accounting guidance on asset valuations, we recognized impairment losses totaling $11 million and $6 million in 2011 and 2010, respectively. In 2011, we incurred charges approximating $1 million for severance and related benefits. All impairment and restructuring charges were recorded to the Corporate Overhead and Other segment for 2011 and 2010.

In 2011 and 2010, we evaluated the recovery of certain economic development bonds. In 2011, we determined that the fair value of the bonds was below carrying value, with the decline in fair value deemed to be other than temporary, which resulted in a fair value adjustment totaling $24 million at the end of 2011. The fair value adjustment of $24 million reduced the carrying value of the economic development bond portfolio at the end of 2011, and resulted in a corresponding reduction in deferred grant income. This reduction in deferred grant income resulted in an increase in depreciation expense of $7 million in 2011, which was included in impairment and restructuring charges in the consolidated statements of income. At the end of 2010, none of the bonds with a fair value below carrying value were deemed to have other than a temporary impairment.

Operating Income Operating income comparisons were as follows for the years ended: 2011 2010 Increase (Decrease) % Change (Dollars in Thousands) Total operating income $ 231,548 $ 186,762 $ 44,786 24.0 % Total operating income as a percentage of total revenue 8.2 % 7.0 % 1.2 % Operating income by business segment: Retail $ 263,010 $ 205,768 $ 57,242 27.8 Direct 172,163 156,255 15,908 10.2 Financial Services 59,032 52,401 6,631 12.7 Operating income as a percentage of segment revenue: Retail 17.0 % 14.6 % 2.4 % Direct 18.0 15.6 2.4 Financial Services 20.2 23.0 (2.8 ) 48-------------------------------------------------------------------------------- Operating income increased $45 million, or 24.0%, in 2011 compared to 2010, and operating income as a percentage of revenue increased to 8.2% for 2011. The increases in total operating income and total operating income as a percentage of total revenue were primarily due to increases in revenue from our Retail and Financial Services segments as well as an increase in our merchandise gross profit. These improvements were partially offset by lower revenue from our Direct business segment and higher consolidated operating expenses. Selling, distribution, and administrative expenses increased in 2011 compared to 2010 due to increases in comparable and new store costs and related support areas, pre-opening costs, and costs related to our customer relationship management system, but were partially offset by the decrease of $8 million related to the 2009 FDIC compliance examination.

During 2011 and 2010, under a contractual arrangement, the Financial Services segment incurred a marketing fee paid to the Retail and Direct business segments. The marketing fee was calculated based on the terms of a contractual arrangement consistently applied to both years presented. The marketing fee is included in selling, distribution, and administrative expenses as an expense for the Financial Services segment and as a credit to expense for the Retail and Direct business segments. The marketing fee paid by the Financial Services segment to these two business segments increased $55 million in 2011 compared to 2010 - a $33 million increase to the Retail segment and a $22 million increase to the Direct business segment.

Interest (Expense) Income, Net Interest expense, net of interest income, decreased $3 million to $24 million in 2011 compared to 2010. The net decrease in interest expense was primarily due to interest expense accrued on increases in certain unrecognized tax benefits reflected in 2010, partially offset by a decrease in interest expense due to a lower average balance of debt outstanding from managed debt reduction and lower weighted average interest rates in 2011 compared to 2010.

Other Non-Operating Income, Net Other non-operating income was $7 million for both 2011 and 2010. This income is primarily from interest earned on our economic development bonds.

Provision for Income Taxes Our effective tax rate was 33.5% in 2011 compared to 32.7% in 2010. The effective tax rate for 2011 compared to 2010 was impacted primarily by the mix of taxable income between the United States and foreign tax jurisdictions. The balance of unrecognized tax benefits, which is classified with long-term liabilities in the consolidated balance sheet, totaled $38 million at December 31, 2011, compared to $43 million at January 1, 2011.

Asset Quality of Cabela's CLUB Delinquencies and Non-Accrual We consider the entire balance of an account, including any accrued interest and fees, delinquent if the minimum payment is not received by the payment due date.

Our aging method is based on the number of completed billing cycles during which a customer has failed to make a required payment. As part of collection efforts, a credit card loan may be closed and placed on non-accrual or restructured in a fixed payment plan prior to charge off. Our fixed payment plans consist of a lower interest rate, reduced minimum payment, and elimination of fees. Loans on fixed payment plans include loans in which the customer has engaged a consumer credit counseling agency to assist them in managing their debt. Non-accrual loans with two consecutive missed payments will resume accruing interest at the rate they had accrued at before they were placed on non-accrual. Payments received on non-accrual loans will be applied to principal and reduce the amount of the loan.

49-------------------------------------------------------------------------------- The quality of our credit card loan portfolio at any time reflects, among other factors: 1) the creditworthiness of cardholders, 2) general economic conditions, 3) the success of our account management and collection activities, and 4) the life-cycle stage of the portfolio. During periods of economic weakness, delinquencies and net charge-offs are more likely to increase. We have mitigated periods of economic weakness by selecting a customer base that is very creditworthy. We use the scores of Fair Isaac Corporation ("FICO"), a widely-used tool for assessing an individual's credit rating, as the primary credit quality indicator. During the second quarter of 2012, the Financial Services segment incorporated a newer version of FICO that utilizes the same factors as the previous scoring model, but is more sensitive to utilization of available credit, delinquencies considered serious and frequent, and maintenance of various types of credit. Management of the Financial Services segment believes the newer version will enable us to improve our risk management decisions. The newer version FICO score resulted in a slightly higher median score of our credit cardholders, which was 793 at the end of 2012 compared to 788 at the end of 2011.

The following table reports delinquencies, including any delinquent non-accrual and restructured credit card loans, as a percentage of our credit card loans, including any accrued interest and fees, in a manner consistent with our monthly external reporting for the years ended: 2012 2011 2010 Number of days delinquent: Greater than 30 days 0.72 % 0.87 % 1.13 % Greater than 60 days 0.46 0.53 0.72 Greater than 90 days 0.24 0.27 0.37 Delinquencies declined as a result of improvements in the economic environment and our conservative underwriting criteria and active account management.

The table below shows delinquent, non-accrual, and restructured loans as a percentage of our credit card loans, including any accrued interest and fees, at the years ended: 2012 2011 2010 Number of days delinquent and still accruing (1): Greater than 30 days 0.57 % 0.64 % 0.74 % Greater than 60 days 0.36 0.38 0.47 Greater than 90 days 0.19 0.20 0.25(1) Excludes non-accrual and restructured loans which are presented below.

Non-accrual 0.17 0.20 0.24 Restructured 1.35 1.91 2.90 50--------------------------------------------------------------------------------Allowance for Loan Losses and Charge-offs The allowance for loan losses represents management's estimate of probable losses inherent in the credit card loan portfolio. The allowance for loan losses is established through a charge to the provision for loan losses and is regularly evaluated by management for adequacy. Loans on a payment plan or non-accrual are segmented from the rest of the credit card loan portfolio into a restructured credit card loan segment before establishing an allowance for loan losses as these loans have a higher probability of loss. Management estimates losses inherent in the credit card loans segment and restructured credit card loans segment based on a model which tracks historical loss experience on delinquent accounts, bankruptcies, death, and charge-offs, net of estimated recoveries. The Financial Services segment uses a migration analysis and historical bankruptcy and death rates to estimate the likelihood that a credit card loan will progress through the various stages of delinquency and to charge-off. This analysis estimates the gross amount of principal that will be charged off over the next twelve months, net of recoveries. This estimate is used to derive an estimated allowance for loan losses. In addition to these methods of measurement, management also considers other factors such as general economic and business conditions affecting key lending areas, credit concentration, changes in origination and portfolio management, and credit quality trends. Since the evaluation of the inherent loss with respect to these factors is subject to a high degree of uncertainty, the measurement of the overall allowance is subject to estimation risk, and the amount of actual losses can vary significantly from the estimated amounts.

Charge-offs consist of the uncollectible principal, interest, and fees on a customer's account. Recoveries are the amounts collected on previously charged-off accounts. Most bankcard issuers charge off accounts at 180 days. We charge off credit card loans on a daily basis after an account becomes at a minimum 130 days contractually delinquent to allow us to manage the collection process more efficiently. Accounts relating to cardholder bankruptcies, cardholder deaths, and fraudulent transactions are charged off earlier. The Financial Services segment records charged-off cardholder fees and accrued interest receivable directly against interest and fee income included in Financial Services revenue.

The following table shows the activity in our allowance for loan losses and charge off activity for the years ended: 2012 2011 2010 (Dollars in Thousands) Balance, beginning of year $ 73,350 $ 90,900 $ 1,374 Change in allowance for loan losses upon consolidation of the Trust - - 114,573 73,350 90,900 115,947 Provision for loan losses 42,760 39,287 66,814 Charge-offs (68,834 ) (75,599 ) (108,111 ) Recoveries 18,324 18,762 16,250 Net charge-offs (50,510 ) (56,837 ) (91,861 ) Balance, end of year $ 65,600 $ 73,350 $ 90,900 Net charge-offs on credit card loans $ (50,510 ) $ (56,837 ) $ (91,861 ) Charge-offs of accrued interest and fees (recorded as a reduction in interest and fee income) (7,293 ) (7,683 ) (12,555 ) Total net charge-offs including accrued interest and fees $ (57,803 ) $ (64,520 ) $ (104,416 ) Net charge-offs including accrued interest and fees as a percentage of average credit card loans 1.87 % 2.35 % 4.23 % For 2012, net charge-offs as a percentage of average credit card loans decreased to 1.87%, down 48 basis points compared to 2.35% for 2011. We believe our charge-off levels remain well below industry averages. Our net charge-off rates and allowance for loan losses have decreased due to improved outlooks in the quality of our credit card portfolio evidenced by lower delinquencies and delinquency roll-rates and favorable charge-off trends.

51 --------------------------------------------------------------------------------Aging of Credit Cards Loans Outstanding The following table shows our credit card loans outstanding at the end of 2012 and 2011 segregated by the number of months passed since the accounts were opened.

2012 2011 Loans Percentage of Loans Percentage of Months Since Account Opened Outstanding Total Outstanding Total (Dollars in Thousands) 6 months or less $ 153,709 4.3 % $ 130,097 4.1 % 7 - 12 months 126,586 3.6 132,111 4.2 13 - 24 months 318,397 9.0 247,858 7.8 25 - 36 months 265,345 7.4 269,071 8.5 37 - 48 months 281,501 7.9 294,398 9.3 49 - 60 months 292,506 8.2 323,327 10.2 61 - 72 months 323,986 9.1 264,117 8.3 73 - 84 months 266,641 7.4 235,413 7.4 More than 84 months 1,528,818 43.1 1,271,121 40.2 Total $ 3,557,489 100.0 % $ 3,167,513 100.0 % Liquidity and Capital Resources Overview Our Retail and Direct segments and our Financial Services segment have significantly differing liquidity and capital needs. We believe that we will have sufficient capital available from cash on hand, our revolving credit facility, and other borrowing sources to fund our cash requirements and near-term growth plans for at least the next 12 months. At the end of 2012 and 2011, cash on a consolidated basis totaled $289 million and $305 million, of which $91 million and $117 million, respectively, was cash at the Financial Services segment which will be utilized to meet this segment's liquidity requirements. In 2012, our Financial Services business issued $156 million in certificates of deposit, renewed its $225 million variable funding facility for an additional year, and completed two securitization transactions totaling $500 million in term securitizations. We evaluate the credit markets for certificates of deposit and securitizations to determine the most cost effective source of funds for the Financial Services segment.

As of December 29, 2012, cash and cash equivalents held by our foreign subsidiaries totaled $28 million. Our intent is to permanently reinvest a portion of these funds outside the United States for capital expansion and to repatriate a portion of these funds. The Company has not provided United States income taxes and foreign withholding taxes on the portion of undistributed earnings of foreign subsidiaries that the Company considers to be indefinitely reinvested outside of the United States as of the end of year 2012. If these foreign earnings were to be repatriated in the future, the related United States tax liability may be reduced by any foreign income taxes previously paid on these earnings. As of the year ended 2012, the cumulative amount of earnings upon which United States income taxes have not been provided is approximately $122 million. If those earnings were not considered indefinitely invested, the Company estimates that an additional income tax expense of approximately $26 million would be recorded. Based on our current projected capital needs and the current amount of cash and cash equivalents held by our foreign subsidiaries, we do not anticipate incurring any material tax costs beyond our accrued tax position in connection with any repatriation, but we may be required to accrue for unanticipated additional tax costs in the future if our expectations or the amount of cash held by our foreign subsidiaries change.

52 -------------------------------------------------------------------------------- On October 11, 2011, the Federal Reserve, the Office of the Comptroller of Currency, the FDIC, and the SEC issued proposed regulations implementing certain provisions under the Reform Act limiting proprietary trading and sponsorship or investment in hedge funds and private equity funds (the "Volcker Rule"). The proposed regulations are complex and have been the subject of extensive comment.

As proposed, these regulations may apply to us and could limit our ability to engage in the types of transactions covered by the Volcker Rule and may impose potentially burdensome compliance, monitoring, and reporting obligations. There remains considerable uncertainty regarding whether the final regulations implementing the Volcker Rule will differ from the proposed regulations, and the effect of any final regulations on our Retail and Direct businesses and the business of the Financial Services segment, and its ability and willingness to sponsor securitization transactions in the future.

Retail and Direct Segments - The primary cash requirements of our merchandising business relate to capital for new retail stores, purchases of inventory, investments in our management information systems and infrastructure, and general working capital needs. We historically have met these requirements with cash generated from our merchandising business operations, borrowing under revolving credit facilities, issuing debt and equity securities, collecting principal and interest payments on our economic development bonds, and from the retirement of economic development bonds.

The cash flow we generate from our merchandising business is seasonal, with our peak cash requirements for inventory occurring from April through November.

While we have consistently generated overall positive annual cash flow from our operating activities, other sources of liquidity are required by our merchandising business during these peak cash use periods. These sources historically have included short-term borrowings under our revolving credit facility and access to debt markets. While we generally have been able to manage our cash needs during peak periods, if any disruption occurred to our funding sources, or if we underestimated our cash needs, we would be unable to purchase inventory and otherwise conduct our merchandising business to its maximum effectiveness, which could result in reduced revenue and profits.

On November 2, 2011, we entered into a new credit agreement providing for a $415 million revolving credit facility that expires on November 2, 2016. The unsecured $415 million revolving credit facility permits the issuance of letters of credit up to $100 million and swing line loans up to $20 million. This credit facility may be increased to $500 million subject to certain terms and conditions. Advances under the credit facility will be used for the Company's general business purposes, including working capital support.

Our unsecured $415 million revolving credit facility and unsecured senior notes contain certain financial covenants, including the maintenance of minimum debt coverage, a fixed charge coverage ratio, a leverage ratio, and a minimum consolidated net worth standard. In the event that we failed to comply with these covenants, a default would trigger and all principal and outstanding interest would immediately be due and payable. At December 29, 2012, and December 31, 2011, we were in compliance with all financial covenants under our credit agreements and unsecured notes. We anticipate that we will continue to be in compliance with all financial covenants under our credit agreements and unsecured notes through at least the next 12 months.

Our $15 million Canadian dollars ("CAD") unsecured revolving credit facility for our operations in Canada was terminated January 31, 2013.

We announced in February 2012 our intent to repurchase up to 800,000 shares of our common stock in open market transactions through February 2013 to offset future equity grants. During 2012, we repurchased 816,057 shares of our common stock, which included 800,000 shares purchased for $29 million in cash from operations pursuant to our stock repurchase program, as well as 16,057 shares withheld (under the terms of grants pursuant to a stock compensation plan) to offset tax withholding obligations upon the vesting and release of certain restricted shares. We announced on February 14, 2013, that we intend to repurchase up to 750,000 shares of our outstanding common stock in open market transactions through February 2014 pursuant to this share repurchase program.

The share repurchase program does not obligate us to repurchase any outstanding shares of our common stock, and the program may be limited or terminated at any time.

53-------------------------------------------------------------------------------- Financial Services Segment - The primary cash requirements of the Financial Services segment relate to the financing of credit card loans. These cash requirements will increase if our credit card originations increase or if our cardholders' balances or spending increase. The Financial Services segment sources operating funds in the ordinary course of business through various financing activities, which include funding obtained from securitization transactions, obtaining brokered and non-brokered certificates of deposit, borrowing under its federal funds purchase agreements, and generating cash from operations. During 2012, the Financial Services segment issued $156 million in certificates of deposit, renewed its $225 million variable funding facility for an additional year, and completed two $500 million term securitizations that will mature in February and June of 2017. In 2013, the Financial Services segment intends to issue additional certificates of deposit and additional term securitizations. We believe that these liquidity sources are sufficient to fund the Financial Services segment's foreseeable cash requirements and near-term growth plans.

WFB is prohibited by regulations from lending money to Cabela's or other affiliates. WFB is subject to capital requirements imposed by Nebraska banking law and the Visa U.S.A., Inc. membership rules, and its ability to pay dividends is also limited by Nebraska and Federal banking law. If there are any disruptions in the credit markets, the Financial Services segment, like many other financial institutions, may increase its funding from certificates of deposit which may result in increased competition in the deposits market with fewer funds available or at unattractive rates. Our ability to issue certificates of deposit is reliant on our current regulatory capital levels. WFB is classified as a "well capitalized" bank, the highest category under the regulatory framework for prompt corrective action. If WFB were to be classified as an "adequately capitalized" bank, which is the next level category down from "well capitalized," we would be required to obtain a waiver from the FDIC in order to continue to issue certificates of deposit. We will invest additional capital in the Financial Services segment, if necessary, in order for WFB to continue to meet the minimum requirements for the "well capitalized" classification under the regulatory framework for prompt corrective action. In addition to the non-brokered certificates of deposit market to fund growth and maturing securitizations, we have access to the brokered certificates of deposit market through multiple financial institutions for liquidity and funding purposes.

On June 7, 2012, the FDIC and the other federal banking agencies announced they are seeking comment on proposed rules that would revise and replace the agencies' current capital rules. Among other things, the proposed rules would revise the agencies' prompt corrective action framework by introducing a common equity tier 1 capital requirement and a higher minimum tier 1 capital requirement. In addition, the proposed rules include a supplementary leverage ratio for depository institutions subject to the advanced approaches capital rules. It is not clear how the final rules will differ from the proposed rules, if at all, or the impact of the final rules on WFB and its ability to comply with a new common equity tier 1 capital requirement and a higher minimum tier 1 capital requirement.

The ability of the Financial Services segment to engage in securitization transactions on favorable terms or at all could be adversely affected by disruptions in the capital markets or other events, which could materially affect our business and cause the Financial Services segment to lose an important source of capital. The Reform Act, which was signed into law in July 2010, will also affect a number of significant changes relating to asset-backed securities, including additional oversight and regulation of credit rating agencies and additional reporting and disclosure requirements. In December 2012, the Staff of the Division of Markets and Trading of the SEC issued its Report to Congress on Assigned Credit Ratings (the "Report") pursuant to the provisions of the Reform Act. In the Report, the Staff analyzed the manner in which credit rating agencies are currently compensated in connection with the issuance of credit ratings of asset-backed securities and various alternative compensation structures. It is unclear if or when Congress or the SEC will take any further legislative or regulatory action in response to the issues considered in the Report. If any further legislative or regulatory action is taken in response to these issues, the ability and willingness of WFB to continue to rely on the securitization market for funding could be adversely affected. The changes resulting from the Reform Act may impact our profitability, require changes to certain Financial Services segment business practices, impose upon the Financial Services segment more stringent capital, liquidity, and leverage ratio requirements, increase FDIC deposit insurance premiums, or otherwise adversely affect the Financial Services segment's business. These changes may also require the Financial Services segment to invest significant management attention and resources to evaluate and make necessary changes. On September 27, 2010, the FDIC approved a final rule that, subject to certain conditions, preserved the safe-harbor treatment for legal isolation of transferred assets applicable to certain grandfathered revolving trusts and master trusts that had issued at least one series of asset-backed securities as of such date, which we believe included the Trust. The final rule imposes significant new conditions on the availability of the safe-harbor with respect to securitizations that are not grandfathered.

54 -------------------------------------------------------------------------------- In addition, several rules and regulations have recently been proposed or adopted that may substantially affect issuers of asset-backed securities. On September 19, 2011, the SEC proposed a new rule under the Securities Act of 1933, as amended, to implement certain provisions of the Reform Act. Under the proposed rule, an underwriter, placement agent, initial purchaser, or sponsor of an asset-backed security, or any affiliate of any such person, shall not at any time within one year after the first closing of the sale of the asset-backed security, engage in any transaction that would involve or result in any material conflict of interest with respect to any investor in a transaction arising out of such activity. The proposed rule would exempt certain risk-mitigating hedging activities, liquidity commitments, and bona fide market-making activity. It is not clear how the final rule will differ from the proposed rule, if at all. The final rule's impact on the securitization market and the Financial Services segment is also unclear at this time.

The JOBS Act was signed into law on April 5, 2012, and will implement extensive changes to the laws regulating private offerings of securities, including Rule 144A private offerings such as the private offerings of asset-backed securities of the Trust that WFB sponsors. On August 29, 2012, the SEC issued proposed regulations to amend Rule 144A to provide that securities may be offered pursuant to Rule 144A by means of general solicitation or general advertising, including to persons other than qualified institutional buyers, so long as the issuer reasonably believes that each ultimate purchaser is a qualified institutional buyer. The impact that the JOBS Act will have on the securitization market and the Financial Services segment is unclear at this time.

The Trust is structured to qualify for the exemption from the Investment Company Act provided by Investment Company Act Rule 3a-7. On August 31, 2011, the SEC issued an advance notice of proposed rulemaking regarding possible amendments to Investment Company Act Rule 3a-7. At this time, it is uncertain what form the related proposed and final rules will take, whether the Trust would continue to be eligible to rely on the exemption provided by Investment Company Act Rule 3a-7, and whether the Trust would qualify for any other Investment Company Act exemption.

On July 26, 2011, the SEC re-proposed certain rules for asset-backed securities offerings ("SEC Regulation AB II") which were originally proposed by the SEC on April 7, 2010. If adopted, SEC Regulation AB II would substantially change the disclosure, reporting, and offering process for private offerings of asset-backed securities that rely on the Rule 144A safe harbor, including the Trust's private offerings of asset-backed securities. As currently proposed, SEC Regulation AB II would, among other things, alter the safe harbor standards for private placements of asset-backed securities imposing informational requirements similar to those applicable to registered public offerings. The final form that SEC Regulation AB II may take is uncertain at this time, but it may impact the Financial Services segment's ability and/or desire to sponsor securitization transactions in the future.

On March 29, 2011, pursuant to the provisions of the Reform Act, the SEC, the Federal Reserve, the FDIC, and certain other federal agencies issued proposed regulations requiring securitization sponsors to retain an economic interest in assets that they securitize. Subject to certain exceptions, the proposed regulations would generally require the sponsor of a securitization transaction to retain at least 5% of the credit risk of the securitized assets and would provide securitization sponsors with a number of options for satisfying this requirement. Each of these options would require the sponsor to provide certain disclosures to investors a reasonable time prior to sale and upon request to the SEC and the sponsor's applicable federal banking regulator. In addition, the sponsor would be subject to certain prohibitions on hedging, transferring, or financing the retained credit risk. If adopted, the proposed regulations will likely affect most types of private securitization transactions, including those sponsored by the Financial Services segment. It is not clear how the final regulations will differ from the proposed regulations, if at all, or the impact of the final regulations on the Financial Services segment and its ability and willingness to continue to rely on the securitization market for funding.

On January 20, 2011, under provisions of the Reform Act, the SEC adopted rules that require issuers of asset-backed securities to disclose demand, repurchase, and replacement information through the periodic filing of a new form with the SEC. One of these rules requires rating agencies to disclose in any report accompanying a credit rating for an asset-backed security the representations, warranties, and enforcement mechanisms available to investors and how they differ from those in similar securities. Also pursuant to the provisions of the Reform Act, on January 20, 2011, the SEC issued rules that require issuers of registered asset-backed securities to perform a review of the assets underlying the securities and to publicly disclose information relating to the review.

These rules also require issuers of asset-backed securities to make publicly available the findings and conclusions of any third-party due diligence report obtained by the issuer. It remains to be seen whether and to what extent the January 20, 2011, rules or any other final rules adopted by the SEC will impact the Financial Services segment and its ability and willingness to continue to rely on the securitization market for funding.

55 --------------------------------------------------------------------------------Operating, Investing and Financing Activities The following table presents changes in our cash and cash equivalents for the years ended: 2012 2011 2010 (In Thousands) Net cash provided by operating activities $ 234,629 $ 366,468 $ 167,427 Net cash used in investing activities (612,367 ) (532,040 ) (347,570 ) Net cash provided by (used in) financing activities 361,809 333,832 (265,623 ) 2012 versus 2011 Operating Activities - Cash from operating activities decreased $132 million in 2012 compared to 2011. Inventories increased $58 million at December 29, 2012, to $553 million, compared to 2011, while inventories decreased $14 million at December 31, 2011, compared to 2010, a net change of $72 million. The increase in inventories in 2012 is primarily due to the addition of new retail stores.

Comparing the respective periods, there were increases of $96 million in income taxes and $22 million in net credit card loans originated at Cabela's through our Retail and Direct businesses. In 2012, we paid $137 million in income taxes compared to $45 million in 2011. Offsetting these decreases in cash from operations comparing the respective periods were increases of $30 million in accounts payable and accrued expenses, $31 million in cash generated from operations, and $35 million in accounts receivable and prepaid expenses.

Investing Activities - Cash used in investing activities increased $80 million in 2012 compared to 2011. Cash paid for property and equipment additions totaled $214 million in 2012 compared to $127 million in 2011. At December 29, 2012, we estimated total capital expenditures for the development, construction, and completion of retail stores to approximate $202 million through the next 12 months. We expect to fund these estimated capital expenditures with funds from operations.

The following table presents the growth of our retail stores, and the activity of economic development bonds related to the construction of these stores and related projects, for the years ended: 2012 2011 (Dollars in Thousands) Property and equipment additions $ 214,267 $ 126,740 Proceeds from retirements and maturities of economic development bonds 3,151 3,057 Number of new retail stores opened during the year 6 3 Number of retail stores at the end of the year 40 34 Retail square footage at the end of the year 5,142,000 4,682,000 Financing Activities - Cash provided by financing activities increased $28 million in 2012 compared to 2011. This net change was primarily due to an increase in net borrowings on secured obligations of the Trust by the Financial Services segment of $411 million. This increase was primarily offset by a decrease in time deposits, which the Financial Services segment utilizes to fund its credit card operations, of $66 million in 2012, compared to $470 million in 2011. At the end of 2012 and 2011, there were no amounts outstanding on our unsecured revolving credit facilities. During 2012, we repurchased shares of our common stock for $29 million compared to $20 million in 2011. We expect to repurchase our common stock in the future to offset future equity grants and to fund any repurchases with cash from operations.

56 --------------------------------------------------------------------------------The following table presents the borrowing activities of our merchandising business and the Financial Services segment for the years ended: 2012 2011 (In Thousands) Borrowings (repayments) on revolving credit facilities and inventory financing, net $ (391 ) $ (57 ) Secured borrowings (repayments) of the Trust, net 290,000 (121,400 ) Issuances (repayments) of long-term debt, net of repayments (8,387 ) (230 ) Total $ 281,222 $ (121,687 ) The following table summarizes our availability under the Company's debt and credit facilities, excluding the facilities of the Financial Services segment, at the years ended: 2012 2011 (In Thousands) Amounts available for borrowing under credit facilities (1) $ 430,000 $ 430,000 Principal amounts outstanding - - Outstanding letters of credit and standby letters of credit (22,143 ) (14,692 ) Remaining borrowing capacity, excluding the Financial Services segment facilities $ 407,857 $ 415,308 (1) Consists of our revolving credit facility of $415 million and $15 million CAD from the credit facility for our operations in Canada.

The Financial Services segment also has total borrowing availability of $85 million under its agreements to borrow federal funds. At December 29, 2012, the entire $85 million of borrowing capacity was available.

Our $415 million unsecured credit agreement requires us to comply with certain financial and other customary covenants, including: • a fixed charge coverage ratio (as defined) of no less than 2.00 to 1 as of the last day of any fiscal quarter for the most recently ended four fiscal quarters (as defined); • a leverage ratio (as defined) of no more than 3.00 to 1 as of the last day of any fiscal quarter; and • a minimum consolidated net worth standard (as defined).

In addition, our unsecured senior notes contain various covenants and restrictions that are usual and customary for transactions of this type. Also, the debt agreements contain cross default provisions to other outstanding credit facilities. In the event that we failed to comply with these covenants, a default would trigger and all principal and outstanding interest would immediately be due and payable. At December 29, 2012, we were in compliance with all financial covenants under our credit agreements and unsecured notes. We anticipate that we will continue to be in compliance with all financial covenants under our credit agreements and unsecured notes through the next 12 months.

Our $15 million CAD unsecured revolving credit facility, set to expire June 30, 2013, was terminated January 31, 2013.

2011 versus 2010 Operating Activities - Cash derived from operating activities increased $199 million in 2011 compared to 2010. Inventory decreased $14 million in 2011, to a balance of $495 million, compared to an increase of $69 million in 2010, or to a balance of $509 million. WFB paid cash out on a net basis of $17 million for credit card loans originated at Cabela's through our Retail and Direct businesses. Accounts payable and accrued expenses increased $71 million in 2011 compared to a decrease of $2 million in 2010. These net increases were partially offset by a decrease of $39 million in the provision for loan losses and an increase in prepaid expenses and other assets of $23 million.

57 -------------------------------------------------------------------------------- Investing Activities - Cash used in investing activities increased $184 million in 2011 compared to 2010. WFB disbursed cash on a net basis for credit card loans originated externally at third parties totaling $407 million in 2011 compared to $281 million in 2010. Cash paid for property and equipment additions totaled $127 million in 2011 compared to $75 million in 2010. At December 31, 2011, we estimated total capital expenditures for the development, construction, and completion of retail stores to approximate $80 million through the next 12 months. We expect to fund these estimated capital expenditures with funds from operations.

Financing Activities - Cash provided by financing activities improved $599 million in 2011 compared to 2010. This net change was primarily due to an increase in time deposits, which WFB utilizes to fund its credit card operations, of $470 million in 2011, compared to $36 million in 2010. Also, net borrowings on secured obligations of the Trust by WFB increased $168 million. At the end of 2011 and 2010, there were no amounts outstanding on our unsecured revolving credit facilities. In the fourth quarter of 2011, we repurchased 800,000 shares of our outstanding common stock in open market transactions at a cost of $20 million.

Economic Development Bonds and Grants In the past, we have negotiated economic development arrangements relating to the construction of a number of our new 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.

Where appropriate, we intend to continue to utilize economic development arrangements with state and local governments to offset some of the construction costs and improve the return on investment of our new retail stores.

Economic Development Bonds - Economic development bonds are related to the Company's government economic assistance arrangements relating to the construction of new retail stores or retail development. State or local governments may sell economic development bonds primarily to provide funding for the construction and equipping of our retail stores. In the past, we have primarily been the sole purchaser of these bonds. While purchasing these bonds involves an initial cash outlay by us in connection with a new store or property, 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 15 and 30 years. Some of our bonds may be repurchased for par value by the governmental entity prior to the maturity date of the bonds. 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. If sufficient tax revenue is not generated by the subject properties, we will not receive scheduled payments and will be unable to realize the full value of the bonds carried on our consolidated balance sheet.

At December 29, 2012, and December 31, 2011, economic development bonds totaled $85 million and $87 million, respectively.

Grants - We generally have received grant funding in exchange for commitments made by us to the state or local government providing the funding. The commitments, such as assurance of agreed employment and wage levels at our retail stores or that the retail store will remain open, typically phase out over approximately five to ten years. If we fail to maintain the commitments during the applicable period, the funds we received may have to be repaid or other adverse consequences may arise, which could affect our cash flows and profitability. At December 29, 2012, and December 31, 2011, the total amount of grant funding subject to specific contractual remedies was $7 million and $10 million, respectively.

Securitization of Credit Card Loans The Financial Services segment historically has funded most of its growth in credit card loans through an asset securitization program. The Financial Services segment utilizes the Trust for the purpose of routinely selling and securitizing credit card loans and issuing beneficial interest to investors. The Trust issues variable funding facilities and long-term notes each of which has an undivided interest in the assets of the Trust. The Financial Services segment must retain a minimum 20 day average of 5% of the loans in the securitization trust which ranks pari passu with the investors' interests in the securitization trusts. In addition, the Financial Services segment owns notes issued by the Trust from some of the securitizations, which in some cases may be subordinated to other notes issued. The Financial Services segment's retained interests are eliminated upon consolidation of the Trust. The consolidated assets of the Trust are subject to credit, payment, and interest rate risks on the transferred credit card loans. The credit card loans of the Trust are restricted for the repayment of the secured borrowings of the Trust.

58 -------------------------------------------------------------------------------- To protect investors, the securitization structures include certain features that could result in earlier-than-expected repayment of the securities, which could cause the Financial Services segment to sustain a loss of one or more of its retained interests and could prompt the need to seek alternative sources of funding. The primary investor protection feature relates to the availability and adequacy of cash flows in the securitized pool of loans to meet contractual requirements, the insufficiency of which triggers early repayment of the securities. The Financial Services segment refers to this as the "early amortization" feature. Investors are allocated cash flows derived from activities related to the accounts comprising the securitized pool of loans, the amounts of which reflect finance charges collected, certain fee assessments collected, allocations of interchange, and recoveries on charged off accounts. These cash flows are considered to be restricted under the governing documents to pay interest to investors, servicing fees, and to absorb the investor's share of charge-offs occurring within the securitized pool of loans.

Any cash flows remaining in excess of these requirements are reported to investors as excess spread. An excess spread of less than zero percent for a contractually specified period, generally a three-month average, would trigger an early amortization event. Such an event could result in the Financial Services segment incurring losses related to its retained interests. In addition, if the retained interest in the loans of the Financial Services segment falls below the 5% minimum 20 day average and the Financial Services segment fails to add new accounts to the securitized pool of loans, an early amortization event would be triggered. The investors have no recourse to WFB's other assets for failure of debtors to pay other than for breaches of certain customary representations, warranties, and covenants. These representations, warranties, covenants, and the related indemnities do not protect the Trust or third party investors against credit-related losses on the loans.

Another feature, which is applicable to the notes issued from the Trust, is one in which excess cash flows generated by the transferred loans are held at the Trust for the benefit of the investors. This cash reserve account funding is triggered when the three-month average excess spread rate of the Trust decreases to below 4.50% or 5.50% (depending on the series) with increasing funding requirements as excess spread levels decline below preset levels or as contractually required by the governing documents. Similar to early amortization, this feature also is designed to protect the investors' interests from loss thus making the cash restricted. Upon scheduled maturity or early amortization of a securitization, the Financial Services segment is required to remit principal payments received on the securitized pool of loans to the Trust which are restricted for the repayment of the investors' principal note.

The total amounts and maturities for our credit card securitizations as of December 29, 2012, were as follows: Third Party Investor Third Party Total Available Available Investor Series Type Capacity Capacity Outstanding Interest Rate Expected Maturity (Dollars in Thousands) Series 2010-I Term $ 45,000 $ - $ - Fixed January 2015 Series 2010-I Term 255,000 255,000 255,000 Floating January 2015 Series 2010-II Term 165,000 127,500 127,500 Fixed September 2015 Series 2010-II Term 85,000 85,000 85,000 Floating September 2015 Series 2011-II Term 200,000 155,000 155,000 Fixed June 2016 Series 2011-II Term 100,000 100,000 100,000 Floating June 2016 Series 2011-IV Term 210,000 165,000 165,000 Fixed October 2016 Series 2011-IV Term 90,000 90,000 90,000 Floating October 2016 Series 2012-I Term 350,000 275,000 275,000 Fixed February 2017 Series 2012-I Term 150,000 150,000 150,000 Floating February 2017 Series 2012-II Term 375,000 300,000 300,000 Fixed June 2017 Series 2012-II Term 125,000 125,000 125,000 Floating June 2017 Total term 2,150,000 1,827,500 1,827,500 Series 2008-III Variable Funding 260,115 225,000 - Floating March 2015 Series 2011-I Variable Funding 352,941 300,000 - Floating March 2014 Series 2011-III Variable Funding 411,765 350,000 325,000 Floating September 2014 Total variable 1,024,821 875,000 325,000 Total available $ 3,174,821 $ 2,702,500 $ 2,152,500 59-------------------------------------------------------------------------------- We have been, and will continue to be, particularly reliant on funding from securitization transactions for the Financial Services segment. A failure to renew existing facilities or to add additional capacity on favorable terms as it becomes necessary could increase our financing costs and potentially limit our ability to grow the business of the Financial Services segment. Unfavorable conditions in the asset-backed securities markets generally, including the unavailability of commercial bank liquidity support or credit enhancements, could have a similar effect. During 2012, the Financial Services segment issued $156 million in certificates of deposit, renewed its $225 million variable funding facility for an additional year, and completed two $500 million term securitizations that will mature in February and June of 2017. In 2013, the Financial Services segment intends to issue additional certificates of deposit and additional term securitizations. We believe that these liquidity sources are sufficient to fund the Financial Services segment's foreseeable cash requirements, including certificate of deposit maturities, and near-term growth plans.

Furthermore, the securitized credit card loans of the Financial Services segment could experience poor performance, including increased delinquencies and credit losses, lower payment rates, or a decrease in excess spreads below certain thresholds. This could result in a downgrade or withdrawal of the ratings on the outstanding securities issued in the Financial Services segment's securitization transactions, cause "early amortization" of these securities, or result in higher required credit enhancement levels. Credit card loans performed within established guidelines and no events which could trigger an "early amortization" occurred during the years ended December 29, 2012, and December 31, 2011.

Certificates of Deposit The Financial Services segment utilizes brokered and non-brokered certificates of deposit to partially finance its operating activities. The Financial Services segment issues certificates of deposit in a minimum amount of one hundred thousand dollars in various maturities. At December 29, 2012, the Financial Services segment had $1.0 billion of certificates of deposit outstanding with maturities ranging from January 2013 to December 2018 and with a weighted average effective annual fixed rate of 2.22%. This outstanding balance compares to $982 million at December 31, 2011, with a weighted average effective annual fixed rate of 2.53%.

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

60 --------------------------------------------------------------------------------Contractual Obligations and Other Commercial Commitments The following tables provide summary information concerning our future contractual obligations at December 29, 2012.

2013 2014 2015 2016 2017 Thereafter Total (In Thousands) Long-term debt (1) $ 8,143 $ 8,143 $ 8,143 $ 223,143 $ 68,143 $ 8,142 $ 323,857 Interest payments on long-term debt (2) 19,809 19,182 18,579 11,553 2,997 293 72,413 Capital lease obligations 1,000 1,000 1,000 1,000 1,000 18,500 23,500Operating leases 11,896 12,392 11,924 11,191 11,038 150,961 209,402 Time deposits by maturity 367,350 297,628 199,314 152,078 26,164 5,484 1,048,018 Interest payments on time deposits 20,109 11,601 7,142 27,703 5,990 162 72,707 Secured long-term obligations of the Trust - - 467,500 510,000 850,000 - 1,827,500 Interest payments on secured obligations of the Trust (2) 27,057 27,057 22,256 16,241 3,537 - 96,148 Obligations under retail store arrangements (3) 143,012 60,463 266 276 282 4,758 209,057 Purchase obligations (4) 678,440 11,763 5,733 4,271 1,237 306 701,750 Unrecognized tax benefits (5) - - - - - 39,252 39,252 Total $ 1,276,816 $ 449,229 $ 741,857 $ 957,456 $ 970,388 $ 227,858 $ 4,623,604 (1) Excludes amounts owed under capital lease obligations.

(2) These amounts do not include estimated interest payments due under our revolving credit facilities or our secured variable funding obligations because the amount that will be borrowed under these facilities in future years is uncertain.

(3) Includes approximately $202 million of estimated contractual obligations and commitments associated with projected new retail store-related expansion. The table does not include any amounts for contractual obligations associated with retail store locations where we are in the process of certain negotiations.

(4) 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 or contracts. The amount of purchase obligations shown is based on assumptions regarding the legal enforceability against us of purchase orders or contracts we had outstanding at the end of 2012. Under different assumptions regarding our rights to cancel our purchase orders or contracts, or different assumptions regarding the enforceability of the purchase orders or contracts under applicable laws, the amount of purchase obligations shown in the preceding table would be less.

(5) Amounts for unrecognized tax benefits are not reflected in years 2013 through 2017 since the ultimate amount and timing of any future cash settlements cannot be predicted with reasonable certainty.

61--------------------------------------------------------------------------------The following table provides summary information concerning other commercial commitments at December 29, 2012: (In Thousands) Letters of credit (1) $ 15,712 Standby letters of credit (1) 6,431 Revolving line of credit for boat and ATV inventory (2) 133 Cabela's issued letters of credit 55,455 Bank - federal funds (3) - Secured variable funding obligations of the Trust (4) 325,000 Total $ 402,731 (1) Our credit agreement allows for maximum borrowings of $415 million including lender letters of credit and standby letters of credit. At December 29, 2012, the total amount of borrowings under this revolving line of credit was $15 million, which consisted of lender letters of credit and standby letters of credit. Our credit agreement for operations in Canada is for $15 million CAD, of which all was available for borrowing at December 29, 2012.

(2) The line of credit for boat and all-terrain vehicles financing is limited by the aforementioned $415 million revolving line of credit to $100 million of secured collateral.

(3) The maximum amount that can be borrowed on the federal funds agreements is $85 million.

(4) The maximum amount that can be borrowed from third party investors on the variable funding facilities is $875 million.

Off-Balance Sheet Arrangements Operating Leases - We lease various items of office equipment and buildings.

Rent expense for these operating leases is recorded in selling, distribution, and administrative expenses in the consolidated statements of income. Future obligations are shown in the preceding contractual obligations table.

Credit Card Limits - The Financial Services segment bears off-balance sheet risk in the normal course of its business. One form of this risk is through the Financial Services segment's commitment to extend credit to cardholders up to the maximum amount of their credit limits. The aggregate of such potential funding requirements totaled $21 billion above existing balances at the end of 2012. These funding obligations are not included in our consolidated balance sheet. While the Financial Services segment has not experienced, and does not anticipate that it will experience, a significant draw down of unfunded credit lines by its cardholders, such an event would create a cash need at the Financial Services segment which likely could not be met by our available cash and funding sources. The Financial Services segment has the right to reduce or cancel these available lines of credit at any time.

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 which requires management to make estimates and judgments that affect amounts reported in the consolidated financial statements and accompanying notes. Management has discussed the development, selection, and disclosure of critical accounting policies and estimates with the Audit Committee of Cabela's Board of Directors.

While our estimates and assumptions are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from our estimates and assumptions. Our estimation processes contain uncertainties because they require management to make assumptions and apply judgment to make these estimates. Should actual results be different than our estimates, we could be exposed to gains or losses from differences that may be material.

For a summary of our significant accounting policies, please refer to Note 1 of our consolidated financial statements. We believe the accounting policies discussed below represent accounting policies we apply that are the most critical to understanding our consolidated financial statements.

62 --------------------------------------------------------------------------------Merchandise Revenue Recognition Revenue is recognized on our Direct sales when merchandise is delivered to the customer at the point of delivery, with the point of delivery based on our estimate of shipping time from our distribution centers to the customer. We recognize reserves for estimated product returns based upon our historical return experience and expectations. Had our estimate of merchandise in-transit to customers and our estimate of product returns been different by 10% at the end of 2012, our operating income would have been higher or lower by approximately $0.7 million. Sales of gift instruments are recorded in merchandise revenue when the gift instruments are redeemed in exchange for merchandise or services and as a liability prior to redemption. We recognize breakage on gift instruments as revenue when the probability of redemption is remote. Had our estimate of breakage on our recorded liability for gift instruments been different by 10% of the recorded liability at the end of 2012, our merchandise revenue would have been higher or lower by approximately $0.7 million.

Inventories We estimate provisions for inventory shrinkage, damaged goods returned values, and obsolete and slow-moving items based on historical loss and product performance statistics and future merchandising objectives. Had our estimated inventory reserves been different by 10% at the end of 2012, our cost of sales would have been higher or lower by approximately $1.2 million.

Allowance for Loan Losses on Credit Cards The allowance for loan losses represents management's estimate of probable losses inherent in the credit card loan portfolio. The allowance for loan losses is established through a charge to the provision for loan losses and is regularly evaluated by management for adequacy. Loans on a payment plan or non-accrual are segmented from the rest of the credit card loan portfolio into a restructured credit card loan segment before establishing an allowance for loan losses as these loans have a higher probability of loss. Management estimates losses inherent in the credit card loans segment and restructured credit card loans segment based on a model which tracks historical loss experience on delinquent accounts, bankruptcies, death, and charge-offs, net of estimated recoveries. The Financial Services segment uses a migration analysis and historical bankruptcy and death rates to estimate the likelihood that a credit card loan will progress through the various stages of delinquency and to charge-off. This analysis estimates the gross amount of principal that will be charged off over the next 12 months, net of recoveries. This estimate is used to derive an estimated allowance for loan losses. In addition to these methods of measurement, management also considers other factors such as general economic and business conditions affecting key lending areas, credit concentration, changes in origination and portfolio management, and credit quality trends.

Since the evaluation of the inherent loss with respect to these factors is subject to a high degree of uncertainty, the measurement of the overall allowance is subject to estimation risk, and the amount of actual losses can vary significantly from the estimated amounts. For example, had management's estimate of net losses over the next 12 months been different by 10% at the end of 2012, the Financial Services segment's allowance for loan losses and provision for loan losses would have changed by approximately $7 million.

Credit card loans that have been modified through a fixed payment plan or placed on non-accrual are considered impaired and are collectively evaluated for impairment. The Financial Services segment charges off credit card loans and restructured credit card loans on a daily basis after an account becomes at a minimum 130 days contractually delinquent. Accounts relating to cardholder bankruptcies, cardholder deaths, and fraudulent transactions are charged off earlier. The Financial Services segment recognizes charged-off cardholder fees and accrued interest receivable in interest and fee income that is included in Financial Services revenue.

Long-Lived Assets Long-lived assets other than goodwill and other intangible assets, which generally are tested separately for impairment on an annual basis, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The calculation for an impairment loss compares the carrying value of the asset to that asset's estimated fair value, which may be based on estimated future discounted cash flows, observable market prices, or unobservable market prices. We recognize an impairment loss if the asset's carrying value exceeds its estimated fair value. Frequently our impairment loss calculations contain multiple uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting cash flows under different scenarios. We have consistently applied our accounting methodologies that we use to assess impairment loss. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material.

63 --------------------------------------------------------------------------------Economic Development Bonds Economic development bonds are generally repaid through incremental sales and/or property tax revenues generated from our retail store locations or additional developments in the local development or tax increment financing district. Each quarter we revalue each economic development bond using discounted cash flow models based on available market interest rates and management estimates, including the estimated amounts and timing of expected future tax payments to be received by the municipalities under development zones. Each quarter, we also evaluate the projected underlying cash flows of our economic development bonds to determine if the carrying amount of any such bonds, including interest accrued under the bonds, can be recovered. To the extent the expected cash flows are not sufficient to recover the carrying amount, the bonds are assessed for impairment. Deficiencies in projected discounted cash flows below the recorded carrying amount of the economic development bonds evidences that we do not expect to recover the cost basis. Consequently, the valuation results in an other-than-temporary impairment. We also reassess the amount of grant income that will ultimately be received. Accordingly, the cumulative amount of depreciation expense that would be recognized to date as an expense in the absence of the grant income is recognized immediately as an expense. Had our fair value estimates been lower by 10% as of the end of 2012, the value of economic development bonds reflected in our consolidated financial statements would have been approximately $9 million less with the unrealized loss reflected in comprehensive income if the loss was deemed to be temporary. Any declines in the fair value of available-for-sale economic development bonds below cost that are deemed to be other than temporary are reflected in earnings as realized losses.

Recent Accounting Standards and Pronouncements Effective June 16, 2011, the Financial Accounting Standards Board ("FASB") issued ASU No. 2011-05, Comprehensive Income, requiring entities to report components of other comprehensive income in either a single continuous statement or in two separate but consecutive statements of net income and other comprehensive income. This ASU does not change the items that must be reported in comprehensive income, how these items are measured, or when these items must be classified to net income. Effective with the first quarter of 2012, we have provided herein the required financial reporting presentation pursuant to ASU 2011-05.

On February 5, 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which adds additional disclosure requirements relating to the reclassification of items out of accumulated other comprehensive income. This ASU is effective for the first quarter of 2013.

Effective September 15, 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment, which gives companies testing goodwill for impairment the option of performing a qualitative assessment before calculating the fair value of a reporting unit in step one of the goodwill impairment test. If companies determine, based on qualitative factors, that the fair value of a reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. Otherwise, further testing would not be needed. ASU 2011-08 was effective for the first quarter of 2012 for the Company. The value of our goodwill was not affected by the adoption of the provisions of this ASU.

The FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, to improve comparability of fair value measurements between statements presented in U.S.

GAAP and IFRS. This ASU, which was effective for the first quarter of 2012 for the Company, provided additional explanation on how to measure fair value but did not require additional fair value measurements. Certain amendments in this ASU require the assessment of additional disclosures regarding the measurement of fair value. The adoption of this ASU did not have a significant impact on our fair value measurements.

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