CABELAS INC - FORM 10-Q - October 23, 2014

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - CABELAS INC	Financial_Report.xls
EX-31.1 - SECTION 302 CERTIFICATION OF CEO - CABELAS INC	a2014q3exhibit311.htm
EX-31.2 - SECTION 302 CERTIFICATION OF CFO - CABELAS INC	a2014q3exhibit312.htm
EX-32.1 - SECTION 906 CERTIFICATIONS OF CEO & CFO - CABELAS INC	a2014q3exhibit321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 27, 2014



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

Commission File Number: 1-32227

CABELA'S INCORPORATED

(Exact name of registrant as specified in its charter)



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

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

(308) 254-5505

(Registrant's telephone number, including area code)

Not applicable

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

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

Indicate by check mark whether the registrant 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: 71,087,397 shares as of October 20, 2014

CABELA'S INCORPORATED

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 27, 2014

TABLE OF CONTENTS




		Page
PART I - FINANCIAL INFORMATION		3

Item 1.	Financial Statements	3

	Condensed Consolidated Statements of Income	3

	Condensed Consolidated Statements of Comprehensive Income	4

	Condensed Consolidated Balance Sheets	5

	Condensed Consolidated Statements of Cash Flows	6

	Condensed Consolidated Statements of Stockholders' Equity	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58

Item 4.	Controls and Procedures	59

PART II - OTHER INFORMATION		60

Item 1.	Legal Proceedings	60

Item 1A.	Risk Factors	60

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60

Item 3.	Defaults Upon Senior Securities	60

Item 4.	Mine Safety Disclosures	60

Item 5.	Other Information	60

Item 6.	Exhibits	61

SIGNATURES		62

INDEX TO EXHIBITS		63

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements



CABELA'S INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except Earnings Per Share)
(Unaudited)
	Three Months Ended						Nine Months Ended
	September 27, 2014			September 28, 2013			September 27, 2014			September 28, 2013
Revenue:
Merchandise sales	$	773,438		$	749,141		$	2,040,501		$	2,124,538
Financial Services revenue	109,132			98,403			317,074			272,753
Other revenue	3,432			3,284			15,451			12,839
Total revenue	886,002			850,828			2,373,026			2,410,130
Cost of revenue:
Merchandise costs (exclusive of depreciation and amortization)	492,492			469,614			1,306,585			1,341,706
Cost of other revenue	8			318			1,398			386
Total cost of revenue (exclusive of depreciation and amortization)	492,500			469,932			1,307,983			1,342,092

Selling, distribution, and administrative expenses	299,587			304,293			857,643			844,448
Impairment and restructuring charges	—			—			641			937

Operating income	93,915			76,603			206,759			222,653

Interest expense, net	(5,152		)	(4,979		)	(14,476		)	(14,249		)
Other non-operating income, net	916			1,028			4,057			3,675

Income before provision for income taxes	89,679			72,652			196,340			212,079
Provision for income taxes	35,840			22,766			73,235			67,801
Net income	$	53,839		$	49,886		$	123,105		$	144,278

Earnings per basic share	$	0.76		$	0.71		$	1.73		$	2.05
Earnings per diluted share	$	0.75		$	0.70		$	1.71		$	2.01

Basic weighted average shares outstanding	71,068,933			70,575,804			70,957,321			70,412,479
Diluted weighted average shares outstanding	71,693,136			71,757,901			71,885,472			71,717,894

Refer to notes to unaudited condensed consolidated financial statements.



CABELA'S INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
	Three Months Ended					Nine Months Ended
	September 27, 2014			September 28, 2013		September 27, 2014			September 28, 2013

Net income	$	53,839		$	49,886	$	123,105		$	144,278
Other comprehensive income (loss):
Unrealized gain (loss) on economic development bonds, net of taxes of $1,771, $365, $2,649, and $(653)	2,965			678		4,434			(1,681		)
Cash flow hedges	—			—		—			1
Foreign currency translation adjustments	(7,253		)	2,450		(5,936		)	940
Total other comprehensive income (loss)	(4,288		)	3,128		(1,502		)	(740		)
Comprehensive income	$	49,551		$	53,014	$	121,603		$	143,538

Refer to notes to unaudited condensed consolidated financial statements.



CABELA'S INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands Except Par Values)
(Unaudited)
	September 27, 2014			December 28, 2013			September 28, 2013
ASSETS
CURRENT
Cash and cash equivalents	$	365,114		$	199,072		$	409,733
Restricted cash of the Trust	31,808			23,191			26,009
Held-to-maturity investment securities	—			—			135,000
Accounts receivable, net	24,512			42,868			29,367
Credit card loans (includes restricted credit card loans of the Trust of $4,036,331, $3,956,230, and $3,591,844), net of allowance for loan losses of $52,700, $53,110, and $57,370	4,011,187			3,938,630			3,567,423
Inventories	934,732			644,883			815,594
Prepaid expenses and other current assets	99,563			90,438			95,382
Income taxes receivable and deferred income taxes	98,054			47,430			53,693
Total current assets	5,564,970			4,986,512			5,132,201
Property and equipment, net	1,522,910			1,287,545			1,201,662
Economic development bonds	82,341			78,504			79,260
Other assets	45,243			44,303			48,942
Total assets	$	7,215,464		$	6,396,864		$	6,462,065

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT
Accounts payable, including unpresented checks of $67,031, $22,717, and $23,745	$	367,572		$	261,200		$	284,934
Gift instrument, credit card rewards, and loyalty rewards programs	281,759			291,444			248,711
Accrued expenses	129,091			204,073			153,287
Time deposits	290,007			297,645			357,314
Current maturities of secured variable funding obligations of the Trust	—			50,000			—
Current maturities of secured long-term obligations of the Trust	467,500			—			—
Current maturities of long-term debt	8,430			8,418			8,414
Deferred income taxes	836			—			—
Total current liabilities	1,545,195			1,112,780			1,052,660
Long-term time deposits	540,402			771,717			790,664
Secured long-term obligations of the Trust	2,579,750			2,452,250			2,452,250
Long-term debt, less current maturities	657,648			322,647			524,149
Deferred income taxes	3,671			3,118			14,329
Other long-term liabilities	149,818			128,018			102,063

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value; Authorized – 10,000,000 shares; Issued – none	—			—			—
Common stock, $0.01 par value:
Class A Voting, Authorized – 245,000,000 shares
Issued – 71,085,205, 70,630,866, and 70,604,935 shares
Outstanding – 71,085,205, 70,630,866, and 70,604,705 shares	711			706			706
Additional paid-in capital	357,573			346,535			339,752
Retained earnings	1,383,922			1,260,817			1,180,705
Accumulated other comprehensive income (loss)	(3,226		)	(1,724		)	4,802
Treasury stock, at cost – 230 shares at September 28, 2013	—			—			(15		)
Total stockholders’ equity	1,738,980			1,606,334			1,525,950
Total liabilities and stockholders’ equity	$	7,215,464		$	6,396,864		$	6,462,065
Refer to notes to unaudited condensed consolidated financial statements.



CABELA'S INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
	Nine Months Ended
	September 27, 2014			September 28, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	123,105		$	144,278
Adjustments to reconcile net income to net cash flows by operating activities:
Depreciation and amortization	82,548			68,067
Impairment and restructuring charges	641			937
Stock-based compensation	13,049			11,150
Deferred income taxes	1,106			5,058
Provision for loan losses	42,116			33,030
Other, net	(1,105		)	545
Change in operating assets and liabilities, net:
Accounts receivable	18,680			16,899
Credit card loans originated from internal operations, net	55,813			38,713
Inventories	(292,157		)	(263,019		)
Prepaid expenses and other current assets	(11,135		)	36,243
Accounts payable and accrued expenses	(32,719		)	9,992
Gift instrument, credit card rewards, and loyalty rewards programs	(9,429		)	(13,942		)
Other long-term liabilities	23,439			6,417
Income taxes receivable	(52,993		)	(175		)
Net cash (used in) provided by operating activities	(39,041		)	94,193

CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions	(302,732		)	(277,524		)
Change in credit card loans originated externally, net	(170,486		)	(141,694		)
Change in restricted cash of the Trust, net	(8,617		)	(8,717		)
Proceeds from retirement and maturity of economic development bonds	3,246			3,447
Purchases of held-to-maturity investment securities	(24,999		)	(135,000		)
Maturities of held-to-maturity investment securities	25,089			—
Other investing changes, net	(241		)	(170		)
Net cash used in investing activities	(478,740		)	(559,658		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Change in unpresented checks net of bank balances	44,314			(5,183		)
Change in time deposits, net	(238,953		)	99,960
Borrowings on secured obligations of the Trust	685,000			1,234,750
Repayments on secured obligations of the Trust	(140,000		)	(935,000		)
Borrowings on revolving credit facilities and inventory financing	1,394,263			602,876
Repayments on revolving credit facilities and inventory financing	(1,049,556		)	(398,343		)
Payments on long-term debt	(8,347		)	(8,336		)
Exercise of employee stock options and employee stock purchase plan issuances, net	(3,570		)	(100		)
Excess tax benefits from exercise of employee stock options	2,051			5,878
Purchase of treasury stock	—			(10,053		)
Other financing changes, net	(1		)	(1		)
Net cash provided by financing activities	685,201			586,448

Effect of exchange rates on cash and cash equivalents	(1,378		)	—

Net change in cash and cash equivalents	166,042			120,983
Cash and cash equivalents, at beginning of period	199,072			288,750
Cash and cash equivalents, at end of period	$	365,114		$	409,733
Refer to notes to unaudited condensed consolidated financial statements.



CABELA'S INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
(Unaudited)
	Common Stock Shares	Common Stock		Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total

Balance, beginning of 2013	70,545,558	$	705	$	351,161		$	1,036,427	$	5,542		$	(17,856	)	$	1,375,979
Net income	—	—		—			144,278		—			—			144,278
Other comprehensive loss	—	—		—			—		(740		)	—			(740		)
Common stock repurchased	—	—		—			—		—			(10,053		)	(10,053		)
Stock-based compensation	—	—		10,708			—		—			—			10,708
Exercise of employee stock options and tax withholdings on share-based payment awards	59,377	1		(27,995		)	—		—			27,894			(100		)
Excess tax benefit on employee stock option exercises	—	—		5,878			—		—			—			5,878
Balance at September 28, 2013	70,604,935	$	706	$	339,752		$	1,180,705	$	4,802		$	(15	)	$	1,525,950

Balance, beginning of 2014	70,630,866	$	706	$	346,535		$	1,260,817	$	(1,724	)	$	—		$	1,606,334
Net income	—	—		—			123,105		—			—			123,105
Other comprehensive loss	—	—		—			—		(1,502		)	—			(1,502		)
Stock-based compensation	—	—		12,562			—		—			—			12,562
Exercise of employee stock options and tax withholdings on share-based payment awards	454,339	5		(3,575		)	—		—			—			(3,570		)
Excess tax benefit on employee stock option exercises	—	—		2,051			—		—			—			2,051
Balance at September 27, 2014	71,085,205	$	711	$	357,573		$	1,383,922	$	(3,226	)	$	—		$	1,738,980
Refer to notes to unaudited condensed consolidated financial statements.

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)

1. MANAGEMENT REPRESENTATIONS

Principles of Consolidation – The condensed consolidated financial statements included herein are unaudited and have been prepared by management of Cabela's Incorporated and its wholly-owned subsidiaries (“Cabela's,” “Company,” “we,” or “our”) pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The Company's condensed consolidated balance sheet as of December 28, 2013, was derived from the Company's audited consolidated balance sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and reflect all adjustments which are, in the opinion of management, necessary to summarize fairly our financial position and results of operations, comprehensive income, and cash flows for the periods presented. All of these adjustments are of a normal recurring nature. All intercompany accounts and transactions have been eliminated in consolidation.

Cabela's wholly-owned bank subsidiary, World's Foremost Bank ("WFB," "Financial Services segment," or "Cabela's CLUB"), is the primary beneficiary of the Cabela's Master Credit Card Trust and related entities (collectively referred to as the “Trust”) under the guidance of Accounting Standards Codification ("ASC") Topics 810, Consolidations, and 860, Transfers and Servicing. Accordingly, the Trust was consolidated for all reporting periods of Cabela's in this report. As the servicer and the holder of retained interests in the Trust, WFB has the powers to direct the activities that most significantly impact the Trust's economic performance and the right to receive significant benefits or obligations to absorb significant losses of the Trust. The credit card loans of the Trust are recorded as restricted credit card loans and the liabilities of the Trust are recorded as secured obligations.

Because of the seasonal nature of the Company's operations, results of operations of any single reporting period should not be considered as indicative of results for a full year. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the fiscal year ended December 28, 2013.

Cash and Cash Equivalents – Cash and cash equivalents of the Financial Services segment were $303,975, $94,112, and $334,832 at September 27, 2014, December 28, 2013, and September 28, 2013, respectively. Due to regulatory restrictions on WFB, the Company cannot use WFB's cash for non-banking operations.

Reporting Periods – Unless otherwise stated, the fiscal periods referred to in the notes to these condensed consolidated financial statements are the 13 weeks ended September 27, 2014 (“three months ended September 27, 2014”), the 13 weeks ended September 28, 2013 (“three months ended September 28, 2013”), the 39 weeks ended September 27, 2014 ("nine months ended September 27, 2014"), the 39 weeks ended September 28, 2013 ("nine months ended September 28, 2013"), and the 52 weeks ended December 28, 2013 ("year ended 2013"). WFB follows a calendar fiscal period and, accordingly, the respective three and nine month periods ended on September 30, 2014 and 2013, and the fiscal year ended on December 31, 2013.

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)

2. CABELA'S MASTER CREDIT CARD TRUST

The Financial Services segment utilizes the Trust for the purpose of routinely securitizing credit card loans and issuing beneficial interests to investors. The Trust issues variable funding facilities and long-term notes (collectively referred to herein as "secured obligations of the Trust"), each of which has an undivided interest in the assets of the Trust. The Financial Services segment also owns notes issued by the Trust from some of the securitizations, which in some cases may be subordinated to other notes issued.

The following table presents the components of the consolidated assets and liabilities of the Trust at the periods ended:



	September 27, 2014		December 28, 2013		September 28, 2013
Consolidated assets:
Restricted credit card loans, net of allowance of $52,510, $52,820, and $57,030	$	3,983,821	$	3,903,410	$	3,534,814
Restricted cash	31,808		23,191		26,009
Total	$	4,015,629	$	3,926,601	$	3,560,823

Consolidated liabilities:
Secured variable funding obligations	$	—	$	50,000	$	—
Secured long-term obligations	3,047,250		2,452,250		2,452,250
Interest due to third party investors	2,064		1,904		2,214
Total	$	3,049,314	$	2,504,154	$	2,454,464

3. CREDIT CARD LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table reflects the composition of the credit card loans at the periods ended:



	September 27, 2014			December 28, 2013			September 28, 2013

Restricted credit card loans of the Trust (restricted for repayment of secured obligations of the Trust)	$	4,036,331		$	3,956,230		$	3,591,844
Unrestricted credit card loans	22,811			29,619			27,999
Total credit card loans	4,059,142			3,985,849			3,619,843
Allowance for loan losses	(52,700		)	(53,110		)	(57,370		)
Deferred credit card origination costs	4,745			5,891			4,950
Credit card loans, net	$	4,011,187		$	3,938,630		$	3,567,423

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)

Allowance for Loan Losses:

The following table reflects the activity in the allowance for loan losses by credit card segment for the periods presented:



	Three Months Ended
	September 27, 2014									September 28, 2013
	Credit Card Loans			Restructured Credit Card Loans			Total Credit Card Loans			Credit Card Loans			Restructured Credit Card Loans			Total Credit Card Loans

Balance, beginning of period	$	40,440		$	6,910		$	47,350		$	43,500		$	19,000		$	62,500
Provision for loan losses	16,706			2,382			19,088			13,280			(4,876		)	8,404

Charge-offs	(14,601		)	(3,409		)	(18,010		)	(13,841		)	(3,636		)	(17,477		)
Recoveries	3,165			1,107			4,272			2,931			1,012			3,943
Net charge-offs	(11,436		)	(2,302		)	(13,738		)	(10,910		)	(2,624		)	(13,534		)
Balance, end of period	$	45,710		$	6,990		$	52,700		$	45,870		$	11,500		$	57,370

	Nine Months Ended
	September 27, 2014									September 28, 2013
	Credit Card Loans			Restructured Credit Card Loans			Total Credit Card Loans			Credit Card Loans			Restructured Credit Card Loans			Total Credit Card Loans

Balance, beginning of period	$	44,660		$	8,450		$	53,110		$	42,600		$	23,000		$	65,600
Provision for loan losses	35,819			6,297			42,116			37,227			(4,197		)	33,030

Charge-offs	(45,654		)	(10,976		)	(56,630		)	(43,894		)	(10,532		)	(54,426		)
Recoveries	10,885			3,219			14,104			9,937			3,229			13,166
Net charge-offs	(34,769		)	(7,757		)	(42,526		)	(33,957		)	(7,303		)	(41,260		)
Balance, end of period	$	45,710		$	6,990		$	52,700		$	45,870		$	11,500		$	57,370

Credit Quality Indicators, Delinquent, and Non-Accrual Loans:

The Financial Services segment uses the scores of Fair Isaac Corporation (“FICO”), a widely-used tool for assessing an individual's credit rating, as the primary credit quality indicator, with the risk of loss increasing as an individual's FICO score decreases.

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)

The table below provides information on current, non-accrual, past due, and restructured credit card loans by class using the respective quarter FICO score at the periods ended:



September 27, 2014:	FICO Score of Credit Card Loans Segment						Restructured Credit Card Loans Segment (1)
	691 and Below		692 - 758		759 and Above		Restructured Credit Card Loans Segment (1)		Total
Credit card loan status:
Current	$	572,619	$	1,351,772	$	2,024,315	$	30,230	$	3,978,936
1 to 29 days past due	22,487		13,931		14,156		3,244		53,818
30 to 59 days past due	7,663		1,369		467		1,266		10,765
60 or more days past due	12,965		178		40		2,440		15,623
Total past due	43,115		15,478		14,663		6,950		80,206
Total credit card loans	$	615,734	$	1,367,250	$	2,038,978	$	37,180	$	4,059,142

90 days or more past due and still accruing	$	6,879	$	27	$	6	$	1,164	$	8,076
Non-accrual	—		—		—		5,144		5,144



December 28, 2013:	FICO Score of Credit Card Loans Segment						Restructured Credit Card Loans Segment (1)
	691 and Below		692 - 758		759 and Above		Restructured Credit Card Loans Segment (1)		Total
Credit card loan status:
Current	$	527,202	$	1,299,982	$	2,047,424	$	34,444	$	3,909,052
1 to 29 days past due	20,702		13,421		12,953		3,962		51,038
30 to 59 days past due	7,013		1,229		296		1,641		10,179
60 or more days past due	12,445		184		31		2,920		15,580
Total past due	40,160		14,834		13,280		8,523		76,797
Total credit card loans	$	567,362	$	1,314,816	$	2,060,704	$	42,967	$	3,985,849

90 days or more past due and still accruing	$	6,637	$	36	$	17	$	1,381	$	8,071
Non-accrual	—		—		—		5,381		5,381

September 28, 2013:	FICO Score of Credit Card Loans Segment						Restructured Credit Card Loans Segment (1)
	691 and Below		692 - 758		759 and Above		Restructured Credit Card Loans Segment (1)		Total
Credit card loan status:
Current	$	498,540	$	1,208,374	$	1,803,735	$	36,380	$	3,547,029
1 to 29 days past due	19,899		13,468		11,487		3,996		48,850
30 to 59 days past due	6,807		1,117		290		1,876		10,090
60 or more days past due	10,965		203		19		2,687		13,874
Total past due	37,671		14,788		11,796		8,559		72,814
Total credit card loans	$	536,211	$	1,223,162	$	1,815,531	$	44,939	$	3,619,843

90 days or more past due and still accruing	$	5,624	$	18	$	1	$	1,222	$	6,865
Non-accrual	—		—		—		5,672		5,672


(1)	Specific allowance for loan losses of $6,990 at September 27, 2014, $8,450 at December 28, 2013, and $11,500 at September 28, 2013, are included in allowance for loan losses.

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)

4. SECURITIES

Securities consisted of the following for the periods ended:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 27, 2014:
Available-for-sale securities:
Economic development bonds	$	67,826	$	14,515	$	—		$	82,341

December 28, 2013:
Available-for-sale securities:
Economic development bonds	$	71,072	$	7,432	$	—		$	78,504

September 28, 2013:
Available-for-sale securities:
Economic development bonds	$	71,098	$	8,199	$	(37	)	$	79,260

Held-to-maturity securities:
U.S. government agency (1)	$	135,000	$	3	$	—		$	135,003


(1)	Represents U. S. government agency held-to-maturity securities held by the Financial Services segment and available for utilization only by the Financial Services segment pursuant to regulatory restrictions.

The carrying value and fair value of these securities classified by estimated maturity based on expected future cash flows at September 27, 2014, were as follows:



	Amortized Cost		Fair Value
	Amortized Cost		Fair Value

For the three months ending December 27, 2014	$	1,344	$	1,895
For the fiscal years ending:
2015	2,132		2,920
2016	2,677		3,526
2017	2,704		3,404
2018	3,324		4,121
2019 - 2023	23,048		28,241
2024 and thereafter	32,597		38,234
Totals	$	67,826	$	82,341

Interest earned on the securities totaled $2,979 and $3,089 in the nine months ended September 27, 2014, and September 28, 2013, respectively. There were no realized gains or losses on these securities in the nine months ended September 27, 2014, or September 28, 2013.

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)

5. BORROWINGS OF FINANCIAL SERVICES SEGMENT

The Trust issues fixed and floating (variable) rate term securitizations, which are considered secured obligations backed by restricted credit card loans. A summary of the secured fixed and variable rate long-term obligations of the Trust by series, the expected maturity dates, and the respective weighted average interest rates are presented in the following tables at the periods ended:



September 27, 2014:
Series	Expected Maturity Date	Fixed Rate Obligations			Interest Rate		Variable Rate Obligations			Interest Rate		Total Obligations			Interest Rate

Series 2010-I	January 2015	$	—		—	%	$	255,000		1.60	%	$	255,000		1.60	%
Series 2010-II	September 2015	127,500			2.29		85,000			0.85		212,500			1.72
Series 2011-II	June 2016	155,000			2.39		100,000			0.75		255,000			1.75
Series 2011-IV	October 2016	165,000			1.90		90,000			0.70		255,000			1.48
Series 2012-I	February 2017	275,000			1.63		150,000			0.68		425,000			1.30
Series 2012-II	June 2017	300,000			1.45		125,000			0.63		425,000			1.21
Series 2013-I	February 2023	327,250			2.71		—			—		327,250			2.71
Series 2013-II	August 2018	100,000			2.17		197,500			0.80		297,500			1.26
Series 2014-I	March 2017	—			—		255,000			0.50		255,000			0.50
Series 2014-II	September 2019	—			—		340,000			0.60		340,000			0.60

Secured long-term obligations of the Trust		1,449,750					1,597,500					3,047,250
Less current maturities		(127,500		)			(340,000		)			(467,500		)
Secured long-term obligations of the Trust, less current maturities		$	1,322,250				$	1,257,500				$	2,579,750



December 28, 2013:
Series	Expected Maturity Date	Fixed Rate Obligations		Interest Rate		Variable Rate Obligations		Interest Rate		Total Obligations		Interest Rate

Series 2010-I	January 2015	$	—	—	%	$	255,000	1.62	%	$	255,000	1.62	%
Series 2010-II	September 2015	127,500		2.29		85,000		0.87		212,500		1.72
Series 2011-II	June 2016	155,000		2.39		100,000		0.77		255,000		1.75
Series 2011-IV	October 2016	165,000		1.90		90,000		0.72		255,000		1.48
Series 2012-I	February 2017	275,000		1.63		150,000		0.70		425,000		1.30
Series 2012-II	June 2017	300,000		1.45		125,000		0.65		425,000		1.21
Series 2013-I	February 2023	327,250		2.71		—		—		327,250		2.71
Series 2013-II	August 2018	100,000		2.17		197,500		0.82		297,500		1.27

Secured long-term obligations of the Trust		$	1,449,750			$	1,002,500			$	2,452,250

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)



September 28, 2013:
Series	Expected Maturity Date	Fixed Rate Obligations		Interest Rate		Variable Rate Obligations		Interest Rate		Total Obligations		Interest Rate

Series 2010-I	January 2015	$	—	—	%	$	255,000	1.63	%	$	255,000	1.63	%
Series 2010-II	September 2015	127,500		2.29		85,000		0.88		212,500		1.73
Series 2011-II	June 2016	155,000		2.39		100,000		0.78		255,000		1.76
Series 2011-IV	October 2016	165,000		1.90		90,000		0.73		255,000		1.49
Series 2012-I	February 2017	275,000		1.63		150,000		0.71		425,000		1.31
Series 2012-II	June 2017	300,000		1.45		125,000		0.66		425,000		1.22
Series 2013-I	February 2023	327,250		2.71		—		—		327,250		2.71
Series 2013-II	August 2018	100,000		2.17		197,500		0.88		297,500		1.31

Secured long-term obligations of the Trust		$	1,449,750			$	1,002,500			$	2,452,250

The Trust sold asset-backed notes of $300,000 (Series 2014-I) on March 25, 2014, and $400,000 (Series 2014-II) on July 16, 2014. The Series 2014-I securitization transaction included the issuance of $255,000 Class A notes, which accrue interest at a floating rate equal to the one-month London Interbank Offered Rate (“LIBOR”) plus 0.35% per year, and three subordinated classes of notes in the aggregate principal amount of $45,000. The Series 2014-II securitization transaction included the issuance of $340,000 Class A notes, which accrue interest at a floating rate equal to the one-month LIBOR plus 0.45% per year, and three subordinated classes of notes in the aggregate principal amount of $60,000. The Financial Services segment retained each of the subordinated classes of notes which were eliminated in the preparation of our condensed consolidated financial statements. Each class of notes issued in the Series 2014-I securitization transaction has an expected life of approximately three years and a contractual maturity of approximately six years. Each class of notes issued in the Series 2014-II securitization transaction has an expected life of approximately five years and a contractual maturity of approximately eight years. These securitization transactions will be used to fund the growth in restricted credit card loans, maturities of time deposits, and future obligations of the Trust.

The Trust also issues variable funding facilities which are considered secured obligations backed by restricted credit card loans. The Trust renewed one of its variable funding facilities on March 27, 2014, for an additional three years and increased the commitment from $350,000 to $500,000. At September 27, 2014, the Trust had three variable funding facilities with $1,025,000 in total capacity and no amounts outstanding. The variable funding facilities are scheduled to mature in March of 2015, 2016, and 2017. Each of these variable funding facilities includes an option to renew subject to certain terms and conditions. Variable rate note interest is priced at a benchmark rate, LIBOR, or commercial paper rate, plus a spread, which ranges from 0.50% to 0.85%. The variable rate notes provide for a fee ranging from 0.25% to 0.40% on the unused portion of the facilities. During the nine months ended September 27, 2014, and September 28, 2013, the daily average balance outstanding on these notes was $2,198 and $33,443, with a weighted average interest rate of 0.75% and 0.78%, respectively.

The Financial Services segment has unsecured federal funds purchase agreements with two financial institutions. The maximum amount that can be borrowed is $85,000. There were no amounts outstanding at September 27, 2014, December 28, 2013, or September 28, 2013. During the nine months ended September 27, 2014, there was no daily average balance outstanding. During the nine months ended September 28, 2013, the daily average balance outstanding was $305 with a weighted average rate of 0.75%.

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)

6. LONG-TERM DEBT AND CAPITAL LEASES

Long-term debt, including revolving credit facilities and capital leases, consisted of the following at the periods ended:



	September 27, 2014			December 28, 2013			September 28, 2013

Unsecured revolving credit facility	$	340,000		$	2,932		$	200,000
Unsecured notes due 2016 with interest at 5.99%	215,000			215,000			215,000
Unsecured senior notes due 2017 with interest at 6.08%	60,000			60,000			60,000
Unsecured senior notes due 2015-2018 with interest at 7.20%	32,572			40,714			40,714
Unsecured $20 million Canadian revolving credit facility	6,292			—			4,364
Capital lease obligations payable through 2036	12,214			12,419			12,485
Total debt	666,078			331,065			532,563
Less current portion of debt	(8,430		)	(8,418		)	(8,414		)
Long-term debt, less current maturities	$	657,648		$	322,647		$	524,149

On June 18, 2014, the Company amended its credit agreement which now provides for an unsecured $775,000 revolving credit facility and permits the issuance of letters of credit up to $75,000 and swing line loans up to $30,000. The credit agreement formerly provided for a $415,000 revolving credit facility with the issuance of letters of credit up to $100,000 and a $20,000 limit on swing line loans. The credit facility may be increased to $800,000 subject to certain terms and conditions. The term of the credit facility, which formerly expired on November 2, 2016, now expires on June 18, 2019.

During the nine months ended September 27, 2014, and September 28, 2013, the daily average principal balance outstanding on the line of credit was $47,929 and $65,030, respectively, and the weighted average interest rate was 1.47% and 1.46%, respectively. Letters of credit and standby letters of credit totaling $32,290 and $27,753 were outstanding at September 27, 2014, and September 28, 2013, respectively. The daily average outstanding amount of total letters of credit during the nine months ended September 27, 2014, and September 28, 2013, was $23,287 and $22,277, respectively.

During the term of the $775,000 revolving credit facility, the Company is required to pay a quarterly commitment fee, which ranges from 0.15% to 0.25% (previously 0.30% before the credit agreement was amended) of the average daily unused principal balance on the line of credit. Interest on each base rate advance on this credit facility is equal to the alternate base rate, as defined, plus the applicable margin, as defined. The applicable margin is the percentage rate that is applicable at such time with respect to advances as set forth in the pricing schedule, a stratified interest rate schedule based on the Company's leverage ratio, as defined. Interest on each Eurocurrency advance on this credit facility is equal to the Eurocurrency base rate, as defined, plus the applicable margin, as defined. The applicable margin is the percentage rate that is applicable at such time with respect to advances as set forth in the pricing schedule, a stratified interest rate schedule based on the Company's leverage ratio, as defined.

The credit agreement requires that Cabela’s 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) as of the last day of each fiscal quarter (previously "at all times" before the credit agreement was amended).

The Company also has an unsecured $20,000 Canadian ("CAD") revolving credit facility for its operations in Canada. Borrowings are payable on demand with interest payable monthly. This credit facility permits the issuance of letters of credit up to $10,000 CAD in the aggregate, which reduces the overall available credit limit.

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)

At September 27, 2014, the Company was in compliance with the financial covenant requirements of its $775,000 credit agreement with a fixed charge coverage ratio of 8.39 to 1 (minimum requirement is 2.00 to 1), a leverage ratio of 1.11 to 1 (requirement is no more than 3.00 to 1), and a consolidated net worth that was $594,301 in excess of the minimum. At September 27, 2014, the Company was in compliance with all financial covenants under its 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.

7. IMPAIRMENT AND RESTRUCTURING CHARGES

Impairment and restructuring charges consisted of the following for the periods ended:



	Three Months Ended				Nine Months Ended
	September 27, 2014		September 28, 2013		September 27, 2014		September 28, 2013

Impairment losses on property, equipment, and other assets	$	—	$	—	$	—	$	937
Restructuring charges for severance and related benefits	—		—		641		—
Total	$	—	$	—	$	641	$	937

Long-lived assets of the Company are evaluated for possible impairment whenever events or changes in circumstances may indicate that the carrying value of an asset may not be recoverable. During the three and nine months ended September 27, 2014, and September 28, 2013, the Company evaluated the recoverability of certain property, equipment, and economic development bonds. Except as noted for the nine months ended September 28, 2013, the Company did not recognize any impairment.

Canada Distribution Center:

On June 11, 2014, the Company announced the transition to a third-party logistics provider for its distribution needs in Canada. Therefore, we anticipate closing our distribution center in Winnipeg, Manitoba, in March 2015. The third-party logistics provider began processing a portion of our Canada merchandise in a Calgary, Alberta, distribution center in October 2014. Accordingly, in the three months ended June 28, 2014, the Company recognized a restructuring charge related to employee severance agreements and termination benefits totaling $641. This restructuring charge was recorded to the Corporate Overhead and Other segment.

Retail Store Properties:

In the nine months ended September 28, 2013, the Company recognized an impairment loss totaling $937 related to the store closure of our former Winnipeg, Manitoba, Canada, retail site. The impairment loss of $937 included leasehold improvements write-offs as well as lease cancellation and restoration costs. This impairment loss was recorded to the Retail segment ($820) and the Corporate Overhead and Other segment ($117).

Local economic trends, government regulations, and other restrictions where we own properties may impact management projections that could change undiscounted cash flows in future periods which could trigger possible future write downs.

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)

8. INCOME TAXES

A reconciliation of the statutory federal income tax rate to the effective income tax rate was as follows for the periods presented.



	Three Months Ended				Nine Months Ended
	September 27, 2014		September 28, 2013		September 27, 2014		September 28, 2013

Statutory federal rate	35.0	%	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	2.2		1.4		2.0		1.4
Other nondeductible items	0.4		0.2		0.4		0.2
Tax exempt interest income	(0.6	)	(0.5	)	(0.5	)	(0.4	)
Rate differential on foreign income	2.8		(5.2	)	0.9		(4.2	)
Change in unrecognized tax benefits	—		(0.8	)	(1.0	)	—
Other, net	0.2		1.2		0.5		—
Effective income tax rate	40.0	%	31.3	%	37.3	%	32.0	%

The increases in our effective tax rate comparing the three and nine months ended September 27, 2014, to the respective 2013 periods are due to an increase of $3,872 related to tax adjustments attributable to changes in the mix of prior year taxable income between the United States and foreign tax jurisdictions and an increase in our state effective tax rate.

As of September 27, 2014, cash and cash equivalents held by our foreign subsidiaries totaled $19,770. Our intent is to permanently reinvest these funds outside the United States for capital expansion. 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.

In the three months ended September 27, 2014, the Company paid a deposit of $50,000 for federal taxes related to prior period uncertain tax positions. Prior to 2013, the Company paid a total of $53,418 as deposits for federal taxes related to prior period uncertain tax positions for a total of $103,418 in deposits outstanding. These deposits were classified as a current asset netted within income taxes receivable and deferred income taxes in the condensed consolidated balance sheets.

The Company's tax years 2007 through 2011 are under examination by the Internal Revenue Service ("IRS"). In late 2012, the IRS issued a revenue agent report summarizing its determination of the adjustments required to the 2007 and 2008 income tax returns. We disagree with the adjustments made by the IRS in their revenue agent report and are currently appealing the adjustments. We expect the appeals process for the 2007 and 2008 tax years to be completed within the next 12 months. We do not expect the examination and related appeal for the 2009, 2010, and 2011 tax years to be completed within the next 12 months. We have reserved for potential adjustments for income taxes that may result from examinations by the tax authorities, and we believe that the final outcome of these examinations or agreements will not have a material effect on the Company's financial condition, results of operations, or cash flows.

The balance of unrecognized tax benefits, classified as other long-term liabilities in the condensed consolidated balance sheets, totaled $79,490, $64,800, and $42,215 at September 27, 2014, December 28, 2013, and September 28, 2013, respectively. The changes comparing the respective periods were due primarily to our assessments of uncertain tax positions related to prior period tax positions. Since the Company is routinely under audit by various taxing authorities, and the Company expects to resolve the tax issues at appeals for the 2007 and 2008 examination years in 2015, it is reasonably possible that the amount of unrecognized tax benefits will change during the next 12 months. However, we do not expect the change, if any, to have a material effect on the Company's consolidated financial condition or results of operations within the next 12 months.

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)

9. COMMITMENTS AND CONTINGENCIES

The Company leases various buildings, computer and other equipment, and storage space under operating leases which expire on various dates through January 2041. Rent expense on these leases as well as other month to month rentals was $6,146 and $14,050 in the three and nine months ended September 27, 2014, compared to $3,955 and $10,843 in the three and nine months ended September 28, 2013.

The following is a schedule of future minimum rental payments under operating leases at September 27, 2014:



For the three months ending December 27, 2014	$	5,863
For the fiscal years ending:
2015	22,493
2016	23,061
2017	22,605
2018	29,073
Thereafter	305,012
Total	$	408,107

The Company leases 25 of its retail store sites. Certain of these leases include tenant allowances that are amortized over the life of the lease. The Company received $7,243 in tenant allowances in the nine months ended September 27, 2014, and $4,950 during the nine months ended September 28, 2013. The Company does not expect to receive any additional tenant allowances under leases during the remainder of 2014. Certain leases require the Company to pay contingent rental amounts based on a percentage of sales, in addition to real estate taxes, insurance, maintenance, and other operating expenses associated with the leased premises. These leases have terms which include renewal options ranging from 10 to 70 years.

The Company has entered into real estate purchase, construction, and/or economic incentive agreements for various new retail store site locations. At September 27, 2014, the Company estimated it had total cash commitments of approximately $609,500 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 September 27, 2014. We expect to fund these estimated capital expenditures over the next 12 months with cash generated from operations and borrowings.

Under various grant programs, state or local governments provide funding for certain costs associated with developing and opening a new retail store. The Company generally receives grant funding in exchange for commitments, such as assurance of agreed employment and wage levels at the retail store or that the retail store will remain open, made by the Company to the state or local government providing the funding. The commitments typically phase out over approximately five to 10 years. If the Company failed to maintain the commitments during the applicable period, the funds received may have to be repaid or other adverse consequences may arise, which could affect the Company's cash flows and profitability. At September 27, 2014, the total amount of grant funding subject to a specific contractual remedy was $44,231. No grant funding was received in the nine months ended September 27, 2014. At September 27, 2014, December 28, 2013, and September 28, 2013, the amount the Company had recorded in liabilities in the condensed consolidated balance sheets relating to these grants was $22,650, $22,536, and $6,673, respectively.

The Company operates an open account document instructions program, which provides for Cabela's-issued letters of credit. We had obligations to pay participating vendors $63,352, $48,409, and $60,579 at September 27, 2014, December 28, 2013, and September 28, 2013, respectively.

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)

The Financial Services segment enters into financial instruments with off-balance sheet risk in the normal course of business through the origination of unsecured credit card loans. Unsecured credit card accounts are commitments to extend credit and totaled $29,360,000, $25,255,000, and $25,093,000 at September 27, 2014, December 28, 2013, and September 28, 2013, respectively. These commitments are in addition to any current outstanding balances of a cardholder. Unsecured credit card loans involve, to varying degrees, elements of credit risk in excess of the amount recognized in the condensed consolidated balance sheets. The principal amounts of these instruments reflect the Financial Services segment's maximum related exposure. The Financial Services segment has not experienced and does not anticipate that all customers will exercise the entire available line of credit at any given point in time. The Financial Services segment has the right to reduce or cancel the available lines of credit at any time.

Visa Litigation Settlement – 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 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. The settlement agreement required, 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. The remaining related liability of $951 was settled in the second quarter of 2014. Therefore, at September 27, 2014, no liability was outstanding for this settlement compared to $4,687 at December 28, 2013, and $8,300 at September 28, 2013.

Litigation and Claims – The Company is party to various legal proceedings arising in the ordinary course of business. These actions include commercial, intellectual property, employment, regulatory, and product liability claims. Some of these actions involve complex factual and legal issues and are subject to uncertainties. The activities of WFB are subject to complex federal and state laws and regulations. WFB's regulators are authorized to conduct compliance examinations and impose penalties for violations of these laws and regulations and, in some cases, to order WFB to pay restitution. For example, the Federal Deposit Insurance Corporation ("FDIC") conducted compliance examinations in 2009, 2011, and 2013 and found that certain practices of WFB were improper. As a result of these compliance examinations, the FDIC issued consent orders and WFB was required to take corrective action and pay restitution and civil money penalties. The Company cannot predict with assurance the outcome of the actions brought against it. Accordingly, adverse developments, settlements, or resolutions may occur and have a material effect on the Company's results of operations for the period in which such development, settlement, or resolution occurs. However, the Company does not believe that the outcome of any current legal proceedings would have a material effect on its results of operations, cash flows, or financial position taken as a whole.

On January 6, 2011, the Company received a Commissioner's charge from the Chair of the U. S. Equal Employment Opportunity Commission ("EEOC") alleging that the Company has discriminated against non-Whites on the basis of their race and national origin in recruitment and hiring. Although the Company disputes these allegations, the Company recently entered into preliminary settlement negotiations with the EEOC to resolve this matter. At the present time, the Company believes that it is probable that it will incur a loss related to the EEOC matter, but given the early stage of the settlement negotiations, the lack of any specific monetary demand from the EEOC, and the ongoing nature and complexity of this matter, the Company cannot reasonably estimate any loss or range of loss that may arise from this matter. Accordingly, the Company has not accrued a liability related to the EEOC matter. Although the Company does not presently believe that the EEOC matter will have a material adverse effect on its business, given the inherent uncertainties in this situation, the Company can provide no assurance that this matter will not be material to its business in the future.

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)

10. STOCK-BASED COMPENSATION PLANS AND EMPLOYEE BENEFIT PLANS

Stock-Based Compensation – The Company recognized total stock-based compensation expense of $4,484 and $13,049 for the three and nine months ended September 27, 2014, and $3,837 and $11,150 for the three and nine months ended September 28, 2013. Compensation expense related to the Company's stock-based payment awards is recognized in selling, distribution, and administrative expenses in the condensed consolidated statements of income. At September 27, 2014, the total unrecognized deferred stock-based compensation balance for all equity awards issued, net of expected forfeitures, was $29,663, net of tax, which is expected to be amortized over a weighted average period of 2.8 years.

2013 Stock Plan – The Cabela's Incorporated 2013 Stock Plan (the "2013 Stock Plan"), which replaced the Company's 2004 Stock Plan, provides for the grant of incentive stock options, non-statutory stock options ("NSOs"), stock appreciation rights, performance stock, performance units, restricted stock, and restricted stock units to employees and consultants. Non-employee directors are eligible to receive any type of award offered under the 2013 Stock Plan except incentive stock options. Awards granted under the 2013 Stock Plan have a term of no greater than ten years from the grant date and become exercisable under the vesting schedule determined at the time of grant. As of September 27, 2014, the maximum number of shares available for awards under the 2013 Stock Plan was 3,334,274.

As of September 27, 2014, there were 2,734,674 awards outstanding under the 2004 Stock Plan and 665,726 awards outstanding under the 2013 Stock Plan. To the extent available, we will issue treasury shares for the exercise of stock options before issuing new shares.

Option Awards – During the nine months ended September 27, 2014, there were 194,905 NSOs granted to employees at an exercise price of $66.32 per share. These options have an eight-year term and vest over four years. In addition, on March 2, 2014, the Company also issued 64,000 premium-priced NSOs to its President and Chief Executive Officer at an exercise price of $76.27 (which was equal to 115% of the closing price of the Company's common stock on the New York Stock Exchange on February 28, 2014). The premium-priced NSOs vest in three equal annual installments beginning on March 2, 2017, and expire on March 2, 2022.

During the nine months ended September 27, 2014, the Company granted 40,000 NSOs to non-employee directors at a weighted average exercise price of $61.53 per share. These options have an eight-year term and vest over one year.

During the nine months ended September 27, 2014, there were 280,951 options exercised. The aggregate intrinsic value of awards exercised was $18,435 and $17,854 during the nine months ended September 27, 2014, and September 28, 2013, respectively. Based on the Company's closing stock price of $58.49 at September 27, 2014, the total number of in-the-money awards exercisable as of September 27, 2014, was 1,921,295.

Nonvested Stock and Stock Unit Awards – During the nine months ended September 27, 2014, the Company issued 291,705 units of nonvested stock to employees at a weighted average fair value of $66.28 per unit. These nonvested stock units vest evenly over four years on the grant date anniversary based on the passage of time. On March 2, 2014, the Company also issued 51,050 units of performance-based restricted stock units to certain executives at a fair value of $66.32 per unit. These performance-based restricted stock units will begin vesting in four equal annual installments on March 2, 2015, if the performance criteria are achieved.

On June 5, 2014, the Company granted 409 units of nonvested stock to a non-employee director of WFB under the 2013 Stock Plan at a fair value of $61.23 per unit. These nonvested stock units vest over one year.

Employee Stock Purchase Plan – During the nine months ended September 27, 2014, there were 52,830 shares issued under the Cabela's Incorporated 2013 Employee Stock Purchase Plan (the "2013 ESPP"). As of September 27, 2014, there were 1,917,355 shares of common stock authorized and available for issuance under the 2013 ESPP.

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)


11.	STOCKHOLDERS' EQUITY AND DIVIDEND RESTRICTIONS

Retained Earnings – The most significant restrictions on the payment of dividends are contained within the covenants under the Company's revolving credit and unsecured senior notes purchase agreements. Also, Nebraska banking laws govern the amount of dividends that WFB can pay to Cabela's. In April 2014, WFB paid a $40,000 dividend to Cabela's. At September 27, 2014, the Company had unrestricted retained earnings of $229,377 available for dividends. However, the Company has never declared or paid any cash dividends on its common stock, and does not anticipate paying any cash dividends in the foreseeable future.

Accumulated Other Comprehensive Income (Loss) – The components of accumulated other comprehensive income (loss), net of related taxes, are as follows for the periods ended:



	September 27, 2014			December 28, 2013			September 28, 2013

Accumulated net unrealized holding gains on economic development bonds	$	9,116		$	4,682		$	5,142
Cumulative foreign currency translation adjustments	(12,342		)	(6,406		)	(340		)
Total accumulated other comprehensive income (loss)	$	(3,226	)	$	(1,724	)	$	4,802

Treasury Stock – The Company announced on February 13, 2014, its intent to repurchase up to 650,000 shares of its common stock in open market transactions through February 2015. There is no guarantee as to the exact number of shares that we will repurchase. During the three and nine months ended September 27, 2014, there were no shares repurchased. There were 650,000 shares remaining to be purchased at September 27, 2014, under the February 2014 repurchase program.

The following table reconciles the Company's treasury stock activity for the periods presented.



	Three Months Ended			Nine Months Ended
	September 27, 2014	September 28, 2013		September 27, 2014	September 28, 2013

Balance, beginning of period	—	13,737		—	492,414
Purchase of treasury stock at cost (1)	—	17,439		—	181,179
Treasury shares issued on exercise of stock options and share-based payment awards	—	(30,946	)	—	(673,363	)
Balance, end of period	—	230		—	230


(1)	Reflects common stock withheld (under the terms of grants pursuant to a stock compensation plan) totaling 17,439 shares to offset tax withholding obligations upon the vesting and release of restricted shares on July 7, 2013.

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)

12. EARNINGS PER SHARE

The following table reconciles the weighted average number of shares utilized in the earnings per share calculations for the periods presented.



	Three Months Ended		Nine Months Ended
	September 27, 2014	September 28, 2013	September 27, 2014	September 28, 2013

Common shares – basic	71,068,933	70,575,804	70,957,321	70,412,479
Effect of incremental dilutive securities:
Stock options, nonvested stock units, and employee stock purchase plans	624,203	1,182,097	928,151	1,305,415
Common shares – diluted	71,693,136	71,757,901	71,885,472	71,717,894

Stock options outstanding and nonvested stock units issued considered anti-dilutive excluded from calculation	730,139	37,582	574,234	12,527

13. SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth non-cash financing and investing activities and other cash flow information for the nine months ended:



	September 27, 2014			September 28, 2013
Non-cash financing and investing activities:
Accrued property and equipment additions (1)	$	52,917		$	49,007
Depreciation adjustment reducing deferred grant income	(831		)	—

Other cash flow information:
Interest paid (2)	$	62,790		$	58,778
Capitalized interest	(6,047		)	(2,942		)
Interest paid, net of capitalized interest	$	56,743		$	55,836
Income taxes paid, net of refunds	$	106,672		$	52,532


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


(2)	Includes interest from the Financial Services segment totaling $47,910 and $45,987, respectively.

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)

14. SEGMENT REPORTING

The Company has three reportable segments: Retail, Direct, and Financial Services. The Retail segment sells products and services through the Company's retail stores. The Direct segment sells products through our e-commerce websites (Cabelas.com and Cabelas.ca) and direct mail catalogs. The Financial Services segment issues co-branded credit cards. Revenues included in Corporate Overhead and Other are primarily made up of amounts received from outfitter services, real estate rental income, land sales, and fees earned through the Company's travel business and other complementary business services. Operating costs by segment consist primarily of:


•	labor, advertising, depreciation, and retail store related occupancy costs for the Retail segment;


•	direct marketing costs (e-commerce advertising and catalog costs) and order processing costs for the Direct segment;


•	advertising and promotion, license fees, third party services for processing credit card transactions, employee compensation and benefits, and other general and administrative costs for the Financial Services segment; and


•	unallocated shared-service costs, operations of various ancillary subsidiaries such as real estate development and travel, and segment eliminations for the Corporate Overhead and Other segment. Unallocated shared-service costs include receiving, distribution, and storage costs of inventory, merchandising, and quality assurance costs, as well as corporate headquarters occupancy costs.

Segment assets are those directly used in or clearly allocable to an operating segment’s operations. Depreciation, amortization, and property and equipment expenditures are recognized in each respective segment. Major assets by segment include:


•	Retail segment – inventory in the retail stores, land, buildings, fixtures, and leasehold improvements, and goodwill. The balance of goodwill in the Retail segment totaled $3,157, $3,295, and $3,406 at September 27, 2014, December 28, 2013, and September 28, 2013, respectively. The change in the carrying value of goodwill between periods was due to foreign currency adjustments.


•	Direct segment – fixed assets and deferred catalog costs.


•	Financial Services segment – cash, credit card loans, restricted cash, receivables, fixtures, and other assets. Cash and cash equivalents of the Financial Services segment were $303,975, $94,112, and $334,832 at September 27, 2014, December 28, 2013, and September 28, 2013, respectively.


•	Corporate Overhead and Other segment – corporate headquarters and facilities, merchandise distribution inventory, shared technology infrastructure and related information technology systems, corporate cash and cash equivalents, economic development bonds, prepaid expenses, deferred income taxes, and other corporate long-lived assets.

Under an Intercompany Agreement, the Financial Services segment pays to the Retail and Direct segments a fixed license fee that includes 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 promotional costs, which are recorded as a reduction to Financial Services segment revenue and as a reduction to merchandise costs associated with the Retail and Direct segments. Beginning in the second quarter of 2014, this reimbursement from our Financial Services segment to our Retail and Direct segments for certain promotional costs has been adjusted to eliminate in consolidation. Prior periods have not been adjusted.

Also, if the total risk-based capital ratio of WFB is greater than 13% at any quarter end, the Financial Services segment must pay an additional license fee to the Retail and Direct business segments equal to 50% of the amount that the total risk-based capital ratio exceeds 13%. At March 31, 2014, the total risk-based capital ratio of WFB exceeded this 13% threshold; therefore, an additional license fee of $10,945 was paid in April 2014 by the Financial Services segment to the Retail ($6,676) and Direct ($4,269) segments and was classified in selling, distribution, and administrative expenses.

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)

Financial information by segment is presented in the following tables for the periods presented:



										Corporate Overhead and Other
							Financial Services
	Retail			Direct			Financial Services						Total
Three Months Ended September 27, 2014:
Merchandise sales	$	598,103		$	175,335		$	—		$	—		$	773,438
Non-merchandise revenue:
Financial Services	—			—			104,236			—			104,236
Other	583			—			—			2,849			3,432
Total revenue before intersegment eliminations	598,686			175,335			104,236			2,849			881,106
Intersegment revenue eliminated in consolidation	—			—			4,896			—			4,896
Total revenue as reported	$	598,686		$	175,335		$	109,132		$	2,849		$	886,002

Operating income (loss)	$	108,552		$	18,236		$	28,158		$	(61,031	)	$	93,915
As a percentage of revenue	18.1		%	10.4		%	27.0		%	N/A			10.6		%
Depreciation and amortization	$	17,427		$	1,228		$	391		$	10,257		$	29,303
Assets	1,568,243			254,074			4,447,850			945,297			7,215,464
Property and equipment additions including accrued amounts	73,545			21			289			28,165			102,020

Three Months Ended September 28, 2013:
Merchandise sales	$	550,545		$	198,596		$	—		$	—		$	749,141
Non-merchandise revenue:
Financial Services	—			—			98,403			—			98,403
Other	333			—			—			2,951			3,284
Total Revenue	$	550,878		$	198,596		$	98,403		$	2,951		$	850,828

Operating income (loss)	$	103,658		$	29,284		$	29,182		$	(85,521	)	$	76,603
As a percentage of revenue	18.8		%	14.7		%	29.7		%	N/A			9.0		%
Depreciation and amortization	$	14,094		$	1,874		$	400		$	7,803		$	24,171
Assets	1,274,722			177,428			4,133,412			876,503			6,462,065
Property and equipment additions including accrued amounts	82,468			3			253			16,995			99,719

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)



										Corporate Overhead and Other
							Financial Services
	Retail			Direct			Financial Services						Total
Nine Months Ended September 27, 2014:
Merchandise sales	$	1,538,634		$	501,867		$	—		$	—		$	2,040,501
Non-merchandise revenue:
Financial Services	—			—			307,402			—			307,402
Other	1,437			—			—			14,014			15,451
Total revenue before intersegment eliminations	1,540,071			501,867			307,402			14,014			2,363,354
Intersegment revenue eliminated in consolidation	—			—			9,672			—			9,672
Total revenue as reported	$	1,540,071		$	501,867		$	317,074		$	14,014		$	2,373,026

Operating income (loss)	$	260,656		$	75,429		$	84,847		$	(214,173	)	$	206,759
As a percentage of revenue	16.9		%	15.0		%	27.6		%	N/A			8.7		%
Depreciation and amortization	$	49,473		$	3,684		$	1,149		$	28,242		$	82,548
Assets	1,568,243			254,074			4,447,850			945,297			7,215,464
Property and equipment additions including accrued amounts	237,580			134			1,276			78,967			317,957

Nine Months Ended September 28, 2013:
Merchandise sales	$	1,520,660		$	603,878		$	—		$	—		$	2,124,538
Non-merchandise revenue:
Financial Services	—			—			272,753			—			272,753
Other	890			—			—			11,949			12,839
Total Revenue	$	1,521,550		$	603,878		$	272,753		$	11,949		$	2,410,130

Operating income (loss)	$	279,409		$	104,912		$	79,198		$	(240,866	)	$	222,653
As a percentage of revenue	18.4		%	17.4		%	29.0		%	N/A			9.2		%
Depreciation and amortization	$	39,921		$	5,635		$	1,158		$	21,353		$	68,067
Assets	1,274,722			177,428			4,133,412			876,503			6,462,065
Property and equipment additions including accrued amounts	202,245			103			1,153			43,562			247,063

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)

The following table sets forth the components of Financial Services revenue for the periods presented:



	Three Months Ended						Nine Months Ended
	September 27, 2014			September 28, 2013			September 27, 2014			September 28, 2013

Interest and fee income	$	103,333		$	87,945		$	292,204		$	250,383
Interest expense	(16,155		)	(17,075		)	(47,845		)	(46,863		)
Provision for loan losses	(19,088		)	(8,404		)	(42,116		)	(33,030		)
Net interest income, net of provision for loan losses	68,090			62,466			202,243			170,490
Non-interest income:
Interchange income	93,817			88,963			267,756			252,290
Other non-interest income	999			1,430			2,621			4,113
Total non-interest income	94,816			90,393			270,377			256,403
Less: Customer rewards costs	(53,774		)	(54,456		)	(155,546		)	(154,140		)
Financial Services revenue	$	109,132		$	98,403		$	317,074		$	272,753

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 and nine months ended September 27, 2014, and September 28, 2013.



Three Months Ended:	Retail				Direct				Total
	2014		2013		2014		2013		2014		2013
Product Category:
Hunting Equipment	48.6	%	51.1	%	43.4	%	47.6	%	47.3	%	50.2	%
General Outdoors	30.7		28.3		30.4		27.8		30.6		28.2
Clothing and Footwear	20.7		20.6		26.2		24.6		22.1		21.6
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%



Nine Months Ended:	Retail				Direct				Total
	2014		2013		2014		2013		2014		2013
Product Category:
Hunting Equipment	46.9	%	52.1	%	38.7	%	45.2	%	44.8	%	50.2	%
General Outdoors	33.1		29.3		35.6		30.9		33.8		29.7
Clothing and Footwear	20.0		18.6		25.7		23.9		21.4		20.1
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)


15.	FAIR VALUE MEASUREMENTS

Financial instrument assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories:


•	Level 1 – Quoted market prices in active markets for identical assets or liabilities.


•	Level 2 – Observable inputs other than quoted market prices.


•	Level 3 – Unobservable inputs corroborated by little, if any, market data.

Level 3 is comprised of financial instruments whose fair value is estimated based on internally developed models or methodologies utilizing significant inputs that are primarily unobservable from objective sources. At September 27, 2014, the financial instruments carried on our condensed consolidated balance sheets subject to fair value measurements consisted of economic development bonds and were classified as Level 3 for valuation purposes. For the three and nine months ended September 27, 2014, and September 28, 2013, there were no transfers in or out of Levels 1, 2, or 3.

The Company's recurring financial instruments classified as Level 3 for valuation purposes consists of economic development bonds. The table below presents changes in fair value of the economic development bonds measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods presented:



	Three Months Ended						Nine Months Ended
	September 27, 2014			September 28, 2013			September 27, 2014			September 28, 2013

Balance, beginning of period	$	78,429		$	79,043		$	78,504		$	85,041
Total gains or losses:
Included in earnings - realized	—			—			—			—
Included in accumulated other comprehensive income (loss) - unrealized	4,736			1,043			7,083			(2,334		)
Valuation adjustments	—			—			—			—
Purchases, issuances, and settlements:
Purchases	—			—			—			—
Issuances	—			—			—			—
Settlements	(824		)	(826		)	(3,246		)	(3,447		)
Total	(824		)	(826		)	(3,246		)	(3,447		)
Balance, end of period	$	82,341		$	79,260		$	82,341		$	79,260

Fair values of the Company's economic development bonds were estimated using discounted cash flow projection estimates. These estimates are based on available market interest rates and the estimated amounts and timing of expected future payments to be received from municipalities under tax development zones, which we consider to be unobservable inputs (Level 3). These fair values do not reflect any premium or discount that could result from offering these bonds for sale or through early redemption, or any related income tax impact. Declines in the fair value of available-for-sale economic development bonds below cost that are deemed to be other than temporary are reflected in earnings. For the three and nine months ended September 27, 2014, and September 28, 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.

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)

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 included 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 $13,625 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 $14,125, 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 $1,062 to the plaintiff. At September 27, 2014, our liability relating to this judgment totaled $15,707, which included an additional amount for estimated legal fees and costs. The increase to this liability 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 resulted in an increase in depreciation expense of $831 that was recognized 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 additional depreciation expense adjustment recognized after March 29, 2014.

The Company recognized an impairment loss of $937 during the nine months ended September 28, 2013, related to the closure of its former Winnipeg retail store in conjunction with the opening of a new next-generation store in Winnipeg in May 2013. The impairment loss of $937 included leasehold improvements write-offs as well as lease cancellation and restoration costs.

The carrying amounts of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, gift instruments (including credit card and loyalty rewards programs), accrued expenses, and income taxes receivable and payable included in the condensed consolidated balance sheets approximate fair value given the short-term nature of these financial instruments. The secured variable funding obligations of the Trust, which include variable rates of interest that adjust daily, can fluctuate daily based on the short-term operational needs of the Financial Services segment with advances and pay downs at par value. Therefore, the carrying value of the secured variable funding obligations of the Trust approximates fair value.

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)

The table below presents the estimated fair values of the Company's financial instruments that are not carried at fair value on our condensed consolidated balance sheets at the periods indicated. The fair values of all financial instruments listed below were estimated based on internally developed models or methodologies utilizing observable inputs (Level 2).



	September 27, 2014				December 28, 2013				September 28, 2013
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets:
Credit card loans, net	$	4,011,187	$	4,011,187	$	3,938,630	$	3,938,630	$	3,567,423	$	3,567,423
Held-to-maturity investment securities	—		—		—		—		135,000		135,003

Financial Liabilities:
Time deposits	830,409		828,579		1,069,362		1,070,831		1,147,978		1,153,801
Secured long-term obligations of the Trust	3,047,250		2,996,236		2,452,250		2,405,494		2,452,250		2,320,576
Long-term debt	666,078		688,282		331,065		363,848		532,563		565,280

Credit Card Loans. Credit card loans are originated with variable rates of interest that adjust with changing market interest rates, so the carrying value of the credit card loans, including the carrying value of deferred credit card origination costs, less the allowance for loan losses, approximates fair value. This valuation does not include the value that relates to estimated cash flows generated from new loans over the life of the cardholder relationship. Accordingly, the aggregate fair value of the credit card loans does not represent the underlying value of the established cardholder relationship.

Time Deposits. Time deposits are pooled in homogeneous groups, and the future cash flows of those groups are discounted using current market rates offered for similar products for purposes of estimating fair value. For all periods presented, we have consistently applied our discounting methodologies to estimated future cash flows in determining estimated fair value for time deposits.

Secured Long-Term Obligations of the Trust. The estimated fair value of secured long-term obligations of the Trust is based on future cash flows associated with each type of debt discounted using current borrowing rates for similar types of debt of comparable maturity. For all periods presented, we have consistently applied our discounting methodologies to estimated future cash flows in determining estimated fair value for secured long-term obligations of the Trust.

Long-Term Debt. The estimated fair value of long-term debt is based on future cash flows associated with each type of debt discounted using current borrowing rates for similar types of debt of comparable maturity. For all periods presented, we have consistently applied our discounting methodologies to estimated future cash flows in determining estimated fair value for long-term debt.

CABELA'S INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands Except Share and Per Share Amounts)

(Unaudited)

16. ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2014-09 "Revenue from Contracts with Customers" (Topic 606) ("ASU 2014-09"). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. ASU 2014-09 is effective for the first interim period within annual reporting periods beginning after December 15, 2016, and early adoption is not permitted. The Company will adopt ASU 2014-09 during the first quarter of fiscal 2017. Management is evaluating the provisions of this statement and has not determined what impact the adoption of ASU 2014-09 will have on the Company's financial position or results of operations.


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:


•	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;


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


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


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


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


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


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


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


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


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


•	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"));


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


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


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


•	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

•

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 ended December 28, 2013, and in Part II, Item 1A, of our Quarterly Report on Form 10-Q for the first quarter ended March 29, 2014), which filings are available at the SEC's website at www.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 September 27, 2014, remain unchanged from December 28, 2013.

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 64 stores, including the 14 stores that we opened in 2014, with their location and opening date as follows:


•	Augusta, Georgia, on March 20, 2014,


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


•	Anchorage, Alaska, on April 10, 2014,


•	Christiana, Delaware, on May 1, 2014,


•	Woodbury, Minnesota, on May 15, 2014


•	Edmonton, Alberta, Canada, on May 22, 2014,


•	Missoula, Montana, on June 12, 2014,


•	Lubbock, Texas, on June 26, 2014,


•	Barrie, Ontario, Canada, on July 10, 2014,


•	Cheektowaga, New York, on August 7, 2014,


•	Acworth, Georgia, on August 21, 2014,


•	Nanaimo, British Columbia, Canada, on September 11, 2014,


•	Tualatin, Oregon, on September 18, 2014, and


•	Bowling Green, Kentucky, on September 25, 2014.

We now have 57 stores located in the United States and seven in Canada with total retail square footage of 6.9 million, an increase of 17% 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 Ended
	September 27, 2014		September 28, 2013		Increase (Decrease)			% Change
	September 27, 2014		September 28, 2013		Increase (Decrease)			% Change
	(Dollars in Thousands Except Earnings Per Diluted Share)
Revenue:
Retail	$	598,686	$	550,878	$	47,808		8.7	%
Direct	175,335		198,596		(23,261		)	(11.7	)
Total	774,021		749,474		24,547			3.3
Financial Services	109,132		98,403		10,729			10.9
Other revenue	2,849		2,951		(102		)	(3.5	)
Total revenue	$	886,002	$	850,828	$	35,174		4.1

Operating income	$	93,915	$	76,603	$	17,312		22.6

Net income	$	53,839	$	49,886	$	3,953		7.9

Earnings per diluted share	$	0.75	$	0.70	$	0.05		7.1



	Nine Months Ended
	September 27, 2014		September 28, 2013		Increase (Decrease)			% Change
	September 27, 2014		September 28, 2013		Increase (Decrease)			% Change
	(Dollars in Thousands Except Earnings Per Diluted Share)
Revenue:
Retail	$	1,540,071	$	1,521,550	$	18,521		1.2	%
Direct	501,867		603,878		(102,011		)	(16.9	)
Total	2,041,938		2,125,428		(83,490		)	(3.9	)
Financial Services	317,074		272,753		44,321			16.2
Other revenue	14,014		11,949		2,065			17.3
Total revenue	$	2,373,026	$	2,410,130	$	(37,104	)	(1.5	)

Operating income	$	206,759	$	222,653	$	(15,894	)	(7.1	)

Net income	$	123,105	$	144,278	$	(21,173	)	(14.7	)

Earnings per diluted share	$	1.71	$	2.01	$	(0.30	)	(14.9	)

Revenues presented in the tables above are consistent with our presentation for total revenue as reported by segment. Revenues in the three months ended September 27, 2014, totaled $886 million, an increase of $35 million, or 4.1%, compared to the three months ended September 28, 2013. Total merchandise sales increased comparing the three month periods primarily due to an increase in Retail revenue from new stores of $108 million in the three months ended September 27, 2014. Our new retail store formats continue to generate an increase in sales per square foot compared to our legacy stores. The increase in Retail revenue from new stores was partially offset by a decrease in comparable store sales of $57 million, or 11.2%, as well as a decrease in Direct revenue of $23 million or 11.7%. Comparable store sales were down across all major product categories comparing the three months ended September 27, 2014, to the three months ended September 28, 2013, but primarily in the hunting equipment product category. 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 and shooting related products compared to the same period of 2013, and expected cannibalization from our new retail stores.

Revenues in the nine months ended September 27, 2014, totaled $2.4 billion, a decrease of $37 million, or 1.5%, over the nine months ended September 28, 2013. Total merchandise sales decreased comparing the nine month periods primarily due to a decrease of $218 million, or 15.6%, in comparable store sales that extended across all product categories, led by a decrease in the hunting equipment product category. The sales of firearms and ammunition, which are in the hunting equipment product category, decreased significantly comparing the nine months ended September 27, 2014, to the nine months ended September 28, 2013. We believe the decreases in ammunition sales have begun to level out and are expected to return to more normalized levels in fiscal 2015. Direct revenue also decreased $102 million, or 16.9%, in the nine months ended September 27, 2014, compared to the nine months ended September 28, 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 same period of 2013, and expected cannibalization from our new retail stores. Partially offsetting the decreases in comparable store sales and Direct revenue was an increase in Retail revenue from new stores of $237 million in the nine months ended September 27, 2014, compared to the nine months ended September 28, 2013. 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 general outdoors categories in the three and nine months ended September 27, 2014, compared to the three and nine months ended September 28, 2013.

Financial Services revenue increased $11 million, or 10.9%, in the three months ended September 27, 2014, compared to the three months ended September 28, 2013, and increased $44 million, or 16.2%, in the nine months ended September 27, 2014, compared to the nine months ended September 28, 2013. These increases in Financial Services revenue were primarily due to increases in interest and fee income and interchange income, partially offset by increases in the provision for loan losses.

Operating income increased $17 million, or 22.6%, in the three months ended September 27, 2014, compared to the three months ended September 28, 2013, and operating income as a percentage of revenue increased 160 basis points over the same periods. The increases in total operating income and operating income as a percentage of revenue were primarily due to increased contributions from our Financial Services segment and a decrease in selling, distribution, and administrative expenses. Operating expenses decreased in the three months ended September 27, 2014, compared to the three months ended September 28, 2013, primarily due to a reduction in incentive compensation and our emphasis on operating expense management. We are focusing on expense management throughout the Company and have implemented many expense reduction efforts that have begun to show benefits in the three months ended September 27, 2014, and should continue to 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 strategic focus 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:


•	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.

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 roll out of omni-channel fulfillment, and the improvements to our mobile platform.

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. Our merchandise gross margin as a percentage of merchandise revenue decreased 100 basis points to 36.3% in the three months ended September 27, 2014, compared to the three months ended September 28, 2013, and decreased 80 basis points to 36.0% in the nine months ended September 27, 2014, compared to the nine months ended September 28, 2013.

The decrease in merchandise gross profit as a percentage of merchandise sales comparing the three month periods was primarily due to an adjustment in the presentation of reimbursement between segments for certain promotional costs, which totaled $5 million for the three months ended September 27, 2014, and due to additional promotional activity. The effect of this adjustment in the presentation of reimbursement between segments for certain promotional costs increases Financial Services revenue and merchandise cost. The decrease in merchandise gross profit as a percentage of merchandise sales comparing the nine month periods was primarily due to lower margin in firearms, ammunition, optics, and the shooting product categories in the nine months ended September 27, 2014, compared to the nine months ended September 28, 2013, and to the adjustment in the presentation of reimbursement between segments for certain promotional costs, which totaled $10 million for the nine months ended September 27, 2014.

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 and nine months ended September 27, 2014, to the three and nine months ended September 28, 2013:


•	revenue increased $48 million, or 8.7%, and $19 million, or 1.2%;


•	operating income increased $5 million, or 4.7% quarter over quarter, but decreased $19 million, or 6.7% comparing the respective nine month periods;


•	operating income as a percentage of Retail segment revenue decreased 70 basis points to 18.1%, and 150 basis points to 16.9%; and


•	comparable store sales decreased 11.2% and 15.6%, respectively.

Our Retail business segment currently consists of 64 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. 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. With this strong new store performance, retail store expansion remains on track with plans to increase retail square footage between 900,000 to 1,000,000 square feet annually over the next several years. For 2015 and thereafter, we currently have plans to open new retail stores located as follows:


•	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; Noblesville, Indiana; Huntsville, Alabama; Oklahoma City, Oklahoma; Woodbury, New York; Calgary, Alberta, Canada; West Chester, Ohio; League City, Texas; and Lexington, Kentucky.

For 2015, we have announced plans to open 14 stores with over one million square feet of retail space. This equates to approximately 15.7% annual square footage growth. Beyond 2015, as we continue our pace of new store openings, we expect to see more stores in smaller markets.

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 successes in our social marketing initiatives and now have over 3.3 million fans on Facebook. Our omni-channel marketing efforts and retail expansion have resulted in an increase in the number of 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.

Continuing into 2014, we realized improvements in our website traffic, growth in multi-channel customers, and 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 continuing our efforts in our print-to-digital transformation.

Comparing Direct segment results for the three and nine months ended September 27, 2014, to the three and nine months ended September 28, 2013:


•	revenue decreased $23 million, or 11.7%, and $102 million, or 16.9%;


•	operating income decreased $11 million, or 37.7%, and $29 million, or 28.1%; and


•	operating income as a percentage of Direct segment revenue decreased 430 basis points to 10.4%, and 240 basis points to 15.0%, respectively.

The decreases in Direct revenue comparing the respective periods were primarily due to a decrease in the hunting equipment product category, primarily due to a substantial decrease in sales of ammunition and other shooting related products compared to the first nine months of 2013, and expected cannibalization from our new retail stores.

We are building a 590,000 square foot distribution center in Tooele, Utah, to support our planned growth. We expect to have this distribution center operational by July 2015. At September 27, 2014, construction was in progress. 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 and nine months ended September 27, 2014, to the three and nine months ended September 28, 2013:


•	Financial Services revenue increased $11 million, or 10.9%, and $44 million, or 16.2%;


•	the average number of active accounts increased 7.5%, and 7.7%, respectively, to 1.8 million, and the average balance per active account increased $108 and $94, respectively;


•	the average balance of our credit card loans increased 13.0% and 12.6%, respectively, to $4.0 billion and $3.9 billion, respectively; and


•	net charge-offs as a percentage of average credit card loans decreased 16 basis points to 1.56%, and 15 basis points to 1.67%, respectively.

During the nine months ended September 27, 2014, the Financial Services segment completed two term securitizations totaling $700 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

Macroeconomic Environment – Beginning in August 2013, and continuing through the third quarter of fiscal 2014, we experienced a significant deceleration in sales of firearms and ammunition as well as a challenging consumer environment across all business channels. To address these trends, we adjusted 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. To date, WFB has not been named as a defendant in any credit card industry lawsuits. The remaining related liability of $1 million was settled in the second quarter of 2014. Therefore, at September 27, 2014, no liability was outstanding for this settlement compared to $4.7 million at December 28, 2013, and $8.3 million at September 28, 2013.

Operations Review

The three months ended September 27, 2014, and September 28, 2013, each consisted of 13 weeks and the nine months ended September 27, 2014, and September 28, 2013, each consisted of 39 weeks. Our operating results expressed as a percentage of revenue were as follows for the periods presented.



	Three Months Ended				Nine Months Ended
	September 27, 2014		September 28, 2013		September 27, 2014		September 28, 2013

Revenue	100.00	%	100.00	%	100.00	%	100.00	%
Cost of revenue	55.59		55.23		55.12		55.69
Gross profit (exclusive of depreciation and amortization)	44.41		44.77		44.88		44.31
Selling, distribution, and administrative expenses	33.81		35.76		36.14		35.04
Impairment and restructuring charges	—		—		0.03		0.03
Operating income	10.60		9.01		8.71		9.24
Other income (expense):
Interest expense, net	(0.58	)	(0.59	)	(0.61	)	(0.59	)
Other income, net	0.10		0.12		0.17		0.15
Total other income (expense), net	(0.48	)	(0.47	)	(0.44	)	(0.44	)
Income before provision for income taxes	10.12		8.54		8.27		8.80
Provision for income taxes	4.04		2.68		3.08		2.81
Net income	6.08	%	5.86	%	5.19	%	5.99	%

Results of Operations - Three Months Ended September 27, 2014, Compared to September 28, 2013

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 three months ended:



	September 27, 2014				September 28, 2013				Increase (Decrease)			% Change
	September 27, 2014		%		September 28, 2013		%		Increase (Decrease)			% Change
	(Dollars in Thousands)

Retail	$	598,686	67.6	%	$	550,878	64.8	%	$	47,808		8.7	%
Direct	175,335		19.8		198,596		23.3		(23,261		)	(11.7	)
Financial Services	109,132		12.3		98,403		11.6		10,729			10.9
Other	2,849		0.3		2,951		0.3		(102		)	(3.5	)
Total	$	886,002	100.0	%	$	850,828	100.0	%	$	35,174		4.1

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 September 27, 2014, and September 28, 2013.



	Retail				Direct				Total
	2014		2013		2014		2013		2014		2013

Hunting Equipment	48.6	%	51.1	%	43.4	%	47.6	%	47.3	%	50.2	%
General Outdoors	30.7		28.3		30.4		27.8		30.6		28.2
Clothing and Footwear	20.7		20.6		26.2		24.6		22.1		21.6
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, wildlife and land management products and services, including compact tractors and tractor attachments, 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 $48 million, or 8.7%, in the three months ended September 27, 2014, compared to the three months ended September 28, 2013, primarily due to an increase of $108 million in revenue from the addition of new retail stores, as our new retail store formats continue to generate an increase in sales per square foot compared to our legacy stores.

The increase in retail revenue from new retail stores was partially offset by a decrease in comparable store sales of $57 million. Comparable store sales were down across all major product categories comparing the three months ended September 27, 2014, to the three months ended September 28, 2013, but primarily in the hunting equipment product category. We believe that the decreases in sales of firearms and ammunition have begun to level out and are expected to return to more normalized levels in fiscal 2015.

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



	September 27, 2014		September 28, 2013		Increase (Decrease)			% Change
	(Dollars in Thousands)

Comparable stores sales	$	450,729	$	507,490	$	(56,761	)	(11.2	)%

Direct Revenue – Direct revenue decreased $23 million, or 11.7%, in the three months ended September 27, 2014, compared to the three months ended September 28, 2013. The decrease in Direct revenue was primarily due to a decrease in the hunting equipment product category, mostly due to a decrease in sales of ammunition and other shooting related products compared to the third quarter of 2013, and expected cannibalization from our new retail stores.

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



	September 27, 2014			September 28, 2013			Increase (Decrease)			% Change
	(Dollars in Thousands)

Interest and fee income	$	103,333		$	87,945		$	15,388		17.5	%
Interest expense	(16,155		)	(17,075		)	(920		)	(5.4	)
Provision for loan losses	(19,088		)	(8,404		)	10,684			127.1
Net interest income, net of provision for loan losses	68,090			62,466			5,624			9.0
Non-interest income:
Interchange income	93,817			88,963			4,854			5.5
Other non-interest income	999			1,430			(431		)	(30.1	)
Total non-interest income	94,816			90,393			4,423			4.9
Less: Customer rewards costs	(53,774		)	(54,456		)	682			1.3
Financial Services revenue	$	109,132		$	98,403		$	10,729		10.9

Financial Services revenue increased $11 million, or 10.9%, for the three months ended September 27, 2014, compared to the three months ended September 28, 2013. The increase in interest and fee income of $15 million was due to an increase in credit card loans and an increase in the mix of credit card loans carrying interest, partially offset by lower London Interbank Offered Rate ("LIBOR") rates. The provision for loan losses increased $11 million primarily due to growth in the average balance of credit card loans compared to the three months ended September 28, 2013, and a reduction of $5 million in the allowance for loan losses on the restructured credit card loans segment in the three months ended September 28, 2013. The increase in interchange income of $5 million was primarily due to an increase in credit card purchases.

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:



	September 27, 2014		September 28, 2013

Interest and fee income	10.3	%	9.9	%
Interest expense	(1.6	)	(1.9	)
Provision for loan losses	(1.9	)	(0.9	)
Interchange income	9.4		10.0
Other non-interest income	0.1		0.2
Customer rewards costs	(5.4	)	(6.1	)
Financial Services revenue	10.9	%	11.2	%

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



	September 27, 2014			September 28, 2013			Increase (Decrease)			% Change
	(Dollars in Thousands Except Average Balance per Account )

Average balance of credit card loans (1)	$	4,013,989		$	3,551,109		$	462,880		13.0	%
Average number of active credit card accounts	1,820,924			1,694,334			126,590			7.5
Average balance per active credit card account (1)	$	2,204		$	2,096		$	108		5.2
Net charge-offs on credit card loans (1)	$	15,621		$	15,312		$	309		2.0
Net charge-offs as a percentage of average credit card loans (1)	1.56		%	1.72		%	(0.16		)%

(1) Includes accrued interest and fees

The average balance of credit card loans increased to $4.0 billion, or 13.0%, for the three months ended September 27, 2014, compared to the three months ended September 28, 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 7.5%, compared to the three months ended September 28, 2013, due to our successful marketing efforts in new account acquisitions. We define an active credit card account as any account with an outstanding debit or credit balance at the end of any respective month. Net charge-offs as a percentage of average credit card loans decreased to 1.56% for the three months ended September 27, 2014, down 16 basis points compared to the three months ended September 28, 2013, due to improvements in the quality of our credit card portfolio evidenced by continued low delinquencies, lower delinquency roll-rates, an increase in recovery rates, favorable charge-off trends, and declining loan balances in our restructured loan portfolio. 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 was $3 million in both the three months ended September 27, 2014, and the three months ended September 28, 2013.

Merchandise Gross Profit

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



	September 27, 2014			September 28, 2013			Increase (Decrease)			% Change
	(Dollars in Thousands)

Merchandise sales	$	773,438		$	749,141		$	24,297		3.2	%
Merchandise gross profit	280,946			279,527			1,419			0.5
Merchandise gross profit as a percentage of merchandise sales	36.3		%	37.3		%	(1.0		)%

Merchandise Gross Profit – Our merchandise gross profit increased $1 million, or 0.5%, to $281 million in the three months ended September 27, 2014, compared to the three months ended September 28, 2013.

Our merchandise gross profit as a percentage of merchandise sales decreased 100 basis points to 36.3% in the three months ended September 27, 2014, compared to the three months ended September 28, 2013. The decrease in our merchandise gross profit as a percentage of merchandise sales comparing the respective periods was primarily due to an adjustment in the presentation of reimbursement between segments for certain promotional costs, which totaled $5 million for the three months ended September 27, 2014, and additional promotional activity. The impact of this reimbursement adjustment results in an increase in Financial Services revenue and an increase in merchandise cost of sales by the same amount. This presentation will be ongoing and had no impact on consolidated operating income or earnings per diluted share.

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:



	September 27, 2014			September 28, 2013			Increase (Decrease)			% Change
	(Dollars in Thousands)

Selling, distribution, and administrative expenses	$	299,587		$	304,293		$	(4,706	)	(1.5	)%
SD&A expenses as a percentage of total revenue	33.8		%	35.8		%	(2.1		)%
Retail store pre-opening costs	$	7,821		$	7,808		$	13		0.2

We are focusing on expense management throughout the Company and have implemented many expense reduction efforts that have begun to show benefits in the three months ended September 27, 2014, and should continue to benefit operating income in upcoming periods. Selling, distribution, and administrative expenses decreased $5 million, or 1.5%, in the three months ended September 27, 2014, compared to the three months ended September 28, 2013, and decreased 200 basis points to 33.8% as a percentage of total revenue. Operating expenses decreased in the three months ended September 27, 2014, compared to the three months ended September 28, 2013, primarily due to a reduction in incentive compensation and our emphasis on operating expense management.

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


•	a decrease of $24 million in employee compensation, benefits, and contract labor primarily due to a reduction in incentive compensation and our emphasis on operating expense management;


•	an increase of $11 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; and


•	an increase of $4 million in fraudulent transactions on the Cabela's CLUB credit card.

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

Retail Segment:


•	An increase of $8 million in building costs and depreciation primarily related to the operations and maintenance of our new and existing retail stores.


•	An increase of $2 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 in part related to our emphasis on operating expense management.

Financial Services Segment:


•	An increase of $4 million in fraudulent transactions on the Cabela's CLUB credit card.

Corporate Overhead, Distribution Centers, and Other:


•	A decrease of $21 million in employee compensation, benefits, and contract labor primarily due to a reduction in incentive compensation and our emphasis on operating expense management.


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

Operating Income

Operating income is revenue less cost of revenue and 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:



	September 27, 2014			September 28, 2013			Increase (Decrease)			% Change
	(Dollars in Thousands)

Total operating income	$	93,915		$	76,603		$	17,312		22.6	%
Total operating income as a percentage of total revenue	10.6		%	9.0		%	1.6		%

Operating income by business segment:
Retail	$	108,552		$	103,658		$	4,894		4.7
Direct	18,236			29,284			(11,048		)	(37.7	)
Financial Services	28,158			29,182			(1,024		)	(3.5	)

Operating income as a percentage of segment revenue:
Retail	18.1		%	18.8		%	(0.7		)%
Direct	10.4			14.7			(4.3		)
Financial Services	27.0			29.7			(2.7		)

Operating income increased $17 million, or 22.6%, in the three months ended September 27, 2014, compared to the three months ended September 28, 2013, and operating income as a percentage of revenue increased 160 basis points to 10.6% in the three months ended September 27, 2014. The increase in total operating income and operating income as a percentage of revenue was primarily due to increased contributions from our Financial Services segment and a decrease in our consolidated operating expenses. Operating expenses decreased in the three months ended September 27, 2014, compared to the three months ended September 28, 2013, primarily due to a reduction in incentive compensation and our emphasis on operating expense management. We are focusing on expense management throughout the Company and have implemented many expense reduction efforts that have begun to show benefits in the three months ended September 27, 2014, and should continue to 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 that includes 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 promotional costs, which are recorded as a reduction to Financial Services segment revenue and as a reduction to merchandise costs associated with the Retail and Direct segments. Also, if the total risk-based capital ratio of WFB is greater than 13% at any quarter end, the Financial Services segment must pay an additional license fee to the Retail and Direct business segments equal to 50% of the amount that the total risk-based capital ratio exceeds 13%. Total fees paid under the Intercompany Agreement by the Financial Services segment to these two segments increased $3 million in the three months ended September 27, 2014, compared to the three months ended September 28, 2013; a $6 million increase to the Retail segment and a $3 million decrease to the Direct segment.

Interest (Expense) Income, Net

Interest expense, net of interest income, was $5 million in both the three months ended September 27, 2014, and the three months ended September 28, 2013. The amount of interest capitalized in the three months ended September 27, 2014, compared to the three months ended September 28, 2013, increased due to more stores opened comparing the respective periods. However, the increase in the amount of interest capitalized comparing the respective periods was offset due to additional interest expense recognized in the three months ended September 27, 2014, associated with our uncertain tax positions and increases in interest expense due to increases in the outstanding balances on our revolving credit facility during the three months ended September 27, 2014, compared to the three months ended September 28, 2013.

Other Non-Operating Income, Net

Other non-operating income was $1 million in both the three months ended September 27, 2014, and the three months ended September 28, 2013. This income is primarily from interest earned on our economic development bonds.

Provision for Income Taxes

Our effective tax rate was 40.0% for the three months ended September 27, 2014, compared to 31.3% for the three months ended September 28, 2013. The increase in our effective tax rate comparing the respective periods is due to an increase of $4 million in accrued income tax related to tax adjustments attributable to changes in the mix of prior year taxable income between the United States and foreign tax jurisdictions and an increase in our state effective tax rate.

Results of Operations - Nine Months Ended September 27, 2014, Compared to September 28, 2013

Revenues

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



	September 27, 2014				September 28, 2013				Increase (Decrease)			% Change
	September 27, 2014		%		September 28, 2013		%		Increase (Decrease)			% Change
	(Dollars in Thousands)

Retail	$	1,540,071	64.9	%	$	1,521,550	63.1	%	$	18,521		1.2	%
Direct	501,867		21.1		603,878		25.1		(102,011		)	(16.9	)
Financial Services	317,074		13.4		272,753		11.3		44,321			16.2
Other	14,014		0.6		11,949		0.5		2,065			17.3
Total	$	2,373,026	100.0	%	$	2,410,130	100.0	%	$	(37,104	)	(1.5	)

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 nine months ended September 27, 2014, and September 28, 2013.



	Retail				Direct				Total
	2014		2013		2014		2013		2014		2013

Hunting Equipment	46.9	%	52.1	%	38.7	%	45.2	%	44.8	%	50.2	%
General Outdoors	33.1		29.3		35.6		30.9		33.8		29.7
Clothing and Footwear	20.0		18.6		25.7		23.9		21.4		20.1
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

Retail Revenue – Retail revenue increased $19 million, or 1.2%, in the nine months ended September 27, 2014, compared to the nine months ended September 28, 2013, primarily due to an increase of $237 million in revenue from the addition of new retail stores, as our new retail store formats continue to generate an increase in sales per square foot compared to our legacy stores.

The increase in retail revenue from new retail stores was partially offset by a decrease in comparable store sales of $218 million. Comparable store sales were down across all major product categories comparing the nine months ended September 27, 2014, to the nine months ended September 28, 2013, but primarily in the hunting equipment product category. We believe that the decreases in sales of firearms and ammunition have begun to level out and are expected to return to more normalized levels in fiscal 2015.

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



	September 27, 2014		September 28, 2013		Increase (Decrease)			% Change
	(Dollars in Thousands)

Comparable stores sales	$	1,182,616	$	1,400,586	$	(217,970	)	(15.6	)%

Direct Revenue – Direct revenue decreased $102 million, or 16.9%, in the nine months ended September 27, 2014, compared to the nine months ended September 28, 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 sales of ammunition and other shooting related products compared to the nine months ended September 28, 2013, and expected cannibalization from our new retail stores.

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



	September 27, 2014			September 28, 2013			Increase (Decrease)			% Change
	(Dollars in Thousands)

Interest and fee income	$	292,204		$	250,383		$	41,821		16.7	%
Interest expense	(47,845		)	(46,863		)	982			2.1
Provision for loan losses	(42,116		)	(33,030		)	9,086			27.5
Net interest income, net of provision for loan losses	202,243			170,490			31,753			18.6
Non-interest income:
Interchange income	267,756			252,290			15,466			6.1
Other non-interest income	2,621			4,113			(1,492		)	(36.3	)
Total non-interest income	270,377			256,403			13,974			5.5
Less: Customer rewards costs	(155,546		)	(154,140		)	1,406			0.9
Financial Services revenue	$	317,074		$	272,753		$	44,321		16.2

Financial Services revenue increased $44 million, or 16.2%, for the nine months ended September 27, 2014, compared to the nine months ended September 28, 2013. The increase in interest and fee income of $42 million was due to increases in credit card loans and the mix of credit card loans carrying interest, partially offset by lower LIBOR rates. The provision for loan losses increased $9 million primarily due to growth in the average balance of credit card loans compared to the nine months ended September 28, 2013, and a reduction of $8 million in the allowance for loan losses on the restructured credit card loans segment in the nine months ended September 28, 2013. The increase in interchange income of $15 million was primarily due to an increase in credit card purchases.

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 nine months ended:



	September 27, 2014		September 28, 2013

Interest and fee income	10.1	%	9.7	%
Interest expense	(1.7	)	(1.8	)
Provision for loan losses	(1.5	)	(1.3	)
Interchange income	9.3		9.8
Other non-interest income	0.1		0.2
Customer rewards costs	(5.4	)	(6.0	)
Financial Services revenue	10.9	%	10.6	%

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



	September 27, 2014			September 28, 2013			Increase (Decrease)			% Change
	(Dollars in Thousands Except Average Balance per Account )

Average balance of credit card loans (1)	$	3,860,956		$	3,429,045		$	431,911		12.6	%
Average number of active credit card accounts	1,787,421			1,659,724			127,697			7.7
Average balance per active credit card account (1)	$	2,160		$	2,066		$	94		4.5
Net charge-offs on credit card loans (1)	$	48,404		$	46,776		$	1,628		3.5
Net charge-offs as a percentage of average credit card loans (1)	1.67		%	1.82		%	(0.15		)%

(1) Includes accrued interest and fees

The average balance of credit card loans increased to $3.9 billion, or 12.6%, for the nine months ended September 27, 2014, compared to the nine months ended September 28, 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 7.7%, compared to the nine months ended September 28, 2013, due to our successful marketing efforts in new account acquisitions. We define an active credit card account as any account with an outstanding debit or credit balance at the end of any respective month. Net charge-offs as a percentage of average credit card loans decreased to 1.67% for the nine months ended September 27, 2014, down 15 basis points compared to the nine months ended September 28, 2013, due to improvements in the quality of our credit card portfolio evidenced by continued low delinquencies, lower delinquency roll-rates, an increase in recovery rates, favorable charge-off trends, and declining loan balances in our restructured loan portfolio. 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 $15 million in the nine months ended September 27, 2014, compared to $13 million in the nine months ended September 28, 2013, primarily due to an increase in real estate sales revenue comparing the respective periods.

Merchandise Gross Profit

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



	September 27, 2014			September 28, 2013			Increase (Decrease)			% Change
	(Dollars in Thousands)

Merchandise sales	$	2,040,501		$	2,124,538		$	(84,037	)	(4.0	)%
Merchandise gross profit	733,916			782,832			(48,916		)	(6.2	)
Merchandise gross profit as a percentage of merchandise sales	36.0		%	36.8		%	(0.8		)%

Merchandise Gross Profit – Our merchandise gross profit decreased $49 million, or 6.2%, to $734 million in the nine months ended September 27, 2014, compared to the nine months ended September 28, 2013. The decrease in our merchandise gross profit was primarily due to a decrease in sales of firearms and ammunition as well as a decrease in 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 80 basis points to 36.0% in the nine months ended September 27, 2014, compared to the nine months ended September 28, 2013. This decrease comparing the respective periods was primarily due to lower margins in firearms, ammunition, optics, and the shooting product categories in the nine months ended September 27, 2014, compared to the nine months ended September 28, 2013, and to the adjustment in the presentation of reimbursement between segments for certain promotional costs, which totaled $10 million for the nine months ended September 27, 2014. The impact of this reimbursement adjustment results in an increase in Financial Services revenue and an increase in merchandise cost of sales by the same amount. This presentation will be ongoing and had no impact on consolidated operating income or earnings per diluted share.

Selling, Distribution, and Administrative Expenses

Comparisons and analysis of our selling, distribution, and administrative expenses are presented below for the nine months ended:



	September 27, 2014			September 28, 2013			Increase (Decrease)			% Change
	(Dollars in Thousands)

Selling, distribution, and administrative expenses	$	857,643		$	844,448		$	13,195		1.6	%
SD&A expenses as a percentage of total revenue	36.1		%	35.0		%	1.1		%
Retail store pre-opening costs	$	20,896		$	18,083		$	2,813		15.6

Selling, distribution, and administrative expenses increased $13 million, or 1.6%, in the nine months ended September 27, 2014, compared to the nine months ended September 28, 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 have begun to show benefits in the three months ended September 27, 2014, and should continue to 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 $28 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;


•	a decrease of $28 million in employee compensation, benefits, and contract labor primarily due to a reduction in incentive compensation and our emphasis on operating expense management; and


•	an increase of $8 million in fraudulent transactions on the Cabela's CLUB credit card.

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

Retail Segment:


•	An increase of $19 million in building costs and depreciation primarily related to the operations and maintenance of our new and existing retail stores.


•	An increase of $4 million in employee compensation, benefits, and contract labor primarily due to the opening of new retail stores.

Direct Segment:


•	A decrease of $14 million in employee compensation, benefits, and contract labor in part related to our emphasis on operating expense management.

Financial Services Segment:


•	An increase of $8 million in fraudulent transactions on the Cabela's CLUB credit card.


•	An increase of $3 million in employee compensation, benefits, and contract labor to support the growth of credit card operations.

Corporate Overhead, Distribution Centers, and Other:


•	A decrease of $21 million in employee compensation, benefits, and contract labor primarily due to a reduction in incentive compensation and our emphasis on operating expense management.


•	An increase of $9 million in building costs primarily related to the operations and maintenance of our corporate office to support operational growth.

Impairment and Restructuring Charges

On June 11, 2014, we announced the transition to a third-party logistics provider for our distribution needs in Canada and the closing of our distribution center in Winnipeg, Manitoba, in March 2015. The third-party logistics provider began processing a portion of our Canada merchandise in a Calgary, Alberta, distribution center in October 2014. Accordingly, in the three months ended June 28, 2014, the Company recognized a restructuring charge related to employee severance agreements and termination benefits totaling $1 million. This restructuring charge was recorded to the Corporate Overhead and Other segment. We expect to incur approximately $4 million in additional incremental expenses related to the transition to a third-party logistics provider and the closing of our current distribution center - approximately $1 million in the fourth quarter of fiscal 2014 and approximately $3 million in the first half of fiscal 2015.

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, we recognized a liability of $14 million, including an estimated amount for legal fees and costs, in our consolidated balance sheet. We are currently in the process of appealing the Court's ruling. On March 21, 2014, through a supplemental judgment, the Court ordered that we 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. At September 27, 2014, this liability remained at $16 million. The increase to this liability in the first quarter of fiscal 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 resulted in an increase in depreciation expense of $1 million that was recognized 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 additional depreciation expense adjustment recognized after March 29, 2014.

We recognized an impairment loss totaling $1 million in the nine months ended September 28, 2013, related to the closure of our former Winnipeg retail store and the opening of a new next-generation store in Winnipeg in May 2013. The impairment loss of $1 million included leasehold improvements write-offs as well as lease cancellation and restoration costs. This impairment loss was recorded to the Retail segment ($820) and the Corporate Overhead and Other segment ($117).

Operating Income

Comparisons and analysis of operating income are presented below for the nine months ended:



	September 27, 2014			September 28, 2013			Increase (Decrease)			% Change
	(Dollars in Thousands)

Total operating income	$	206,759		$	222,653		$	(15,894	)	(7.1	)%
Total operating income as a percentage of total revenue	8.7		%	9.2		%	(0.5		)%

Operating income by business segment:
Retail	$	260,656		$	279,409		$	(18,753	)	(6.7	)
Direct	75,429			104,912			(29,483		)	(28.1	)
Financial Services	84,847			79,198			5,649			7.1

Operating income as a percentage of segment revenue:
Retail	16.9		%	18.4		%	(1.5		)%
Direct	15.0			17.4			(2.4		)
Financial Services	27.6			29.0			(1.4		)

Operating income decreased $16 million, or 7.1%, in the nine months ended September 27, 2014, compared to the nine months ended September 28, 2013, and operating income as a percentage of revenue decreased 50 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 Direct business segment and in our merchandise gross profit. Selling, distribution, and administrative expenses increased primarily due to increases in new store costs and related support areas. These decreases to operating income were partially offset by increased operating income contributions from our Financial Services segment. 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 that includes 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 promotional costs, which are recorded as a reduction to Financial Services segment revenue and as a reduction to merchandise costs associated with the Retail and Direct segments. Also, if the total risk-based capital ratio of WFB is greater than 13% at any quarter end, the Financial Services segment must pay an additional license fee to the Retail and Direct business segments equal to 50% of the amount that the total risk-based capital ratio exceeds 13%. At March 31, 2014, the total risk-based capital ratio of WFB exceeded this 13% threshold; therefore, an additional license fee of $11 million was paid in April 2014 by the Financial Services segment to the Retail segment ($7 million) and the Direct segment ($4 million). Total fees paid under the Intercompany Agreement by the Financial Services segment to these two segments, including the $11 million payment triggered by the excess total risk-based capital ratio provision, increased $18 million in the nine months ended September 27, 2014, compared to the nine months ended September 28, 2013; a $21 million increase to the Retail segment and a $3 million decrease to the Direct segment.

Interest (Expense) Income, Net

Interest expense, net of interest income, was $14 million in both the nine months ended September 27, 2014, and the nine months ended September 28, 2013. The amount of interest capitalized in the nine months ended September 27, 2014, compared to the nine months ended September 28, 2013, increased due to more stores opened comparing the respective periods. However, the increase in the amount of interest capitalized comparing the respective periods was offset due to additional interest expense recognized in the nine months ended September 27, 2014, associated with our uncertain tax positions and increases in interest expense due to increases in the outstanding balances on our revolving credit facility during the nine months ended September 27, 2014, compared to the nine months ended September 28, 2013.

Other Non-Operating Income, Net

Other non-operating income was $4 million in both the nine months ended September 27, 2014, and the nine months ended September 28, 2013.

Provision for Income Taxes

Our effective tax rate was 37.3% for the nine months ended September 27, 2014, compared to 32.0% for the nine months ended September 28, 2013. The increase in our effective tax rate comparing the respective periods is due to an increase of $4 million in accrued income tax related to tax adjustments attributable to changes in the mix of prior year taxable income between the United States and foreign tax jurisdictions and an increase in our state effective tax rate.

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 795 at September 27, 2014, compared to 793 at December 28, 2013, and September 28, 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:



	September 27, 2014		December 28, 2013		September 28, 2013
Number of days delinquent:
Greater than 30 days	0.70	%	0.69	%	0.71	%
Greater than 60 days	0.42		0.42		0.42
Greater than 90 days	0.22		0.22		0.21

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:



	September 27, 2014		December 28, 2013		September 28, 2013
Number of days delinquent and still accruing (1):
Greater than 30 days	0.60	%	0.57	%	0.58	%
Greater than 60 days	0.36		0.35		0.34
Greater than 90 days	0.19		0.19		0.17
(1) Excludes non-accrual and restructured loans which are presented below.

Non-accrual	0.13		0.13		0.16
Restructured	0.79		0.95		1.09

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 Ended						Nine Months Ended
	September 27, 2014			September 28, 2013			September 27, 2014			September 28, 2013
	(Dollars in Thousands)

Balance, beginning of period	$	47,350		$	62,500		$	53,110		$	65,600
Provision for loan losses	19,088			8,404			42,116			33,030

Charge-offs	(18,010		)	(17,477		)	(56,630		)	(54,426		)
Recoveries	4,272			3,943			14,104			13,166
Net charge-offs	(13,738		)	(13,534		)	(42,526		)	(41,260		)
Balance, end of period	$	52,700		$	57,370		$	52,700		$	57,370

Net charge-offs on credit card loans	$	(13,738	)	$	(13,534	)	$	(42,526	)	$	(41,260	)
Charge-offs of accrued interest and fees (recorded as a reduction in interest and fee income)	(1,883		)	(1,778		)	(5,878		)	(5,516		)
Total net charge-offs including accrued interest and fees	$	(15,621	)	$	(15,312	)	$	(48,404	)	$	(46,776	)

Net charge-offs including accrued interest and fees as a percentage of average credit card loans	1.56		%	1.72		%	1.67		%	1.82		%

For the nine months ended September 27, 2014, net charge-offs as a percentage of average credit card loans decreased to 1.67%, down 15 basis points compared to 1.82% for the nine months ended September 28, 2013. We believe our charge-off levels remain well below industry averages. Our net charge-off rates and the percentage of allowance for loan losses to our credit card portfolio have decreased due to improvements in the quality of our credit card portfolio evidenced by continued low delinquencies, lower delinquency roll-rates, an increase in recovery 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 September 27, 2014, December 28, 2013, and September 28, 2013, cash on a consolidated basis totaled $365 million, $199 million, and $410 million, respectively, of which $304 million, $94 million, and $335 million, respectively, was cash at the Financial Services segment which is utilized to meet this segment's liquidity requirements. During the nine months ended September 27, 2014, the Financial Services segment completed two term securitizations totaling $700 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 securitizations and certificates of deposit to determine the most cost effective source of funds for the Financial Services segment.

As of September 27, 2014, cash and cash equivalents held by our foreign subsidiaries totaled $20 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, and issuing debt and equity securities.

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 June 18, 2014, we amended our credit agreement which now provides for an unsecured $775 million revolving credit facility and permits the issuance of letters of credit up to $75 million and swing line loans up to $30 million. The credit agreement formerly provided for a $415 million revolving credit facility with the issuance of letters of credit up to $100 million and a $20 million limit on swing line loans. The credit facility may be increased to $800 million subject to certain terms and conditions. The term of the credit facility, which formerly expired on November 2, 2016, now expires on June 18, 2019. Advances under the credit facility will be used for the Company's general business purposes, including working capital support.

Our unsecured $775 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 September 27, 2014, and September 28, 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 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. We have not engaged in any stock repurchase activity from the date of this announcement through September 27, 2014. 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 nine months ended September 27, 2014, the Financial Services segment completed two term securitizations totaling $700 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.

Operating, Investing, and Financing Activities

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



	September 27, 2014			September 28, 2013
	(In Thousands)

Net cash (used in) provided by operating activities	$	(39,041	)	$	94,193
Net cash used in investing activities	(478,740		)	(559,658		)
Net cash provided by financing activities	685,201			586,448

2014 versus 2013

Operating Activities – Cash from operating activities decreased $133 million in the nine months ended September 27, 2014, compared to the nine months ended September 28, 2013. In the three months ended September 27, 2014, we paid a deposit of $50 million for federal taxes related to prior uncertain tax positions, resulting in a net change of $53 million comparing the respective periods. In addition, we had net decreases of $43 million in accounts payable and accrued expenses, $47 million in prepaid expenses and other assets, and $29 million in inventories. Partially offsetting these decreases in cash from operating activities was an increase of $17 million relating to credit card loans originated from internal operations and $17 million in other long-term liabilities. Inventories increased $290 million at September 27, 2014, to $935 million, compared to December 28, 2013, while inventories increased $263 million at September 28, 2013, to $816 million, compared to fiscal year end 2012. The increase in inventories in 2014 is primarily due to the addition of new retail stores.

Investing Activities – Cash used in investing activities decreased $81 million in the nine months ended September 27, 2014, compared to the nine months ended September 28, 2013. Cash paid for property and equipment totaled $303 million in the nine months ended September 27, 2014, compared to $278 million in the nine months ended September 28, 2013. At September 27, 2014, the Company estimated it had total cash commitments of approximately $610 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 September 27, 2014. We expect to fund these estimated capital expenditures over the next 12 months with cash generated from operations and borrowings. In addition, net cash flows from credit card loans originated externally decreased $29 million. The Financial Services segment also purchased $135 million of U.S. government agency held-to-maturity securities during the nine months ended September 28, 2013.

Financing Activities – Cash provided by financing activities increased $99 million in the nine months ended

September 27, 2014, compared to the nine months ended September 28, 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 of $245 million in the nine months ended September 27, 2014, compared to the nine months ended September 28, 2013. We also had increases of $140 million in net borrowings on our revolving credit facilities and inventory financing and $49 million relating to the change in unpresented checks. Partially offsetting these increases was a decrease of $339 million relating to changes in time deposits.

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



	September 27, 2014			September 28, 2013
	(In Thousands)

Borrowings on revolving credit facilities and inventory financing, net of repayments	$	344,707		$	204,533
Secured obligations of the Trust, net	545,000			299,750
Repayments of long-term debt	(8,347		)	(8,336		)
Borrowings, net of repayments	$	881,360		$	495,947

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:



	September 27, 2014			September 28, 2013
	(In Thousands)

Amounts available for borrowing under credit facilities (1)	$	795,000		$	435,000
Principal amounts outstanding	(346,292		)	(204,364		)
Outstanding letters of credit and standby letters of credit	(32,290		)	(27,753		)
Remaining borrowing capacity, excluding the Financial Services segment facilities	$	416,418		$	202,883


(1)	Consists of our revolving credit facilities of $775 million and $415 million at September 27, 2014, and September 28, 2013, respectively, and our $20 million CAD credit facility at September 27, 2014, and September 28, 2013, 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 September 27, 2014, the entire $85 million of borrowing capacity was available.

Our $775 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) as of the last day of each fiscal quarter.

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 September 27, 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.

Economic Development Bonds and Grants

Economic Development Bonds – Economic development bonds are related to our government economic assistance arrangements associated with prior years' construction of certain retail stores or retail development. 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 September 27, 2014, December 28, 2013, and September 28, 2013, economic development bonds totaled $82 million, $79 million, and $79 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 nine months ended September 27, 2014, and September 28, 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 September 27, 2014, we identified economic development bonds with carrying values of $18 million where the actual tax revenues associated with these 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 these economic development bonds. 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 full carrying value of these bonds, 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 September 27, 2014, the total amount of grant funding subject to a specific contractual remedy was $44 million. At September 27, 2014, December 28, 2013, and September 28, 2013, the amount the Company had recorded in liabilities in its condensed consolidated balance sheets relating to these grants was $23 million, $23 million, and $7 million, respectively.

Securitization of Credit Card Loans

The total amounts and maturities for our credit card securitizations as of September 27, 2014, were as follows:



Series	Type	Total Available Capacity		Third Party Investor Available Capacity		Third Party Investor Outstanding		Interest Rate	Expected Maturity
		(Dollars in Thousands)

2010-I	Term	$	45,000	$	—	$	—	Fixed	January 2015
2010-I	Term	255,000		255,000		255,000		Floating	January 2015
2010-II	Term	165,000		127,500		127,500		Fixed	September 2015
2010-II	Term	85,000		85,000		85,000		Floating	September 2015
2011-II	Term	200,000		155,000		155,000		Fixed	June 2016
2011-II	Term	100,000		100,000		100,000		Floating	June 2016
2011-IV	Term	210,000		165,000		165,000		Fixed	October 2016
2011-IV	Term	90,000		90,000		90,000		Floating	October 2016
2012-I	Term	350,000		275,000		275,000		Fixed	February 2017
2012-I	Term	150,000		150,000		150,000		Floating	February 2017
2012-II	Term	375,000		300,000		300,000		Fixed	June 2017
2012-II	Term	125,000		125,000		125,000		Floating	June 2017
2013-I	Term	385,000		327,250		327,250		Fixed	February 2023
2013-II	Term	152,500		100,000		100,000		Fixed	August 2018
2013-II	Term	197,500		197,500		197,500		Floating	August 2018
2014-I	Term	45,000		—		—		Fixed	March 2017
2014-I	Term	255,000		255,000		255,000		Floating	March 2017
2014-II	Term	60,000		—		—		Fixed	July 2019
2014-II	Term	340,000		340,000		340,000		Floating	July 2019
Total term		3,585,000		3,047,250		3,047,250

2008-III	Variable Funding	260,115		225,000		—		Floating	March 2015
2011-I	Variable Funding	352,941		300,000		—		Floating	March 2016
2011-III	Variable Funding	588,235		500,000		—		Floating	March 2017
Total variable		1,201,291		1,025,000		—
Total available		$	4,786,291	$	4,072,250	$	3,047,250

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 nine months ended September 27, 2014, the Financial Services segment completed two term securitizations totaling $700 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 nine months ended September 27, 2014, the year ended December 28, 2013, and the nine months ended September 28, 2013.

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 September 27, 2014, the Financial Services segment had $830 million of certificates of deposit outstanding with maturities ranging from October 2014 to July 2023 and with a weighted average effective annual fixed rate of 2.24%. This outstanding balance compares to $1.1 billion at December 28, 2013, and September 28, 2013, with weighted average effective annual fixed rates of 2.14% and 2.30%, 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 $29 billion above existing balances at the end of September 27, 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to interest rate risk through the operations of the Financial Services segment, and, to a lesser extent, through our merchandising operations. We also are exposed to foreign currency risk through our merchandising operations.

Financial Services Segment Interest Rate Risk

Interest rate risk refers to changes in earnings due to interest rate changes. To the extent that interest income collected on credit card loans and interest expense on certificates of deposit and secured obligations of the Trust do not respond equally to changes in interest rates, or that rates do not change uniformly, earnings could be affected. The variable rate credit card loans are indexed to the one month London Interbank Offered Rate (“LIBOR”) and the credit card portfolio is segmented into risk-based pricing tiers each with a different interest margin. Variable rate secured obligations are indexed to LIBOR-based rates of interest and are periodically repriced. Certificates of deposit and fixed rate secured obligations of the Trust are priced at the current prevailing market rate at the time of issuance. We manage and mitigate our interest rate sensitivity through several techniques, including managing the maturity, repricing, and mix of fixed and variable assets and liabilities by issuing fixed rate secured obligations or certificates of deposit and by indexing the customer rates to the same index as our secured obligations of the Trust.

The table below shows the mix of our credit card account balances as a percentage of total balances outstanding at the periods ended:



	September 27, 2014		December 28, 2013		September 28, 2013

Balances carrying an interest rate based upon various interest rate indices	68.0	%	63.8	%	66.0	%
Balances carrying an interest rate of 7.99% or 9.99%	4.1		4.5		4.1
Balances carrying a promotional interest rate of 0.00%	0.1		0.2		0.2
Balances not carrying interest because the previous month balance was paid in full	27.8		31.5		29.7
Total	100.0	%	100.0	%	100.0	%

Charges on the credit cards issued by the Financial Services segment were priced at a margin over various defined lending rates. No interest is charged if the account is paid in full within 25 days of the billing cycle, which represented 27.8% of total balances outstanding at September 27, 2014.

Management has performed several interest rate risk analyses to measure the effects of the timing of the repricing of our interest sensitive assets and liabilities. Based on these analyses, at September 27, 2014, we believe that an increase in LIBOR is more likely. Therefore, we believe that an immediate increase in interest rates of 50 basis points would cause a pre-tax increase to projected earnings of approximately $6 million for the Financial Services segment over the next 12 months.

Merchandising Business Interest Rate Risk

The interest payable on our line of credit is based on variable interest rates and therefore affected by changes in market interest rates. If interest rates on existing variable rate debt increased 1.0%, our interest expense and results from operations and cash flows would not be materially affected.

Foreign Currency Risk

We purchase a significant amount of inventory from vendors outside of the United States in transactions that are primarily U. S. dollar transactions. A small percentage of our international purchase transactions are in currencies other than the U. S. dollar. Any currency risks related to these transactions are immaterial to us. A decline in the relative value of the U. S. dollar to other foreign currencies could, however, lead to increased merchandise costs. For our retail operations in Canada, we intend to fund all transactions in Canadian dollars and utilize cash held by our foreign subsidiaries as well as our unsecured revolving credit agreement of $20 million CAD to fund such operations.


Item 4.	Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), designed to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized, and reported within specified time periods. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

In connection with this quarterly report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer evaluated, with the participation of our management, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on management's evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that our disclosure controls and procedures were effective as of September 27, 2014.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 27, 2014, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION


Item 1.	Legal Proceedings.

For a discussion of legal proceedings, see Note 9 “Commitments and Contingencies - Litigation and Claims” of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, which is incorporated herein by reference.


Item 1A.	Risk Factors.

There have been no material changes to the risk factors disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 28, 2013, and in Part II, Item 1A, of our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2014.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.

On August 23, 2011, the Company's Board of Directors authorized a share repurchase program that provides for share repurchases on an ongoing basis to offset dilution resulting from equity awards under the Company's current or future equity compensation plans. The Company announced on February 13, 2014, its intent to repurchase up to 650,000 shares of its common stock in open market transactions through February 2015. This share repurchase program does not obligate us to repurchase any outstanding shares, 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. The Company did not engage in any stock repurchase activity in any of the three fiscal months in the third fiscal quarter ended September 27, 2014. There were 650,000 shares remaining to be purchased at September 27, 2014, under the February 2014 repurchase program.


Item 3.	Defaults Upon Senior Securities.

Not applicable.


Item 4.	Mine Safety Disclosures.

Not applicable.


Item 5.	Other Information.

Not applicable.


Item 6.	Exhibits.

(a) Exhibits.



Exhibit Number	Description

3.1	Amended and Restated Bylaws of Cabela's Incorporated (incorporated by reference from Exhibit 3 of our Current Report on Form 8-K, filed on August 18, 2014, File No. 001-32227)

31.1	Certification of CEO Pursuant to Rule 13a-14(a) under the Exchange Act

31.2	Certification of CFO Pursuant to Rule 13a-14(a) under the Exchange Act

32.1	Certifications Pursuant to 18 U.S.C. Section 1350

101.INS	XBRL Instance Document	Filed with this report.

101.SCH	XBRL Taxonomy Extension Schema Document	Submitted electronically with this report.

101.CAL	XBRL Taxonomy Calculation Linkbase Document	Submitted electronically with this report.

101.LAB	XBRL Taxonomy Label Linkbase Document	Submitted electronically with this report.

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Submitted electronically with this report.

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Submitted electronically with this report.

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 INCORPORATED



Dated:	October 23, 2014	By:	/s/ Thomas L. Millner
			Thomas L. Millner
			President and Chief Executive Officer



Dated:	October 23, 2014	By:	/s/ Ralph W. Castner
			Ralph W. Castner
			Executive Vice President and Chief Financial Officer

Exhibit Index



Exhibit Number	Description

3.1	Amended and Restated Bylaws of Cabela's Incorporated (incorporated by reference from Exhibit 3 of our Current Report on Form 8-K, filed on August 18, 2014, File No. 001-32227)

31.1	Certification of CEO Pursuant to Rule 13a-14(a) under the Exchange Act

31.2	Certification of CFO Pursuant to Rule 13a-14(a) under the Exchange Act

32.1	Certifications Pursuant to 18 U.S.C. Section 1350

101.INS	XBRL Instance Document	Filed with this report.

101.SCH	XBRL Taxonomy Extension Schema Document	Submitted electronically with this report.

101.CAL	XBRL Taxonomy Calculation Linkbase Document	Submitted electronically with this report.

101.LAB	XBRL Taxonomy Label Linkbase Document	Submitted electronically with this report.

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Submitted electronically with this report.

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Submitted electronically with this report.

CABELAS INC - FORM 10-Q - October 23, 2014

Attached files

CABELAS INC Reports