UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-Q/A


(Amendment No. 1)





(Mark One)


xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 29, 2014


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





Commission File Number: 1-32227





CABELA'S INCORPORATED


(Exact name of registrant as specified in its charter)


Delaware20-0486586(State or other jurisdiction ofincorporation or organization)(I.R.S. EmployerIdentification Number)One Cabela Drive, Sidney, Nebraska69160(Address of principal executive offices)(Zip Code)


(308) 254-5505


(Registrant's telephone number, including area code)


Not applicable


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





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





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer x Accelerated filer o


Non-accelerated filer o (Do not check if a smaller reporting company)                                 Smaller reporting company o





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes o No x





Number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:


Common stock, $0.01 par value: 71,021,692 shares as of April 21, 2014


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EXPLANATORY NOTE





Cabela’s Incorporated is filing this Amendment No. 1 (the "Form 10-Q/A") to its Quarterly Report on Form 10-Q for the quarter ended March 29, 2014 (the "Form 10-Q"), filed with the Securities and Exchange Commission on April 24, 2014, for the sole purpose of correcting an error in the fourth paragraph of the “Results of Operations - Three Months Ended March 29, 2014, Compared to March 30, 2013 -- Operating Income” section of Part I, Item 2 “Management's Discussion and Analysis of Financial Condition and Results of Operations” of the Form 10-Q. Specifically, the third sentence of that paragraph states: “Fees paid under the Intercompany Agreement by the Financial Services segment to these two segments increased $15 million in the three months ended March 29, 2014, compared to the three months ended March 30, 2013; a $15 million increase to the Retail segment and no change to the Direct segment.” This sentence has been corrected to read: “Fees paid under the Intercompany Agreement by the Financial Services segment to these two segments increased $0.5 million in the three months ended March 29, 2014, compared to the three months ended March 30, 2013; a $0.2 million increase to the Retail segment and a $0.3 million increase to the Direct segment.”





No other changes have been made to the Form 10-Q. The Form 10-Q/A continues to speak as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update any related disclosures made in the Form 10-Q.





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|Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations




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


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|• | the state of the economy and the level of discretionary consumer spending, including changes in consumer preferences, demand for firearms and ammunition, and demographic trends;

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|• | adverse changes in the capital and credit markets or the availability of capital and credit;

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|• | our ability to successfully execute our omni-channel strategy;

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|• | increasing competition in the outdoor sporting goods industry and for credit card products and reward programs;

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|• | the cost of our products, including increases in fuel prices;

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|• | the availability of our products due to political or financial instability in countries where the goods we sell are manufactured;

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|• | supply and delivery shortages or interruptions, and other interruptions or disruptions to our systems, processes, or controls, caused by system changes or other factors;

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|• | increased or adverse government regulations, including regulations relating to firearms and ammunition;

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|• | our ability to protect our brand, intellectual property, and reputation;

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|• | our ability to prevent cybersecurity breaches and mitigate cybersecurity risks;

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|• | the outcome of litigation, administrative, and/or regulatory matters (including a Commissioner's charge we received from the Chair of the U. S. Equal Employment Opportunity Commission ("EEOC") in January 2011), audits by tax authorities, and compliance examinations by the Federal Deposit Insurance Corporation ("FDIC"));

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|• | our ability to manage credit, liquidity, interest rate, operational, legal, regulatory capital, and compliance risks;

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|• | our ability to increase credit card receivables while managing credit quality;

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|• | our ability to securitize our credit card receivables at acceptable rates or access the deposits market at acceptable rates;

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|• | the impact of legislation, regulation, and supervisory regulatory actions in the financial services industry, including  the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Reform Act"); and

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|• | other risks, relevant factors, and uncertainties identified in our filings with the Securities and Exchange Commission ("SEC") (including the information set forth in the "Risk Factors" section of our Annual Report on Form 10-K for the fiscal year endedDecember 28, 2013, and in Part II, Item 1A, of this report), which filings are available at the SEC's website atwww.sec.gov.

Given the risks and uncertainties surrounding forward-looking statements, you should not place undue reliance on these statements. Our forward-looking statements speak only as of the date of this report. Other than as required by law, we undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise.





The following discussion and analysis of financial condition, results of operations, liquidity, and capital resources should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2013 , as filed with the SEC, and our unaudited interim condensed consolidated financial statements and the notes thereto appearing elsewhere in this report. Cabela's Incorporated and its wholly-owned subsidiaries are referred to herein as "Cabela's," "Company," "we," "our," or "us."





Critical Accounting Policies and Use of Estimates





Our critical accounting policies and use of estimates utilized in the preparation of the condensed consolidated financial statements as of March 29, 2014 , remain unchanged from December 28, 2013 .





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Cabela's®





We are a leading specialty retailer, and the world's largest direct marketer, of hunting, fishing, camping, and related outdoor merchandise. We provide a quality service to our customers who enjoy an outdoor lifestyle by supplying outdoor products through our multi-channel retail business consisting of our Retail and Direct segments. Our Retail business segment currently consists of 53 stores, including the three stores that we opened in 2014 to date located in:


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|• | Augusta, Georgia, on March 20, 2014,

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|• | Greenville, South Carolina, on April 3, 2014, and

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|• | Anchorage, Alaska, on April 10, 2014.




We now have 49 stores located in the United States and four in Canada  with total retail square footage of 6.1 million , an increase of 4.1% compared to the end of 2013 .





Our Direct business segment is comprised of our highly acclaimed 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 reinforce our strong brand and strengthen our customer loyalty through our credit card loyalty programs.





Executive Overview





Three Months EndedMarch 29, 2014March 30, 2013Increase (Decrease)% Change(Dollars in Thousands Except Earnings Per Diluted Share)Revenue:Retail$440,949$486,749$(45,800)(9.4)%Direct179,416225,158(45,742)(20.3)Total620,365711,907(91,542)(12.9)Financial Services98,57885,77212,80614.9Other revenue6,8804,8182,06242.8Total revenue$725,823$802,497$(76,674)(9.6)Operating income$40,853$79,115$(38,262)(48.4)Net income$25,749$49,847$(24,098)(48.3)Earnings per diluted share$0.36$0.70$(0.34)(48.6)





Revenues presented in the table above are consistent with our presentation for segment reporting. Revenues in the three months ended March 29, 2014 , totaled $726 million , a decrease of $77 million , or 9.6% , over the three months ended March 30, 2013 . The net decrease in total merchandise sales comparing the three month periods was primarily due to a decrease of $100 million , or 21.7% , in comparable store sales that extended across all product categories, led by a decrease in the hunting equipment product category. Sales of firearms and ammunition, which are in the hunting equipment product category, decreased significantly comparing the three months ended March 29, 2014 , to the three months ended March 30, 2013 . The decrease of $46 million in Direct revenue was primarily due to a decrease in the hunting equipment product category, primarily due to a substantial decrease in ammunition sales compared to the first quarter of 2013.


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Partially offsetting the decreases in comparable store sales and Direct sales was an increase in Retail revenue from new stores of $51 million in the three months ended March 29, 2014 , compared to the three months ended March 30, 2013 . Our new retail store formats continue to generate a significant increase in sales per square foot compared to our legacy stores. In addition, our Cabela's branded products continue to be a core focus for us, as we saw growth in Cabela's branded softgoods and footwear in the in the three months ended March 29, 2014 , compared to the three months ended March 30, 2013 .





Financial Services revenue increased $13 million , or 14.9% , in the three months ended March 29, 2014 , compared to the three months ended March 30, 2013 . These increases in Financial Services revenue were primarily due to increases in interest and fee income and interchange income, partially offset by higher customer rewards costs due to the increase in active accounts and increased interest expense due to the issuances of securitizations to fund growth.





Operating income decreased $38 million , or 48.4% , in the three months ended March 29, 2014 , compared to the three months ended March 30, 2013 , and operating income as a percentage of revenue decreased  430 basis points over the same periods. The decreases in total operating income and total operating income as a percentage of total revenue were primarily due to decreases in revenue from our Retail and Direct business segments as well as a decrease in our merchandise gross profit. Selling, distribution, and administrative expenses increased primarily due to increases in new store costs and related support areas. We are focusing on expense management throughout the Company and have implemented many expense reduction efforts that should benefit operating income in upcoming periods. We plan to continue our retail expansion, our omni-channel initiatives, and our Cabela’s branded product investments as we focus on expense management and emphasize corporate frugality.





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 continue to focus on these areas to achieve our vision:


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|• | 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.

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|• | 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.

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

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

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|• | 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.




Improvements in these areas 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.





We offer our customers integrated opportunities to access and use our retail store, website, and catalog channels. Our in-store pick-up program allows customers to order products through our catalogs, website, 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 website 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, maintain the proper inventory levels to satisfy customer demand in both our Retail and Direct business channels and improve our distribution efficiencies. We continue to enhance our omni-channel efforts through greater use of digital marketing, the limited roll out of omni-channel fulfillment, and the improvements to our mobile platform.





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We 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. Our efforts continue in detailed pre-season planning, in-season monitoring of sales, and management of inventory to focus product assortments on our core customer base. However, our merchandise gross margin as a percentage of merchandise revenue decreased 120 basis points to 34.4% in the three months ended March 29, 2014 , compared to 35.6% in the three months ended March 30, 2013 . The decrease in the merchandise gross profit as a percentage of merchandise sales comparing the respective periods was primarily due to lower margin in firearms, ammunition, optics, and the shooting product categories as supply has improved in the three months ended March 29, 2014 , compared to the three months ended March 30, 2013 .





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. Our outfitters also benefited through the launch of our new retail product information application which is available via hand held devices. This provides quick and convenient access to product information, allowing outfitters to be more efficient and engaging with customers. In addition, to enhance customer service at our retail stores, we have continued our management training and mentoring programs for our retail store managers.





Comparing Retail segment results for the three months ended March 29, 2014 , to the three months ended March 30, 2013 :


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|• | revenuedecreased$46 million, or9.4%;

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|• | operating incomedecreased$32 million, or38.2%;

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|• | operating income as a percentage of Retail segment revenuedecreased550 basis points to11.9%; and

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|• | comparable store sales decreased21.7%.




Retail revenue decreased primarily due to a decrease of $100 million in comparable store sales. Retail revenue from new stores increased $51 million in the three months ended March 29, 2014 , compared to the three months ended March 30, 2013 .





Our Retail business segment currently consists of 53 stores. Our new store formats generate higher sales per square foot and higher returns compared to our legacy stores which will help to increase our return on invested capital. Our total retail store square footage was 6.1 million at March 29, 2014 , an increase of 4.1% compared to the end of 2013 .





For the remainder of 2014, we plan to open new retail stores located as follows:


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|• | Christiana, Delaware; Woodbury, Minnesota; Edmonton, Alberta, Canada; Missoula, Montana; Lubbock, Texas; Barrie, Ontario, Canada; Acworth, Georgia; Cheektowaga, New York; Tualatin, Oregon; Nanaimo, British Columbia, Canada; and Bowling Green, Kentucky.




For 2015 and thereafter, we currently have plans to open new retail stores located as follows:


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|• | Berlin, Massachusetts; Sun Prairie, Wisconsin; Garner, North Carolina; Fort Mill, South Carolina; Bristol, Virginia; Moncton, New Brunswick, Canada; Ammon, Idaho; Fort Oglethorpe, Georgia; Short Pump, Virginia; and Noblesville, Indiana.




The retail stores planned for 2014 represent approximately one million square footage of new retail space or 17% square footage growth over 2013 . It is expected that the planned openings of our new stores will continue to generate an increase in profit per square foot compared to the legacy store base.





We are focusing on improving our customers' digital shopping experiences on Cabelas.com and via mobile devices. Our marketing focus continues 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 website to support the Direct business. The amount of traffic coming through mobile devices is growing significantly. As a result, we continue to utilize best-in-class technology to improve our customers' digital shopping experiences 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 3 million fans on Facebook. Our omni-channel marketing efforts are resulting in increases in new customers, as well as in customer engagement with a consistent experience across all channels. Our goal is to create a digital presence that mirrors our customers' in-store shopping experience.





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Continuing into 2014 , we realized improvements in our website 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 downward trend in our Direct segment and transform our 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 the three months ended March 29, 2014 , to the three months ended March 30, 2013 :


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|• | revenue decreased$46 million, or20.3%;

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|• | operating income decreased$12 million; and

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|• | operating income as a percentage of Direct segment revenuedecreased140basis points to18.5%.

The decrease of $46 million in Direct revenue was primarily due to a decrease in the hunting equipment product category, primarily due to a substantial decrease in ammunition sales compared to the first quarter of 2013.


We are planning to build a 590,000 square foot distribution center in Tooele, Utah, to support our planned growth. We expect to have this distribution center operational by April 2015. At March 29, 2014 , construction was in its initial stages. As of August 2013, we have leased a 325,000 square foot distribution center in Tooele, Utah, which is expected to be in use through the third quarter of 2015.





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. Comparing Cabela's CLUB results for the three months ended March 29, 2014 , to the three months ended March 30, 2013 :


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|• | Financial Services revenue increased$13 million, or14.9%;

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|• | the number of average active accounts increased7.9%to1.8 million, and the average balance per active account increased$82;

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|• | the average balance of our credit card loans increased12.3%to$3.8 billion; and

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|• | net charge-offs as a percentage of average credit card loans decreased six basis points to1.80%.




During the three months ended March 29, 2014 , the Financial Services segment completed a term securitization totaling $300 million and renewed one of its variable funding facilities for an additional three years and increased the commitment from $350 million to $500 million .





Current Business Environment





Worldwide Credit Markets and Macroeconomic Environment – Beginning in August 2013, and continuing through the first quarter of fiscal 2014, we experienced a significant deceleration in the sales of firearms and ammunition as well as a challenging consumer environment across all business channels. To address these trends, we increased our promotional spending and implemented operating expense controls to levels consistent with how our business is performing. We will continue to manage our operating costs accordingly through the remainder of fiscal 2014. The Financial Services segment continues to monitor developments in the securitization and certificates of deposit markets to ensure adequate access to liquidity. We expect our charge-off rates and delinquency levels to remain below industry averages.





Visa Litigation  Settlement – In June 2005, a number of entities sued Visa and several member banks, and other credit card associations, alleging, among other things, that Visa and its member banks violated United States antitrust laws by conspiring to fix the level of interchange fees. In July 2012, the parties to this litigation entered into a settlement agreement to resolve the claims brought by the class members. On December 13, 2013, the settlement received final court approval. Among other things, the settlement agreement required 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. At March 29, 2014 , the remaining liability balance for this settlement was $1.0 million compared to $4.7 million at December 28, 2013, and $12.5 million at March 30, 2013.


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Operations Review


The three months ended March 29, 2014 , and March 30, 2013 , each consisted of 13 weeks. Our operating results expressed as a percentage of revenue were as follows for the periods presented.


Three Months EndedMarch 29, 2014March 30, 2013Revenue100.00%100.00%Cost of revenue56.2157.16Gross profit (exclusive of depreciation and amortization)43.7942.84Selling, distribution, and administrative expenses38.1632.98Operating income5.639.86Other income (expense):Interest expense, net(0.51)(0.67)Other income, net0.290.19Total other income (expense), net(0.22)(0.48)Income before provision for income taxes5.419.38Provision for income taxes1.863.17Net income3.55%6.21%








Results of Operations - Three Months Ended  March 29, 2014 , Compared to March 30, 2013





Revenues





Retail revenue includes sales realized and customer services performed at our retail stores, sales from orders placed through our retail store website kiosks, and sales from customers utilizing our in-store pick-up program. Direct revenue includes 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 primarily include fees for our hunting and fishing outfitter services, fees for our full-service travel agency business, real estate rental income, and land sales.





Comparisons and analysis of our revenues are presented below for the three months ended:


March 29, 2014March 30, 2013Increase (Decrease)%  Change%%(Dollars in Thousands)Retail$440,94960.8%$486,74960.6%$(45,800)(9.4)%Direct179,41624.7225,15828.1(45,742)(20.3)Financial Services98,57813.685,77210.712,80614.9Other6,8800.94,8180.62,06242.8Total$725,823100.0%$802,497100.0%$(76,674)(9.6)





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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 three months ended March 29, 2014 , and March 30, 2013 .


RetailDirectTotal201420132014201320142013Hunting Equipment52.3%60.2%39.3%47.7%48.6%56.3%General Outdoors27.222.532.327.228.724.0Clothing and Footwear20.517.328.425.122.719.7Total100.0%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 general outdoors merchandise category also includes wildlife and land management products and services, including compact tractors and tractor attachments. The clothing and footwear merchandise category includes fieldwear apparel and footwear, sportswear, casual clothing and footwear, and workwear products.





Retail Revenue – Retail revenue decreased  $46 million , or 9.4% , in the three months ended March 29, 2014 , compared to the three months ended March 30, 2013 , primarily due to a decrease of $100 million in comparable store sales. Comparable store sales were down across all product categories comparing the three months ended March 29, 2014 , to the three months ended March 30, 2013 , but primarily in firearms and ammunition, hunting equipment, men's apparel, archery, optics, and home and gifts. We believe the decreases in firearms and ammunition sales have begun to level out and are expected to return to more normalized levels for the remainder of fiscal 2014.





Retail revenue from new stores increased $51 million in the three months ended March 29, 2014 , compared to the three months ended March 30, 2013 , as our new retail store formats continue to generate a significant increase in sales per square foot.





Comparable store sales and analysis are presented below for the three months ended:


March 29, 2014March 30, 2013Increase (Decrease)%   Change(Dollars in Thousands)Comparable stores sales$360,259$459,977$(99,718)(21.7)%





Direct Revenue – Direct revenue decreased  $46 million , or 20.3% , in the three months ended March 29, 2014 , compared to the three months ended March 30, 2013 . The decrease in Direct revenue was primarily due to a decrease in the hunting equipment product category, mostly due to a substantial decrease in ammunition sales compared to the first quarter of 2013. In addition, we also experienced decreases in hunting apparel, optics, archery, men's apparel, and women's and children's apparel.





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Financial Services Revenue – The following table sets forth the components of Financial Services revenue for the three months ended:


March 29, 2014March 30, 2013Increase (Decrease)%   Change(Dollars in Thousands)Interest and fee income$94,219$81,249$12,97016.0%Interest expense(15,886)(13,851)2,03514.7Provision for loan losses(12,714)(12,775)(61)(0.5)Net interest income, net of provision for loan losses65,61954,62310,99620.1Non-interest income:Interchange income82,42777,6304,7976.2Other non-interest income7551,283(528)(41.2)Total non-interest income83,18278,9134,2695.4Less: Customer rewards costs(50,223)(47,764)2,4595.1Financial Services revenue$98,578$85,772$12,80614.9





Financial Services revenue increased $13 million , or 14.9% , for the three months ended March 29, 2014 , compared to the three months ended March 30, 2013 . The increase in interest and fee income of $13 million was due to an increase in credit card loans and increase in the mix of credit card loans carrying interest, partially offset by lower London Interbank Offered Rate ("LIBOR") rates. The increase in interest expense of $2 million was due to the issuances of securitizations which were used to fund growth. The increases in interchange income of $5 million and customer rewards costs of $2 million were primarily due to an increase in purchases as a result of growth in the number of active accounts.





The following table sets forth the components of Financial Services revenue as a percentage of average total credit card loans, including any accrued interest and fees, for the three months ended:


March 29, 2014March 30, 2013Interest and fee income10.0%9.7%Interest expense(1.7)(1.7)Provision for loan losses(1.4)(1.5)Interchange income8.89.3Other non-interest income0.10.2Customer rewards costs(5.3)(5.7)Financial Services revenue10.5%10.3%





Key statistics reflecting the performance of Cabela's CLUB are shown in the following chart for the three months ended:


March 29, 2014March 30, 2013Increase (Decrease)%   Change(Dollars in Thousands Except Average Balance per Account )Average balance of credit card loans (1)$3,757,216$3,346,588$410,62812.3%Average number of active credit card accounts1,762,7821,633,551129,2317.9Average balance per active credit card account (1)$2,131$2,049$824.0Net charge-offs on credit card loans (1)$16,919$15,585$1,3348.6Net charge-offs as a percentage of averagecredit card loans (1)1.80%1.86%(0.06)%(1)  Includes accrued interest and fees


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The average balance of credit card loans increased to $3.8 billion , or 12.3% , for the three months ended March 29, 2014 , compared to the three months ended March 30, 2013 , due to an increase in the number of active accounts and the average balance per account. The average number of active accounts increased to 1.8 million , or 7.9% , compared to the three months ended March 30, 2013 , due to our successful marketing efforts in new account acquisitions. Net charge-offs as a percentage of average credit card loans decreased to 1.80% for the three months ended March 29, 2014 , down six basis points compared to the three months ended March 30, 2013 , due to improvements in delinquencies and delinquency roll-rates. We define an active credit card account as any account with an outstanding debit or credit balance at the end of any respective month. 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 to $7 million in the three months ended March 29, 2014 , compared to $5 million in the three months ended March 30, 2013 , primarily due to an increase in real estate sales revenue comparing periods.





Merchandise Gross Profit





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


March 29, 2014March 30, 2013Increase (Decrease)%   Change(Dollars in Thousands)Merchandise sales$620,197$711,713$(91,516)(12.9)%Merchandise gross profit213,554253,086(39,532)(15.6)Merchandise gross profit as a percentageof merchandise sales34.4%35.6%(1.2)%





Merchandise Gross Profit – Our merchandise gross profit decreased $40 million , or 15.6% , to $214 million in the three months ended March 29, 2014 , compared to the three months ended March 30, 2013 . The decrease in our merchandise gross profit was primarily due to decreases in firearms and ammunition as well as comparable store sales. Additionally, unfavorable weather caused us to experience a late start in sales in our spring products.





Our merchandise gross profit as a percentage of merchandise sales decreased 120 basis points in the three months ended March 29, 2014 , compared to the three months ended March 30, 2013 . The decrease in the merchandise gross profit as a percentage of merchandise sales comparing the respective periods was primarily due to lower margin in firearms, ammunition, optics, and the shooting product categories as supply has improved in the three months ended March 29, 2014 , compared to the three months ended March 30, 2013 .





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 three months ended:


March 29, 2014March 30, 2013Increase (Decrease)%   Change(Dollars in Thousands)Selling, distribution, and administrative expenses$277,005$264,687$12,3184.7%SD&A expenses as a percentage of total revenue38.2%33.0%5.2%Retail store pre-opening costs$6,877$5,678$1,19921.1





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Selling, distribution, and administrative expenses increased  $12 million , or 4.7% , in the three months ended March 29, 2014 , compared to the three months ended March 30, 2013 . Selling, distribution, and administrative expenses increased primarily due to increases in new store costs and related support areas. We are focusing on expense management throughout the Company and have implemented many expense reduction efforts that should benefit operating income in upcoming periods.


The most significant factors contributing to the changes in selling, distribution, and administrative expenses in these respective periods included:


|  |                                                                                                                                                                                     
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | an increase of $9 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 $2 million in employee compensation, benefits, and contract labor primarily due to the opening of new retail stores, credit card growth support, and general corporate overhead support; and

|  |                                                                                        
|- | ---------------------------------------------------------------------------------------
|• | an increase of $1 million in software expenses primarily to support operational growth.




Significant changes in our consolidated selling, distribution, and administrative expenses related to specific business segments included the following:


Retail Segment:


|  |                                                                                                                                                                                     
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | An increase of $6 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 $1 million in employee compensation, benefits, and contract labor primarily due to the opening of new retail stores.

Direct Segment:


|  |                                                                                 
|- | --------------------------------------------------------------------------------
|• | A decrease of $5 million in employee compensation, benefits, and contract labor.

|  |                                               
|- | ----------------------------------------------
|• | A decrease of $1 million in software expenses.

Financial Services Segment:


|  |                                                                                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------
|• | An increase of $2 million in employee compensation, benefits, and contract labor to support the growth of credit card operations.

|  |                                                                                       
|- | --------------------------------------------------------------------------------------
|• | An increase of $2 million in fraudulent transactions on the Cabela's CLUB credit card.

Corporate Overhead, Distribution Centers, and Other:


|  |                                                                                                                                                                  
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | An increase of $4 million in employee compensation, benefits, and contract labor in general corporate and the distribution centers to support operational growth.

|  |                                                                                                                                                       
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|• | An increase of $3 million in building costs primarily related to the operations and maintenance of our corporate office to support operational growth.

|  |                                                                                        
|- | ---------------------------------------------------------------------------------------
|• | An increase of $2 million in software expenses primarily to support operational growth.




We evaluate the recoverability of property and equipment, other property, and goodwill and intangibles whenever indicators of impairment exist using significant unobservable inputs. This evaluation includes existing store locations and future retail store sites.





On February 4, 2014, a U. S. district court (the "Court") entered a judgment against the Company in the amount of $14 million relating to litigation regarding a breach of a retail store radius restriction. At December 28, 2013 , pursuant to this judgment, the Company recognized a liability of $14 million, including an estimated amount for legal fees and costs, in its consolidated balance sheet. The Company is currently in the process of appealing the Court's ruling. On March 21, 2014, through a supplemental judgment, the Court ordered that the Company pay interest in the amount of $1 million to the plaintiff. Therefore, at March 29, 2014 , our liability relating to this judgment totaled $16 million, which included an additional amount for estimated legal fees and costs. The increase to this liability at March 29, 2014 , resulted in the Company recording an increase to the carrying amount of the related retail store property through a reduction in deferred grant income by the additional amounts accrued, plus legal and other costs. The additional depreciation adjustment that reduced the deferred grant income of this retail store property at March 29, 2014 , resulted in an increase in depreciation expense of $1 million in the three months ended March 29, 2014 . This increase in depreciation expense was included in selling, distribution, and administrative expenses in the condensed consolidated statements of income and was recorded to the Retail segment. There was no depreciation expense adjustment recognized in the three months ended March 30, 2013 .


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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 three months ended:


March 29, 2014March 30, 2013Increase (Decrease)%       Change(Dollars in Thousands)Total operating income$40,853$79,115$(38,262)(48.4)%Total operating income as a percentage of total revenue5.6%9.9%(4.3)%Operating income by business segment:Retail$52,298$84,678$(32,380)(38.2)Direct33,13044,897(11,767)(26.2)Financial Services33,10224,1019,00137.3Operating income as a percentage of segment revenue:Retail11.9%17.4%(5.5)%Direct18.519.9(1.4)Financial Services33.628.15.5


Operating income decreased $38 million , or 48.4% , in the three months ended March 29, 2014 , compared to the three months ended March 30, 2013 , and operating income as a percentage of revenue decreased  430 basis points over the same periods. The decreases in total operating income and total operating income as a percentage of total revenue were primarily due to decreases in revenue from our Retail and Direct business segments as well as a decrease in our merchandise gross profit. Selling, distribution, and administrative expenses increased primarily due to increases in new store costs and related support areas. We are focusing on expense management throughout the Company and have implemented many expense reduction efforts that should benefit operating income in upcoming periods. We plan to continue our retail expansion, our omni-channel initiatives, and our Cabela’s branded product investments as we focus on expense management and emphasize corporate frugality.





Under an Intercompany Agreement, the Financial Services segment pays to the Retail and Direct business segments 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 items, the agreement requires the Financial Services segment to reimburse the Retail and Direct segments for certain operating and promotional costs. Fees paid under the Intercompany Agreement by the Financial Services segment to these two segments increased $0.5 million in the three months ended March 29, 2014 , compared to the three months ended March 30, 2013 ; a $0.2 million increase to the Retail segment and a $0.3 million increase to the Direct segment.





Interest (Expense) Income, Net





Interest expense, net of interest income, was $4 million in the three months ended March 29, 2014 , compared to $5 million in the three months ended March 30, 2013 . The decrease in the three months ended March 29, 2014 , is in part due to a higher amount of interest capitalized in 2014 related to increased store expansion activity.





Other Non-Operating Income, Net





Other non-operating income was $2 million in both the three months ended March 29, 2014 , and the three months ended March 30, 2013 .





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Provision for Income Taxes





Our effective tax rate was 34.4% for the three months ended March 29, 2014 , compared to 33.8% for the three months ended March 30, 2013 . The increase in our effective tax rate comparing the respective periods is primarily due to an increase in our state effective tax rate and an increase in estimated nondeductible expenses.








Asset Quality of Cabela's CLUB





Delinquencies and Non-Accrual





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. The median FICO score of our credit cardholders was 794 at March 29, 2014 , compared to 793 at December 28, 2013 and March 30, 2013 .





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 at the periods ended:


March 29, 2014December 28, 2013March 30, 2013Number of days delinquent:Greater than 30 days0.68%0.69%0.73%Greater than 60 days0.410.420.45Greater than 90 days0.220.220.24





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 periods ended:


March 29, 2014December 28, 2013March 30, 2013Number of days delinquent and still accruing (1):Greater than 30 days0.56%0.57%0.59%Greater than 60 days0.330.350.36Greater than 90 days0.180.190.19(1)  Excludes non-accrual and restructured loans which are presented below.Non-accrual0.150.130.18Restructured0.960.951.33





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Allowance for Loan Losses and Charge-offs





The following table shows the activity in our allowance for loan losses and charge off activity for the periods presented:


Three Months EndedMarch 29, 2014March 30, 2013(Dollars in Thousands)Balance, beginning of period$53,110$65,600Provision for loan losses12,71412,775Charge-offs(19,965)(18,300)Recoveries5,1514,625Net charge-offs(14,814)(13,675)Balance, end of period$51,010$64,700Net charge-offs on credit card loans$(14,814)$(13,675)Charge-offs of accrued interest and fees (recorded as a reduction in interest and fee income)(2,105)(1,910)Total net charge-offs including accrued interest and fees$(16,919)$(15,585)Net charge-offs including accrued interest and fees as a percentage of average credit card loans1.80%1.86%





For the three months ended March 29, 2014 , net charge-offs as a percentage of average credit card loans decreased to 1.80% , down six basis points compared to 1.86% for the three months ended March 30, 2013 . 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, lower delinquency roll-rates, favorable charge-off trends, and declining loan balances in our restructured loan portfolio.








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 March 29, 2014 , December 28, 2013 , and March 30, 2013 , cash on a consolidated basis totaled $485 million , $199 million , and $364 million , respectively, of which $422 million , $94 million , and $282 million , respectively, was cash at the Financial Services segment which will be utilized to meet this segment's liquidity requirements. During the three months ended March 29, 2014 , the Financial Services segment completed a term securitization totaling $300 million and renewed one of its variable funding facilities for an additional three years and increased the commitment from $350 million to $500 million. 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.


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As of March 29, 2014 , cash and cash equivalents held by our foreign subsidiaries totaled $60 million . Our intent is to permanently reinvest these funds outside the United States for capital expansion. 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 December 28, 2013 . 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 2013, the cumulative amount of earnings upon which United States income taxes have not been provided is approximately $152 million. If those earnings were not considered indefinitely invested, the Company estimates that an additional income tax expense of approximately $30 million would be recorded. Based on the Company's 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.


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.


We have a $415 million revolving credit facility that expires on November 2, 2016, and 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 March 29, 2014 , and March 30, 2013 , 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. We are currently in negotiations on a new credit agreement for up to $750 million in a revolving credit facility replacing our current $415 million credit agreement.


We have an unsecured $20 million Canadian ("CAD") revolving credit facility for our operations in Canada. Borrowings are payable on demand with interest payable monthly. The credit facility permits the issuance of letters of credit up to $10 million CAD in the aggregate, which reduce the overall credit limit available under the credit facility.


On February 13, 2014, we announced our intent to repurchase up to 650,000 shares of our common stock in open market transactions through February 2015. This 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 . There is no guarantee as to the exact number of shares that we will repurchase.


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 the three months ending March 29, 2014, the Financial Services segment completed a term securitization totaling $300 million and renewed one of its variable funding facilities for an additional three years and increased the commitment from $350 million to $500 million. We believe that these liquidity sources are sufficient to fund the Financial Services segment's foreseeable cash requirements including maturities and near-term growth plans.


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Operating, Investing, and Financing Activities





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


March 29, 2014March 30, 2013(In Thousands)Net cash (used in) provided by operating activities$(56,058)$122,512Net cash provided by investing activities43,42325,570Net cash provided by (used in) financing activities299,739(73,085)





2014 versus 2013





Operating Activities – Cash from operating activities decreased  $179 million in the three months ended March 29, 2014 , compared to the three months ended March 30, 2013 . Comparing the respective periods, cash generated from operations decreased  $24 million , and we had net decreases of $128 million in accounts payable and accrued expenses, $22 million in income taxes receivable, and $38 million in inventories. Partially offsetting these decreases in cash from operations were increases of $12 million relating to prepaid expenses and other assets and $14 million relating to credit card loans originated from internal operations. Inventories increased $129 million during the current quarter to $742 million at March 29, 2014 , while increasing $74 million during the three months ended March 30, 2013 , to a balance of $613 million at March 30, 2013 . The increase in inventories in 2014 is primarily due to the addition of new retail stores.





Investing Activities – Cash provided by investing activities increased $18 million in the three months ended March 29, 2014 , compared to the three months ended March 30, 2013 . Cash paid for property and equipment totaled $111 million in the three months ended March 29, 2014 , compared to $65 million in the three months ended March 30, 2013 . At March 29, 2014 , the Company estimated it had total cash commitments of approximately $478 million outstanding for projected expenditures related to the development, construction, and completion of new retail stores and a new distribution center. This amount excludes any estimated costs associated with new stores where the Company does not have a commitment as of March 29, 2014 . We expect to fund these estimated capital expenditures over the next 12 months with cash generated from operations and borrowings. We expect to fund our capital expenditures primarily with cash from operations. In addition, net cash flows from credit card loans originated externally increased $63 million .





Financing Activities – Cash provided by financing activities increased  $373 million in the three months ended


March 29, 2014 , compared to the three months ended March 30, 2013 . Comparing the respective periods, this net change was primarily due to an increase in net borrowings on secured obligations of the Trust of the Financial Services segment by $203 million in the three months ended March 29, 2014 , compared to the three months ended March 30, 2013 . Additionally, we had increases of $230 million in net borrowings on revolving credit facilities and inventory financing and $4 million due to less cash spent on the purchase of treasury stock. Partially offsetting these increases was a net decrease relating to change in time deposits of $51 million .





The following table presents the borrowing activities of our merchandising business and the Financial Services segment for the three months ended:


March 29, 2014March 30, 2013(In Thousands)Borrowings (repayments) on revolving credit facilities and inventory financing, net$230,294$(40)Secured obligations of the Trust, net205,0002,250Repayments of long-term debt(8,210)(8,206)Borrowings (repayments), net$427,084$(5,996)





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The following table summarizes our availability under the Company's debt and credit facilities, excluding the facilities of the Financial Services segment, at the periods ended:


March 29, 2014March 30, 2013(In Thousands)Amounts available for borrowing under credit facilities (1)$435,000$415,000Principal amounts outstanding(229,086)—Outstanding letters of credit and standby letters of credit(24,578)(24,694)Remaining borrowing capacity, excluding the Financial Services segment facilities$181,336$390,306


|    |                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Consists of our revolving credit facility of $415 million for both periods and $20 million CAD in a credit facility atMarch 29, 2014, 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 March 29, 2014 , 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 March 29, 2014 , 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 unsecured $20 million CAD revolving credit facility also permits the issuance of letters of credit up to $10 million CAD in the aggregate, which reduce the overall credit limit available under the credit facility.





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Economic Development Bonds and Grants





Economic Development 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 condensed consolidated balance sheet. At March 29, 2014 , December 28, 2013 , and March 30, 2013 , economic development bonds totaled $80 million , $79 million , and $84 million , respectively.





On a quarterly basis, we perform various procedures to analyze the amounts and timing of projected cash flows to be received from our economic development bonds. We revalue each economic development bond using discounted cash flow models based on available market interest rates (Level 2 inputs) and management estimates, including the estimated amounts and timing of expected future tax payments (Level 3 inputs) to be received by the municipalities under tax increment financing districts. Projected cash flows are derived from sales and property taxes. Due to the seasonal nature of the Company's business, fourth quarter sales are significant to projecting future cash flows under the economic development bonds. We evaluate the impact of bond payments that have been received since the most recent quarterly evaluation, including those subsequent to the end of the quarter. Typically, bond payments are received twice annually. The payments received around the end of the fourth quarter provide us with additional facts for our fourth quarter projections. We make inquiries of local governments and/or economic development authorities for information on any anticipated third-party development, specifically on land owned by the Company, but also on land not owned by the Company in the tax increment financing development district, and to assess any current and potential development where cash flows under the bonds may be impacted by additional development and the anticipated development is material to the estimated and recorded carrying value based on projected cash flows. We make revisions to the cash flow estimates of each bond based on the information obtained. In those instances where the expected cash flows are insufficient to recover the current carrying value of the bond, we adjust the carrying value of the individual bonds to their revised estimated fair value. The governmental entity from which the Company purchases the bonds is not liable for repayment of principal and interest on the bonds to the extent that the associated taxes are insufficient to fund principal and interest amounts under the bonds. Should sufficient tax revenue not be generated by the subject properties, the Company may not receive all anticipated payments and thus will be unable to realize the full carrying values of the economic development bonds, which result in a corresponding decrease to deferred grant income.


For the three months ended March 29, 2014 , and March 30, 2013 , there were no other than temporary fair value adjustments of economic development bonds and no adjustments of deferred grant income related to economic development bonds. However, at March 29, 2014 , the Company identified one economic development bond with a carrying value of $8 million where the actual tax revenues associated with the properties were lower than previously projected. We will continue to closely monitor the amounts and timing of projected cash flows from the properties related to this economic development bond. However, if the subject properties do not generate sufficient tax revenue, the Company may not receive all anticipated payments which may result in the Company being unable to realize the bond's full carrying value, which would result in a corresponding decrease to deferred grant income.


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 March 29, 2014 , the total amount of grant funding subject to a specific contractual remedy was $44 million . At March 29, 2014 , December 28, 2013 , the amount the Company had recorded in liabilities in the condensed consolidated balance sheets relating to these grants was $23 million , $23 million , and $7 million, respectively.


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Securitization of Credit Card Loans





The total amounts and maturities for our credit card securitizations as of March 29, 2014 , were as follows:


SeriesTypeTotalAvailable CapacityThird Party Investor Available CapacityThird Party Investor OutstandingInterestRateExpectedMaturity(Dollars in Thousands)2010-ITerm$45,000$—$—FixedJanuary 20152010-ITerm255,000255,000255,000FloatingJanuary 20152010-IITerm165,000127,500127,500FixedSeptember 20152010-IITerm85,00085,00085,000FloatingSeptember 20152011-IITerm200,000155,000155,000FixedJune 20162011-IITerm100,000100,000100,000FloatingJune 20162011-IVTerm210,000165,000165,000FixedOctober 20162011-IVTerm90,00090,00090,000FloatingOctober 20162012-ITerm350,000275,000275,000FixedFebruary 20172012-ITerm150,000150,000150,000FloatingFebruary 20172012-IITerm375,000300,000300,000FixedJune 20172012-IITerm125,000125,000125,000FloatingJune 20172013-ITerm385,000327,250327,250FixedFebruary 20232013-IITerm152,500100,000100,000FixedAugust 20182013-IITerm197,500197,500197,500FloatingAugust 20182014-ITerm45,000——FixedMarch 20172014-ITerm255,000255,000255,000FloatingMarch 2017Total term3,185,0002,707,2502,707,2502008-IIIVariable Funding260,115225,000—FloatingMarch 20152011-IVariable Funding352,941300,000—FloatingMarch 20162011-IIIVariable Funding588,235500,000—FloatingMarch 2017Total variable1,201,2911,025,000—Total available$4,386,291$3,732,250$2,707,250





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 the three months ended March 29, 2014 , the Financial Services segment completed a term securitization totaling $300 million and renewed one of its variable funding facilities for an additional three years and increased the commitment from $350 million to $500 million. We believe that these liquidity sources are sufficient to fund the Financial Services segment's foreseeable cash requirements, including 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 three months ended March 29, 2014 , the year ended December 28, 2013 , and the three months ended March 30, 2013 .





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Certificates of Deposit





The Financial Services segment utilizes brokered and non-brokered certificates of deposit to partially finance its operating activities that are issued in minimum amounts of one hundred thousand dollars in various maturities. At March 29, 2014 , the Financial Services segment had $940 million of certificates of deposit outstanding with maturities ranging from April 2014 to July 2023 and with a weighted average effective annual fixed rate of 2.14% . This outstanding balance compares to $1,069 million at December 28, 2013 , and $969 million at March 30, 2013 , with weighted average effective annual fixed rates of 2.14% and 2.28% , respectively.





Impact of Inflation





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





Contractual Obligations and Other Commercial Commitments





In the normal course of business, we enter into various contractual obligations that may require future cash payments. For a description of our contractual obligations and other commercial commitments as of December 28, 2013 , see our annual report on Form 10-K for the fiscal year ending December 28, 2013 , under “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Contractual Obligations and Other Commercial Commitments.”





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 condensed consolidated statements of income.





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 $26 billion above existing balances at the end of March 29, 2014 . These funding obligations are not included on our condensed 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.





Seasonality





Our business is seasonal in nature and interim results may not be indicative of results for the full year. Due to buying patterns around the holidays and the opening of hunting seasons, our merchandise revenue is traditionally higher in the third and fourth quarters than in the first and second quarters, and we typically earn a disproportionate share of our operating income in the fourth quarter. Because of our retail store expansion, and fixed costs associated with retail stores, our quarterly operating income may be further impacted by these seasonal fluctuations. We anticipate our sales will continue to be seasonal in nature.


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|------- | ---------
|Item 6. | Exhibits.




(a)           Exhibits.


ExhibitNumberDescription31.1Certification of CEO Pursuant to Rule 13a-14(a) under the Exchange Act31.2Certification of CFO Pursuant to Rule 13a-14(a) under the Exchange Act











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SIGNATURES





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





CABELA'S INCORPORATEDDated:May 5, 2014By:/s/ Thomas L. MillnerThomas L. MillnerPresident and Chief Executive OfficerDated:May 5, 2014By:/s/ Ralph W. CastnerRalph W. CastnerExecutive Vice President and Chief Financial Officer








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Exhibit Index





ExhibitNumberDescription31.1Certification of CEO Pursuant to Rule 13a-14(a) under the Exchange Act31.2Certification of CFO Pursuant to Rule 13a-14(a) under the Exchange Act











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