Analysis of Investing Activities: Cabela's Inc. and Subsidiaries

Long Term Assets

The long term assets section of Cabela’s Inc.’s (the Company) balance sheet is comprised of net property and equipment. The details of these assets are contained within note 3 of the annual report and consist of land and improvements, buildings and improvements, assets held under capital lease, leasehold improvements, furniture, fixtures and equipment, capitalized software, monuments and animal displays and construction in progress.

Horizontal Analysis

Net property and equipment increased $140,443,000 or 30.6% from 2005 to 2006. The Company’s strategy of expanding its retail destination locations by opening four additional locations in 2006 accounts for the majority of the increase in long term assets. Building and improvements increased 34.2%, furniture, fixtures and equipment increased 29.1% and monuments and animal displays increased 42.8% as a result of this expansion. The opening of the Boise, Idaho location, which is a leased property, increased leasehold improvements by 279.4%. Additionally, the construction of stores scheduled to open in 2007 provided for the increase of 29.8% in construction in progress.

Vertical Analysis

Net property and equipment decreased from 43.9% to 34.3% from 2005 to 2006. While every category of long term assets increased over the same period the growth strategy of the Company increased cash and cash equivalents, credit card loans held for sale and inventories, which outpaced the growth in long term assets. Current assets increased from 50.8% to 54.5% from 2005 to 2006.

Investing Cash Flows

Net cash used in investing activities increased $64,079,000 or 79.5% from 2005 to 2006. The Company maintained the same pace that it set for expansion in 2005 by opening the same number of stores, which provided similar investing cash flows year over year in most categories. The Company accelerated its investment strategy by purchasing $131,225,000 in short-term investments. This investment was a 524.9% increase from 2005 and a net increase in cash outflow of $124,250,000 for short-term investing activities.

Accounting Policies

The Company’s property and equipment are stated at cost and depreciated using the straight-line method over its useful life. Leasehold improvements are amortized over the lives of the leases or the service lives of the improvements whichever is shorter. Major improvements that extend the useful life of an asset are charged to the property and equipment accounts. The Company also held $1,065,000 in marketable securities which are recorded at amortized cost.

Property and Equipment

As of 2006, the original cost of the Company’s property and equipment was $790,777,000, which is an increase of $180,808,000 or 29.6%. The write off of $190,912,000 in depreciation and amortization represents 21.4% of the Company’s total property and equipment. The Company currently operates 18 retail destination locations of which 4 were opened in 2006, 4 were opened in 2005 and the oldest location is 9 years old. This expansion information juxtaposed with the increase in property and equipment and the low level of depreciation expense indicates that Cabela’s is currently expanding its sales capacity and assets are relatively new.

Segment Information

Cebela’s divides its operations into the four separate business segments of direct, retail, financial services and other. Direct, this consists of catalogs and its website, increased revenue 4.2% to $1.09 billion. Retail, this consists of its destination retail stores, increased revenue 32.3% to $820.3 million with a comparable store sales increase of 1.3%. Financial services, this consists of its credit card business, increased revenue 29.9% to $137.4 million. Other, this consists of aggregated non-merchandising outfitter services, real estate land sales and corporate and other expenses, decreased revenue 43% to $17 million. The Company is focusing on expanding its retail segment by opening new retail destination locations. The revenue growth experienced by opening four additional stores in 2006 makes a very strong case for the continued expansion of this segment.

Ratio Analysis

The efficiency and effectiveness of the Company has diminished year over year as evidenced in the analysis of its return and turnover of assets. The Company has increased its net profit margin which in turn decreases the rate of sales growth and has a negative impact on the effectiveness and efficiency of a retail organization. The Company has embarked on an aggressive expansion program and increased both its fixed and current assets through the acquisition of land, buildings and inventory; however, it has not effectively grown efficiency with its new sales capacity.