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EXCEL - IDEA: XBRL DOCUMENT - GOOD SAM ENTERPRISES, LLCFinancial_Report.xls
EX-31.1 - EX-31.1 - GOOD SAM ENTERPRISES, LLCa12-8288_1ex31d1.htm
EX-32.2 - EX-32.2 - GOOD SAM ENTERPRISES, LLCa12-8288_1ex32d2.htm
EX-32.1 - EX-32.1 - GOOD SAM ENTERPRISES, LLCa12-8288_1ex32d1.htm
EX-31.2 - EX-31.2 - GOOD SAM ENTERPRISES, LLCa12-8288_1ex31d2.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q REPORT

 

Quarterly Report Under Section 13 or 15 (d) of

The Securities Exchange Act of 1934

 

For Quarter Ended:

 

Commission File Number

March 31, 2012

 

000-22852

 


 

GOOD SAM ENTERPRISES, LLC

(Exact name of registrant as specified in its charter)

 

Delaware

 

13-3377709

(State of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

250 Parkway Drive, Suite 270

 

(847) 229-6720

Lincolnshire, IL 60069

 

(Registrant’s telephone

(Address of principal executive offices)

 

number, including area code)

 


 

SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:  NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:

11.5% Senior Secured Notes Due 2016

 

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 such filing requirements for 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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such filings).

YES  x       NO  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an 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.  (Check one):

 

Large accelerated filer

o

 

Accelerated filer

o

Non-accelerated filer

x

 

Smaller reporting company

o

(Do not check if a smaller reporting company)

 

 

 

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

 

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

 

 

 

Outstanding as of

Class

 

May 14, 2012

Membership Units

 

2,000

 

DOCUMENTS INCORPORATED BY REFERENCE:  None

 

 

 




 

GOOD SAM ENTERPRISES, LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 31, 2012 and December 31, 2011

(In thousands except member units)

 

 

 

3/31/2012

 

12/31/2011

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

18,220

 

$

20,275

 

Accounts receivable, less allowance for doubtful accounts of $2,419 in 2012 and $2,086 in 2011

 

30,758

 

32,972

 

Notes

 

3,117

 

3,117

 

Inventories

 

68,949

 

56,558

 

Prepaid expenses and other assets

 

13,034

 

11,792

 

Total current assets

 

134,078

 

124,714

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net

 

24,567

 

22,563

 

AFFILIATE NOTES AND INVESTMENTS

 

4,709

 

4,587

 

INTANGIBLE ASSETS, net

 

12,914

 

14,715

 

GOODWILL

 

49,944

 

49,944

 

OTHER ASSETS

 

6,393

 

6,440

 

Total assets

 

$

232,605

 

$

222,963

 

 

 

 

 

 

 

LIABILITIES AND MEMBER’S DEFICIT

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

28,053

 

$

18,050

 

Accrued interest

 

13,236

 

3,989

 

Accrued income taxes

 

2,367

 

2,263

 

Accrued liabilities

 

26,027

 

27,519

 

Deferred revenues and gains

 

50,694

 

54,870

 

Current portion of long-term debt

 

10,000

 

12,422

 

Total current liabilities

 

130,377

 

119,113

 

 

 

 

 

 

 

DEFERRED REVENUES AND GAINS

 

30,369

 

30,979

 

LONG-TERM DEBT, net of current portion

 

325,021

 

325,028

 

OTHER LONG-TERM LIABILITIES

 

930

 

1,639

 

 

 

486,697

 

476,759

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

MEMBER’S DEFICIT:

 

 

 

 

 

Membership units, 2,000 units issued and outstanding

 

1

 

1

 

Member contributions

 

74,000

 

74,000

 

Accumulated deficit

 

(328,093

)

(327,797

)

Total member’s deficit

 

(254,092

)

(253,796

)

Total liabilities and member’s deficit

 

$

232,605

 

$

222,963

 

 

See notes to consolidated financial statements.

 

1



 

GOOD SAM ENTERPRISES, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands)

(Unaudited)

 

 

 

THREE MONTHS ENDED

 

 

 

3/31/2012

 

3/31/2011

 

REVENUES:

 

 

 

 

 

Membership services

 

$

37,202

 

$

35,234

 

Media

 

11,814

 

15,386

 

Retail

 

61,042

 

53,947

 

 

 

110,058

 

104,567

 

 

 

 

 

 

 

COSTS APPLICABLE TO REVENUES:

 

 

 

 

 

Membership services

 

19,767

 

19,641

 

Media

 

8,417

 

11,849

 

Retail

 

37,262

 

31,391

 

 

 

65,446

 

62,881

 

 

 

 

 

 

 

GROSS PROFIT

 

44,612

 

41,686

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

Selling, general and administrative

 

31,093

 

29,877

 

Financing expense

 

 

(19

)

Depreciation and amortization

 

3,476

 

4,222

 

 

 

34,569

 

34,080

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

10,043

 

7,606

 

 

 

 

 

 

 

NON-OPERATING ITEMS:

 

 

 

 

 

Interest income

 

218

 

125

 

Interest expense

 

(11,218

)

(11,298

)

Gain on derivative instrument

 

990

 

846

 

Loss on debt extinguishment

 

(440

)

 

Gain on sale of assets

 

515

 

222

 

 

 

(9,935

)

(10,105

)

 

 

 

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

 

108

 

(2,499

)

 

 

 

 

 

 

INCOME TAX EXPENSE

 

(104

)

(94

)

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

4

 

$

(2,593

)

 

See notes to consolidated financial statements.

 

2



 

GOOD SAM ENTERPRISES, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 

 

 

THREE MONTHS ENDED

 

 

 

3/31/2012

 

3/31/2011

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income (loss)

 

$

4

 

$

(2,593

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Depreciation

 

1,909

 

2,494

 

Amortization

 

1,567

 

1,728

 

Gain on derivative instrument

 

(990

)

(846

)

Loss on debt extinguishment

 

440

 

 

Provision for losses on accounts receivable

 

299

 

302

 

Loss on sale of assets

 

13

 

28

 

Gain on sale of business

 

(528

)

(250

)

Accretion of original issue discount

 

231

 

207

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

2,115

 

2,676

 

Inventories

 

(12,391

)

(10,752

)

Prepaid expenses and other assets

 

(1,196

)

153

 

Accounts payable

 

10,003

 

8,772

 

Accrued and other liabilities

 

8,140

 

7,222

 

Deferred revenues and gains

 

(4,505

)

(2,155

)

Net cash provided by operating activities

 

5,111

 

6,986

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(3,933

)

(1,002

)

Net proceeds from sale of assets

 

55

 

25

 

Cash (paid) received on loans to affiliate

 

(122

)

14

 

Net cash used in investing activities

 

(4,000

)

(963

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Dividends paid

 

(300

)

 

Borrowings on debt

 

6,343

 

8,518

 

Payment of debt issue costs

 

 

(262

)

Principal payments on debt

 

(9,209

)

(3,685

)

Net cash (used in) provided by financing activities

 

(3,166

)

4,571

 

 

 

 

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

(2,055

)

10,594

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

20,275

 

15,363

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

18,220

 

$

25,957

 

 

See notes to consolidated financial statements.

 

3



 

GOOD SAM ENTERPRISES, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

(1) BASIS OF PRESENTATION

 

Principles of Consolidation — The consolidated financial statements include the accounts of Good Sam Enterprises, LLC, and its subsidiaries (collectively the “Company”), presented in accordance with U.S. generally accepted accounting principles, (“GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission.  Affinity Group Holding, LLC, a Delaware limited liability company (“AGHI”), is the parent of Good Sam Enterprises, LLC.  The ultimate parent company of AGHI is AGI Holding Corp. (“AGHC”), a privately-owned corporation.

 

These interim consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2011 and notes included in the Company’s Form 10-K as filed with the Securities and Exchange Commission.  In the opinion of management of the Company, these consolidated financial statements contain all adjustments of a normal recurring nature necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented.

 

We have evaluated subsequent events through the date of issuance of our financial statements.

 

(2) RECENT ACCOUNTING PRONOUNCEMENTS

 

On January 1, 2012, the Company adopted the newly issued accounting standard which gives an entity the option of performing a qualitative assessment to determine whether it is necessary to perform step 1 of the annual goodwill impairment test. An entity is required to perform step 1 only if it concludes that it is more likely than not that a reporting unit’s fair value is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some, or all of its reporting units or an entity may bypass the qualitative assessment for any reporting unit in any period and proceed directly to step 1 of the impairment test. We perform our annual impairment test during the fourth quarter of each year.

 

On January 1, 2012, the Company adopted the newly issued accounting standard which changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the disclosure requirements, particularly for Level 3 fair value measurements. The adoption of the newly issued accounting standard did not have a material effect on its financial position or results of operations.

 

On January 1, 2012, the Company adopted the newly issued accounting standard which amends the disclosure requirements for the presentation of other comprehensive income (“OCI”) in the financial statements, including elimination of the option to present OCI in

 

4



 

(2) RECENT ACCOUNTING PRONOUNCEMENTS (continued)

 

the statement of member’s deficit.  As a result of this new standard, OCI and its components will be required to be presented for both interim and annual periods in a single continuous financial statement, the statement of comprehensive income, or in two separate but consecutive financial statements, consisting of a statement of income followed by a separate statement of OCI.  In addition, items that are reclassified from OCI to net income must be presented on the face of the financial statement.  As this newly issued accounting standard only requires enhanced disclosure, the adoption of this standard did not impact our financial position, results of operations or cashflows.  The Company has no items of other comprehensive income in any period presented.

 

(3) DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

 

The Company’s three principal lines of business are Membership Services, Media, and Retail.  The Membership Services segment operates the Good Sam Club, the Coast to Coast Club, the President’s Club, Camp Club USA and assorted membership products and services for RV owners, campers and outdoor vacationers, and the Golf Card Club for golf enthusiasts.  The President’s Club was merged into the Good Sam Club on January 1, 2012, and the Golf Card Club was sold on March 1, 2012.  The operations of the Golf Card Club were not material to the Membership Services segment, representing less than 0.5% of segment revenue in 2011.  The Media segment publishes a variety of publications for selected markets in the recreation and leisure industry, including general circulation periodicals, directories and RV and powersports industry trade magazines.  In addition, the Media segment operates consumer outdoor recreation shows primarily focused on RV and powersports markets.  The Retail segment sells specialty retail merchandise and services for RV owners primarily through retail supercenters and mail order catalogs.  The Company evaluates performance based on profit or loss from operations before income taxes and unusual items.

 

The reportable segments are strategic business units that offer different products and services.  They are managed separately because each business requires different technology, management expertise and marketing strategies.

 

5



 

(3) DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (continued)

 

The Company does not allocate income taxes or unusual items to segments.  Financial information by reportable business segment is summarized as follows (in thousands):

 

 

 

Membership

 

 

 

 

 

 

 

 

 

Services

 

Media

 

Retail

 

Consolidated

 

THREE MONTHS ENDED MARCH 31, 2012

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

37,202

 

$

11,814

 

$

61,042

 

$

110,058

 

Depreciation and amortization

 

190

 

796

 

1,843

 

2,829

 

Gain (loss) on sale of assets

 

529

 

2

 

(16

)

515

 

Interest income

 

675

 

2

 

 

677

 

Interest expense

 

 

 

605

 

605

 

Segment profit (loss)

 

15,974

 

1,819

 

(2,910

)

14,883

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED MARCH 31, 2011

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

35,234

 

$

15,386

 

$

53,947

 

$

104,567

 

Depreciation and amortization

 

425

 

981

 

2,179

 

3,585

 

Gain (loss) on sale of assets

 

 

250

 

(28

)

222

 

Interest income

 

744

 

 

 

744

 

Interest expense

 

 

1

 

585

 

586

 

Segment profit (loss)

 

14,085

 

1,753

 

(3,289

)

12,549

 

 

The following is a reconciliation of profit from operations to the Company’s consolidated financial statements for the three months ended March 31, 2012 and 2011 (in thousands):

 

 

 

THREE MONTHS ENDED

 

 

 

3/31/2012

 

3/31/2011

 

 

 

 

 

 

 

Income (loss) Before Income Taxes

 

 

 

 

 

Total operating profit for reportable segments

 

$

14,883

 

$

12,549

 

Unallocated G & A expense

 

(3,606

)

(3,945

)

Unallocated depreciation and amortization expense

 

(647

)

(637

)

Unallocated gain on derivative instrument

 

990

 

846

 

Unallocated financing charges

 

 

19

 

Unallocated loss on debt extinguishment

 

(440

)

 

Elimination of intercompany interest income

 

(459

)

(619

)

Unallocated interest expense, net of intercompany elimination

 

(10,613

)

(10,712

)

Income (loss) before income taxes

 

$

108

 

$

(2,499

)

 

6



 

(3) DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (continued)

 

The following is a reconciliation of assets of reportable segments to the Company’s consolidated financial statements as of March 31, 2012 and December 31, 2011 (in thousands):

 

 

 

3/31/2012

 

12/31/2011

 

Membership services segment

 

$

273,903

 

$

268,944

 

Media segment

 

12,651

 

16,695

 

Retail segment

 

100,976

 

92,117

 

Total assets for reportable segments

 

387,530

 

377,756

 

Intangible assets not allocated to segments

 

10,098

 

10,881

 

Corporate unallocated assets

 

8,470

 

8,602

 

Elimination of intersegment receivable

 

(173,493

)

(174,276

)

Total assets

 

$

232,605

 

$

222,963

 

 

(4) STATEMENTS OF CASH FLOWS

 

Supplemental disclosures of cash flow information for the three months ended March 31 (in thousands):

 

 

 

2012

 

2011

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

1,740

 

$

1,595

 

Income taxes

 

149

 

32

 

 

On February 27, 2012, and in accordance with the provisions of the indenture (the “Senior Secured Notes Indenture”) pursuant to which the Company issued its 11.5% senior secured notes due 2016 (the “Senior Secured Notes”), the Company completed an excess cash flow offer to purchase of $7.4 million in principal amount of the Senior Secured Notes.  These Senior Secured Notes were purchased by the Company and retired on February 27, 2012.  See Note 6 - Debt.  The loss on debt extinguishment includes a $0.1 million premium, $0.1 million of unamortized original issue discount and $0.2 million of capitalized finance expense related to the $7.4 million in principal purchased on February 27, 2012.

 

In March 2012, the Company completed the sale of the Golf Card Club for approximately $0.2 million, of which $0.1 million was paid at closing date, resulting in a gain of approximately $0.5 million.  Included in the sale was $0.3 million of deferred revenue related to the Golf Card Club.

 

In March 2012, the Company recorded an adjustment to the fair value of the interest rate swaps resulting in a $1.0 million decrease in Accrued Liabilities and in the statement of operations as a non-cash gain on derivative instruments of $1.0 million.

 

In March 2011, the Company recorded an adjustment to the fair value of the interest rate swaps resulting in an $0.8 million decrease in Accrued Liabilities and Other Long-Term Liabilities and in the statement of operations as a non-cash gain on derivative instruments of $0.8 million.

 

7



 

(5) GOODWILL AND INTANGIBLE ASSETS

 

The Company reviews goodwill and indefinite-lived intangible assets for impairment at least annually and more often when impairment indicators are present.  The Company performs its annual impairment test during the fourth quarter.  Under the accounting guidance for goodwill and other intangible assets, goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value.

 

The Company’s reporting units are generally consistent with the operating segments underlying the reporting segments identified in Note 3 — Disclosures about Segments of an Enterprise and Related Information.

 

Finite-lived intangible assets, related accumulated amortization and weighted average useful life consisted of the following at March 31, 2012 (in thousands, except as noted):

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Average Useful

 

 

 

Accumulated

 

 

 

 

 

Life (in years)

 

Gross

 

Amortization

 

Net

 

 

 

 

 

 

 

 

 

 

 

Membership and customer lists

 

6

 

$

31,910

 

$

(29,959

)

$

1,951

 

Non-compete and deferred consulting agreements

 

 

18,275

 

(18,275

)

 

Deferred financing costs

 

6

 

15,104

 

(4,141

)

10,963

 

 

 

 

 

$

65,289

 

$

(52,375

)

$

12,914

 

 

(6) DEBT

 

Senior Secured Notes

 

On November 30, 2010, the Company issued $333.0 million principal amount Senior Secured Notes at an original issue discount of $6.9 million, or 2.1%.  Interest on the Senior Secured Notes at a rate of 11.5% per annum is due each December 1 and June 1 commencing June 1, 2011.  The Senior Secured Notes mature on December 1, 2016.  The Company used the net proceeds of $326.0 million from the issuance of the Senior Secured Notes: (i) to irrevocably redeem or otherwise retire all of the outstanding 9% senior subordinated notes due 2012 (the “GSE Senior Notes”) in an approximate amount (including accrued interest through but not including November 30, 2010) of $142.5 million; (ii) to permanently repay all of the outstanding indebtedness under the Company’s existing senior secured credit facility (the “2010 Senior Credit Facility”) in an approximate amount (including call premium and accrued interest through but not including November 30, 2010) of $153.4 million; (iii) to make a $19.6 million distribution to the Company’s direct parent, Affinity Group Holding, LLC, (“Parent”), to enable Parent, together with other funds contributed to the Parent, to redeem, repurchase or otherwise acquire for value and satisfy and discharge all of its outstanding 10 7/8% senior notes due 2012 (the “AGHI Notes”); and (iv) to pay related fees and expenses in connection with the foregoing transactions and to provide for general corporate purposes.  As of March 31, 2012, an aggregate of $325.6 million of Senior Secured Notes remain outstanding.

 

8



 

(6) DEBT (continued)

 

The Senior Secured Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by each of the Company’s existing and future domestic restricted subsidiaries.  All of the Company’s subsidiaries other than CWFR are designated as restricted subsidiaries, and CWFR constitutes our only “unrestricted subsidiary”.  In the event of a bankruptcy, liquidation or reorganization of an unrestricted subsidiary, holders of the indebtedness of an unrestricted subsidiary and their trade creditors are generally entitled to payment of their claims from the assets of an unrestricted subsidiary before any assets are made available for distribution to us.  As a result, with respect to assets of unrestricted subsidiaries, the Senior Secured Notes are structurally subordinated to the prior payment of all of the debts of such unrestricted subsidiaries.

 

The Senior Secured Notes Indenture limits the Company’s ability to, among other things, incur more debt, pay dividends or make other distributions to the Company’s Parent, redeem stock, make certain investments, create liens, enter into transactions with affiliates, merge or consolidate, transfer or sell assets and make capital expenditures.

 

Subject to certain conditions, the Company is required to offer to redeem Senior Secured Notes at 101% of principal amount tendered for redemption in an aggregate amount of the Excess Cash Flow Amount (as defined in the Senior Secured Indenture) for the respective period.  For the calendar year ended December 31, 2011, the Excess Cash Flow Amount is the greater of $7.5 million or 75% of the Excess Cash Flow.  For each six month period ending on June 30 beginning June 30, 2012, the minimum Excess Cash Flow Amount is $5.0 million if the then outstanding aggregate principal amount of the Senior Secured Notes exceeds $233.0 million or $1.0 million if the then outstanding aggregate principal amount of the Senior Secured Notes is $233.0 million or less (such amount called the “Minimum Excess Cash Flow”).  For the calendar years commencing with the calendar year ended December 31, 2012, the Excess Cash Flow Amount is the greater of (i) the Minimum Excess Cash Flow Amount, or (ii) (x) 75% of Excess Cash Flow for such annual period, minus (y) the Minimum Excess Cash Flow Amount for the immediately preceding six months period ending on June 30.  On February 27, 2012, the Company completed an excess cash flow offer to purchase $7.4 million in principal amount of the Company’s outstanding Senior Secured Notes.  The Senior Secured Notes were purchased by the Company and retired on February 27, 2012, resulting in a $0.4 million loss on debt extinguishment.

 

The Senior Secured Notes and the related guarantees are the Company’s and the guarantors’ senior secured obligations.  The Senior Secured Notes (i) rank senior in right of payment to all of our and the guarantors’ existing and future subordinated indebtedness, (ii) rank equal in right of payment with all of the Company’s and the guarantors’ existing and future senior indebtedness other than the obligations of Camping World and its subsidiaries under the CW Credit Facility and future replacements of that facility, (iii) are structurally subordinated to all future indebtedness of the Company’s subsidiaries that are not guarantors of the Senior Secured Notes and (iv) are effectively subordinated to the CW Credit Facility and any future credit facilities in replacement

 

9



 

(6) DEBT (continued)

 

thereof to the extent of the value of the collateral securing indebtedness under such facilities.

 

CW Credit Facility

 

On March 1, 2010, our wholly-owned subsidiary, Camping World, Inc. entered into the CW Credit Facility providing for an asset based lending facility of up to $22.0 million, of which $10.0 million is available for letters of credit and $12.0 million is available for revolving loans.  The CW Credit Facility initially matured on the earlier of March 1, 2013, 60 days prior to the date of maturity of the 2010 Senior Credit Facility, or 120 days prior to the earlier date of maturity of the GSE Senior Notes and the AGHI Notes.  Interest under the revolving loans under the CW Credit Facility floated at either 3.25% over the base rate (defined as the greater of the prime rate, federal funds rate plus 50 basis points or 1 month LIBOR) for borrowings whose interest is based on the prime rate or 3.25% over the LIBOR rate (defined as the greater of LIBOR rate applicable to the period of the respective LIBOR borrowings) for borrowings whose interest is based on LIBOR.  On December 30, 2010, the CW Credit Facility was amended to extend the maturity to September 1, 2014, to decrease the interest rate margin to 2.75%, to remove the 1% LIBOR floor, to increase the revolving loan commitment amount from $12.0 million to $20.0 million, with a $5.0 million sublimit for letters of credit, and to decrease the letters of credit commitment from $10.0 million to $5.0 million.  On April 23, 2012, the Company amended the CW Credit Facility to (a) increase borrowing availability by reducing the collateral availability block from $5.0 million to $2.5 million from October 1st of each year through the last day of February of the immediately following year, (b) eliminate any restrictions on the number of new store openings during the year, and (c) increase the interest rate margin from 2.75% to 3.25%.

 

The CW Credit Facility contains affirmative covenants, including financial covenants, and negative covenants.  Borrowings under the Camping World Credit Agreement are guaranteed by the direct and indirect subsidiaries of Camping World and are secured by a pledge on the stock of Camping World and its direct and indirect subsidiaries and liens on the assets of Camping World and its direct and indirect subsidiaries.  As of March 31, 2012, the average interest rate on the CW Credit Facility was 3.494%.  Borrowings under the CW Credit Facility are based on the borrowing base of eligible inventory and accounts receivable of Camping World and its subsidiaries.  The administrative agent under the CW Credit Facility, the collateral agent under the Senior Secured Notes Indenture, the Company, and certain guarantor subsidiaries of the Company entered into the Intercreditor Agreement that governs their rights to the collateral pledged to secure the respective indebtedness of the Company and the guarantors pursuant to the CW Credit Facility and the Senior Secured Notes Indenture.  As of March 31, 2012, $15.1 million of CW Credit Facility remains outstanding and $6.1 million of letters of credit were issued.

 

The Senior Secured Notes Indenture and the CW Credit Facility contain certain restrictive covenants relating to, but not limited to, mergers, changes in the nature of the business, acquisitions, additional indebtedness, sale of assets, investments, and the payment of

 

10



 

(6) DEBT (continued)

 

dividends subject to certain limitations and minimum operating covenants.  The Company was in compliance with all debt covenants at March 31, 2012.

 

(7) NOTES OFFERING, GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION

 

In November 2010, the Company completed an offering of $333.0 million principal amount of the Senior Secured Notes.  See Note 6 - Debt.  The Company’s present and future restricted subsidiaries guarantee the Senior Secured Notes with unconditional guarantees of payment.

 

All of the Company’s restricted subsidiaries have jointly and severally guaranteed the indebtedness under the Senior Secured Notes.  Full financial statements of the Guarantors have not been included because, pursuant to their respective guarantees, the Guarantors are jointly and severally liable with respect to the Senior Secured Notes.  The Company’s unrestricted subsidiary, CWFR Capital Corp. is a not a guarantor of the Senior Secured Notes.

 

11



 

(7) NOTES OFFERING, GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (continued)

 

The following are summarized statements setting forth certain financial information concerning the Guarantor Subsidiaries as of and for the three months ended March 31, 2012 (in thousands).

 

 

 

 

 

 

 

NON-

 

 

 

GSE

 

 

 

GSE

 

GUARANTORS

 

GUARANTOR

 

ELIMINATIONS

 

CONSOLIDATED

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash & cash equivalents

 

$

10,506

 

$

7,714

 

$

 

$

 

$

18,220

 

Accounts receivable - net of allowance for doubtful accounts

 

9,045

 

195,206

 

 

 

(173,493

)

30,758

 

Inventories

 

 

68,949

 

 

 

68,949

 

Other current assets

 

4,304

 

11,847

 

 

 

16,151

 

Total current assets

 

23,855

 

283,716

 

 

(173,493

)

134,078

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

3,552

 

21,015

 

 

 

24,567

 

Intangible assets

 

10,098

 

2,816

 

 

 

12,914

 

Goodwill

 

49,944

 

 

 

 

49,944

 

Investment in subsidiaries

 

758,949

 

 

 

(758,949

)

 

Affiliate note and investments

 

40,000

 

4,709

 

 

(40,000

)

4,709

 

Other assets

 

3,915

 

2,478

 

 

 

6,393

 

Total assets

 

$

890,313

 

$

314,734

 

$

 

$

(972,442

)

$

232,605

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,254

 

$

26,799

 

$

 

$

 

$

28,053

 

Accrued and other liabilities

 

22,115

 

19,515

 

 

 

41,630

 

Current portion of long-term debt

 

183,493

 

40,000

 

 

(213,493

)

10,000

 

Current portion of deferred revenue

 

420

 

50,274

 

 

 

50,694

 

Total current liabilities

 

207,282

 

136,588

 

 

 

(213,493

)

130,377

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

2,014

 

28,355

 

 

 

30,369

 

Long-term debt

 

309,883

 

15,138

 

 

 

325,021

 

Other long-term liabilities

 

625,226

 

(624,296

)

 

 

930

 

Total liabilities

 

1,144,405

 

(444,215

)

 

 

(213,493

)

486,697

 

 

 

 

 

 

 

 

 

 

 

 

 

Interdivisional equity

 

 

758,949

 

 

(758,949

)

 

Members’ deficit

 

(254,092

)

 

 

 

(254,092

)

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities & member’s deficit

 

$

890,313

 

$

314,734

 

$

 

$

(972,442

)

$

232,605

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

2,931

 

$

109,639

 

$

 

$

(2,512

)

$

110,058

 

Costs applicable to revenues

 

(3,851

)

(64,107

)

 

2,512

 

(65,446

)

Operating expenses

 

(4,304

)

(30,265

)

 

 

(34,569

)

Interest expense, net

 

(11,072

)

72

 

 

 

(11,000

)

Income from investment in consolidated subsidiaries

 

9,725

 

 

 

(9,725

)

 

Other non operating income (expenses)

 

6,679

 

(5,614

)

 

 

1,065

 

Income tax expense

 

(104

)

 

 

 

(104

)

Net income

 

$

4

 

$

9,725

 

$

 

$

(9,725

)

$

4

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operations

 

$

(8,709

)

$

13,820

 

$

 

$

 

$

5,111

 

Cash flows provided by (used in) investing activities

 

(794

)

(3,206

)

 

 

(4,000

)

Cash flows provided by (used in) financing activities

 

12,260

 

(15,426

)

 

 

(3,166

)

Cash at beginning of year

 

7,749

 

12,526

 

 

 

20,275

 

Cash at end of period

 

$

10,506

 

$

7,714

 

$

 

$

 

$

18,220

 

 

12



 

(7) NOTES OFFERING, GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (continued)

 

The following are summarized balance sheet statements setting forth certain financial information concerning the Guarantor Subsidiaries as of December 31, 2011 (in thousands).

 

 

 

 

 

 

 

NON-

 

 

 

GSE

 

 

 

GSE

 

GUARANTORS

 

GUARANTOR

 

ELIMINATIONS

 

CONSOLIDATED

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash & cash equivalents

 

$

7,749

 

$

12,526

 

$

 

$

 

$

20,275

 

Accounts receivable - net of allowance for doubtful accounts

 

1,295

 

205,953

 

 

(174,276

)

32,972

 

Inventories

 

 

56,558

 

 

 

56,558

 

Other current assets

 

5,204

 

9,705

 

 

 

14,909

 

Total current assets

 

14,248

 

284,742

 

 

(174,276

)

124,714

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

2,906

 

19,657

 

 

 

22,563

 

Intangible assets

 

10,881

 

3,834

 

 

 

14,715

 

Goodwill

 

49,944

 

 

 

 

49,944

 

Investment in subsidiaries

 

749,224

 

 

 

(749,224

)

 

Affiliate note and investments

 

40,000

 

4,587

 

 

(40,000

)

4,587

 

Other assets

 

3,960

 

2,480

 

 

 

6,440

 

Total assets

 

$

871,163

 

$

315,300

 

$

 

$

(963,500

)

$

222,963

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,638

 

$

16,412

 

$

 

$

 

18,050

 

Accrued and other liabilities

 

14,110

 

19,661

 

 

 

33,771

 

Current portion of long-term debt

 

186,698

 

40,000

 

 

(214,276

)

12,422

 

Current portion of deferred revenue

 

861

 

54,009

 

 

 

54,870

 

Total current liabilities

 

203,307

 

130,082

 

 

 

(214,276

)

119,113

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

2,045

 

28,934

 

 

 

30,979

 

Long-term debt

 

314,522

 

10,506

 

 

 

325,028

 

Other long-term liabilities

 

605,085

 

(603,446

)

 

 

1,639

 

Total liabilities

 

1,124,959

 

(433,924

)

 

 

(214,276

)

476,759

 

 

 

 

 

 

 

 

 

 

 

 

 

Interdivisional equity

 

 

749,224

 

 

(749,224

)

 

Member’s deficit

 

(253,796

)

 

 

 

(253,796

)

Total liabilities & member’s deficit

 

$

871,163

 

$

315,300

 

$

 

$

(963,500

)

$

222,963

 

 

13



 

(7) NOTES OFFERING, GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (continued)

 

The following are summarized statements setting forth certain financial information concerning the Guarantor Subsidiaries for the three months ended March 31, 2011 (in thousands).

 

 

 

 

 

 

 

NON-

 

 

 

GSE

 

 

 

GSE

 

GUARANTORS

 

GUARANTOR

 

ELIMINATIONS

 

CONSOLIDATED

 

Revenue

 

$

1,395

 

$

103,172

 

$

 

$

 

$

104,567

 

Costs applicable to revenues

 

(2,025

)

(60,856

)

 

 

(62,881

)

Operating expenses

 

(3,823

)

(30,257

)

 

 

(34,080

)

Interest expense, net

 

(11,331

)

158

 

 

 

(11,173

)

Income from investment in consolidated subsidiaries

 

11,128

 

 

 

(11,128

)

 

Other non operating income (expenses)

 

2,157

 

(1,089

)

 

 

1,068

 

Income tax expense

 

(94

)

 

 

 

(94

)

Net income (loss)

 

$

(2,593

)

$

11,128

 

$

 

$

(11,128

)

$

(2,593

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operations

 

$

(4,105

)

$

11,091

 

$

 

$

 

$

6,986

 

Cash flows provided by (used in) investing activities

 

(279

)

(684

)

 

 

(963

)

Cash flows provided (used in) by financing activities

 

13,092

 

(8,521

)

 

 

4,571

 

Cash at beginning of year

 

2,071

 

13,292

 

 

 

15,363

 

Cash at end of period

 

$

10,779

 

$

15,178

 

$

 

$

 

$

25,957

 

 

(8) INTEREST RATE SWAP AGREEMENTS

 

The Company is exposed to certain risks related to its business operations.  The primary risks that the Company managed by using derivatives is interest rate risk.  The Company uses financial instruments, including interest rate swap agreements, to reduce the Company’s risk to this exposure.  The Company does not use derivatives for speculative trading purposes and are not a party to leveraged derivatives.  The Company recognizes all of their derivative instruments as either assets or liabilities at fair value.  Fair value is determined in accordance with the accounting guidance for Fair Value Measurements.  See Note 9 — Fair Value Measurements.  The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship.  For derivatives designated as hedges under the accounting guidance for derivative instruments and hedging activities, the Company formally assesses, both at inception and periodically thereafter, whether the hedging derivatives are highly effective in offsetting changes in either the fair value or cash flows of the hedged item.  The Company’s derivatives that are not designated and do not qualify as hedges under the accounting guidance for derivative instruments and hedging activities are adjusted to fair value through current earnings.

 

On October 15, 2007, the Company entered into a five-year interest rate swap agreement with a notional amount of $100.0 million from which it will receive periodic payments at the 3 month LIBOR-based variable rate (0.551% at March 31, 2012 based upon the January 31, 2012 reset date) and make periodic payments at a fixed rate of 5.135%,

 

14



 

(8) INTEREST RATE SWAP AGREEMENTS (continued)

 

with settlement and rate reset dates every January 31, April 30, July 31, and October 31.  The interest rate swap agreement was effective beginning October 31, 2007 and expires on October 31, 2012.  On March 19, 2008, the Company entered into a 4.5 year interest rate swap agreement effective April 30, 2008 with a notional amount of $35.0 million from which it will receive periodic payments at the 3 month LIBOR-based variable rate (0.551% at March 31, 2012 based upon the January 31, 2012 reset date) and make periodic payments at a fixed rate of 3.430%, with settlement and rate reset dates every January 31, April 30, July 31, and October 31.  The fair value of the swap agreements were zero at inception.  The Company entered into the interest rate swap agreements to limit the effect of variable interest rates on the Company’s floating rate debt.  The interest rate swap agreements were originally designated as cash flow hedges of the variable rate interest payments due on $135.0 million of the term loans and the revolving credit facility issued June 24, 2003.  Due to the issuance of the Senior Secured Notes representing fixed rate debt to replace the existing variable rate debt on November 30, 2010, the interest rate swaps no longer qualified as cash flow hedges as the underlying cash flows being hedged were no longer going to occur.

 

The following is the location and amounts of derivative instruments fair values in the statement of financial position for derivatives not designated as hedging instruments.

 

Derivatives not designated

 

 

 

Fair Value as of:

 

as hedging instruments

 

Balance Sheet Location

 

3/31/2012

 

12/31/2011

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

Accrued liabilities

 

$

(2,881

)

$

(3,871

)

 

The following is the location and amount of gains and losses on derivative instruments in the statement of operations for the three months ended March 31, 2012 and 2011 (in thousands):

 

 

 

Interest Rate Swap Agreements

 

 

 

3/31/2012

 

3/31/2011

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

Amount of Gain (Loss) recognized in income on Statement of Operations

 

$

990

 

$

846

 

Location of Gain (Loss) recognized in Statement of Operations

 

Gain (loss) on derivative instrument

 

 

The fair value of these swaps included in accrued liabilities was $2.9 million, which has also been recorded in the statement of operations in aggregate periods through March 31, 2012.  The fair value of these swaps included in accrued liabilities was $3.9 million, which has also been recorded in the statement of operations in aggregate periods through December 31, 2011.

 

(9) FAIR VALUE MEASUREMENTS

 

Accounting guidance for fair value measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.  These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2,

 

15



 

(9) FAIR VALUE MEASUREMENTS (continued)

 

defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

 

As of March 31, 2012, the Company holds interest rate swap contracts that are required to be measured at fair value on a recurring basis.  The Company’s interest rate swap contracts are not traded on a public exchange.  See Note 8 - Interest Rate Swap Agreements for further information on the interest rate swap contracts.  The fair value of these interest rate swap contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets.  Therefore, the Company has categorized these swap contracts as Level 2.

 

Determining the fair value of a reporting unit under the first step of the goodwill impairment test and determining the fair value of individual assets and liabilities of a reporting unit under the second step of the goodwill impairment test is judgmental in nature and often involves the use of significant estimates and assumptions. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and also the extent of such charge. The Company’s estimates of fair value utilized in goodwill impairment test may be based upon a number of factors, including assumptions about the projected future cash flows, discount rate, growth rate, determination of market comparables, economic conditions, or changes to the Company’s business operations. Such changes may result in impairment charges recorded in future periods.

 

The Company’s liability at March 31, 2012 and December 31, 2011, measured at fair value on a recurring basis subject to the disclosure requirements from accounting guidance, was as follows:

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

(in thousands)

 

 

 

Quoted Prices in 
Active Markets for
Identical Assets

 

Significant Other 
Observable 
Inputs

 

Significant 
Unobservable 
Inputs

 

Description

 

Amount

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2012:

 

 

 

 

 

 

 

 

 

Interest Rate Swap Contracts

 

$

(2,881

)

$

 

$

(2,881

)

$

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2011:

 

 

 

 

 

 

 

 

 

Interest Rate Swap Contracts

 

(3,871

)

 

(3,871

)

 

 

The fair value of the interest rate swap contracts was calculated using the income method based on quoted interest rates.

 

There have been no transfers of assets or liabilities between the fair value measurement levels and there were no material re-measurements to fair value during 2012 and 2011 of assets and liabilities that are not measured at fair value on a recurring basis.

 

16



 

(9) FAIR VALUE MEASUREMENTS (continued)

 

The following table presents the reported carrying value and fair value information for the Company’s Senior Secured Notes and the CW Credit Facility.  The fair values shown below for the Senior Secured Notes is based on quoted prices in the market for identical assets (Level 1), and the CW Credit Facility is based on indirect observable inputs (Level 2) (in thousands):

 

 

 

3/31/2012

 

12/31/2011

 

 

 

Carrying Value

 

Fair Value

 

Carrying Value

 

Fair Value

 

Senior Secured Notes

 

$

319,884

 

$

335,345

 

$

326,944

 

$

326,340

 

CW Credit Facility

 

15,137

 

15,137

 

10,506

 

10,506

 

 

17



 

ITEM 2:

 

GOOD SAM ENTERPRISES, LLC AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

 

The following table is derived from the Company’s Consolidated Statements of Operations and expresses the results from operations as a percentage of revenues and reflects the net increase (decrease) between periods:

 

 

 

THREE MONTHS ENDED

 

 

 

3/31/2012

 

3/31/2011

 

Inc/(Dec)

 

 

 

 

 

 

 

 

 

REVENUES:

 

 

 

 

 

 

 

Membership services

 

33.8

%

33.7

%

5.6

%

Media

 

10.7

%

14.7

%

(23.2

)%

Retail

 

55.5

%

51.6

%

13.2

%

 

 

100.0

%

100.0

%

5.3

%

 

 

 

 

 

 

 

 

COSTS APPLICABLE TO REVENUES:

 

 

 

 

 

 

 

Membership services

 

18.0

%

18.8

%

0.6

%

Media

 

7.6

%

11.3

%

(29.0

)%

Retail

 

33.9

%

30.0

%

18.7

%

 

 

59.5

%

60.1

%

4.1

%

 

 

 

 

 

 

 

 

GROSS PROFIT

 

40.5

%

39.9

%

7.0

%

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

Selling, general and administrative

 

28.2

%

28.6

%

4.1

%

Financing expense

 

 

 

(100.0

)%

Depreciation and amortization

 

3.2

%

4.0

%

(17.7

)%

 

 

31.4

%

32.6

%

1.4

%

 

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

9.1

%

7.3

%

32.0

%

 

 

 

 

 

 

 

 

NON-OPERATING ITEMS:

 

 

 

 

 

 

 

Interest income

 

0.2

%

0.1

%

74.4

%

Interest expense

 

(10.1

)%

(10.8

)%

(0.7

)%

Gain on derivative instrument

 

0.9

%

0.8

%

17.0

%

Loss on debt extinguishment

 

(0.4

)%

 

(100.0

)%

Gain on sale of assets

 

0.4

%

0.2

%

132.0

%

 

 

(9.0

)%

(9.7

)%

(1.7

)%

 

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

 

0.1

%

(2.4

)%

(104.3

)%

 

 

 

 

 

 

 

 

INCOME TAX EXPENSE

 

(0.1

)%

(0.1

)%

10.6

%

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

 

(2.5

)%

(100.2

)%

 

18



 

RESULTS OF OPERATIONS

 

Three Months Ended March 31, 2012

Compared With Three Months Ended March 31, 2011

 

Revenues

 

Revenues of $110.1 million for the first quarter of 2012 increased $5.5 million, or 5.3%, from the comparable period in 2011.

 

Membership Services revenues of $37.2 million for the first quarter of 2012 increased $2.0 million, or 5.6%, from the comparable period in 2011.  This revenue increase was largely attributable to a $1.6 million increase in member events revenue due to the timing of the Good Sam Club annual rally, which occurred in the first quarter of 2012 versus the third quarter of 2011, an $0.8 million increase in extended vehicle warranty program revenue due to contract price increases, a $0.3 million increase in marketing fee revenue from RV financing, and a $0.2 million increase in emergency road service revenue, partially offset by a $0.6 million decrease in advertising revenue from the RV View magazine, which was replaced with the Highways magazine in 2011, and a $0.3 million decrease in the Coast to Coast and Golf Card Club revenue due to decreased membership and the sale of the Golf Card Club in March 2012.

 

Media revenues of $11.8 million for the first quarter of 2012 decreased $3.6 million, or 23.2%, from the comparable period in 2011.  This decrease was primarily attributable to a $2.2 million revenue reduction resulting from the sale or closure of non-core media businesses in 2011, a $0.7 million reduction in annual directory revenues due to reduced marketing and phasing out the cd-rom version, a $0.3 million reduction in consumer show revenue, and a $0.4 million reduction in magazine revenue.

 

Retail revenues of $61.0 million for the first quarter of 2012 increased by $7.1 million, or 13.2%, from the comparable period in 2011.  Store merchandise sales increased $4.7 million from the first quarter of 2011 due to a same store sales increase of $3.7 million, or 9.3%, compared to a 1.4% decrease for the first quarter of 2011, and a $1.4 million increase due to the opening of ten new stores over the last fifteen months, which were partially offset by decreased revenue from discontinued stores of $0.4 million.  One store was closed in the last fifteen months in order to consolidate operations within that area.  Same store sale calculations for a given period include only those stores that were open both at the end of that period and at the beginning of the preceding fiscal year.  Also, mail order and internet sales increased $3.2 million, installation and service fees decreased $0.5 million, and supplies and other revenue decreased $0.3 million.

 

Costs Applicable to Revenues

 

Costs applicable to revenues totaled $65.4 million for the first quarter of 2012, an increase of $2.6 million, or 4.1%, from the comparable period in 2011.

 

Membership Services costs applicable to revenues of $19.8 million for the first quarter of 2012 increased $0.1 million, or 0.6%, from the comparable period in 2011. 

 

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This increase consisted of a $2.1 million expense increase due to the timing of member events, a $0.5 million increase in extended vehicle warranty program costs resulting from increased revenue for those programs, and a $0.4 million increase in emergency road service marketing costs, partially offset by a $1.5 million decrease in Good Sam Club expenses primarily attributable to combining the President’s Club and the Good Sam Club publication in the second quarter of 2011 and reduced direct mail efforts, a $0.5 million reduction in Camp Club USA costs, a $0.4 million reduction in overhead, a $0.3 million decrease in wage-related costs primarily due to headcount reductions, and a $0.2 million expense reduction from the Coast to Coast and Golf Card clubs.

 

Media costs applicable to revenues of $8.4 million for the first quarter of 2012 decreased $3.4 million, or 29.0%, from the comparable period in 2011 primarily due to the $1.9 million decrease from to the sale or closure of non-core media businesses in 2011, a $0.8 million decrease in wage-related costs primarily due to headcount reductions, a $0.4 million reduction in annual directory marketing and production costs and phasing out the cd-rom version, and a $0.3 million reduction in consumer show costs.

 

Retail costs applicable to revenues for the first quarter of 2012 increased $5.9 million, or 18.7%, to $37.3 million.  The retail gross profit margin of 39.0% for the first quarter of 2012 decreased from 41.8% for the comparable period in 2011 due to incremental merchandise discounts and markdowns, and increased shipping and freight-in costs.

 

Operating Expenses

 

Selling, general and administrative expenses of $31.1 million for the first quarter of 2012 increased $1.2 million compared to the first quarter of 2011.  This increase was primarily due to a $1.4 million increase in retail selling, general and administrative expenses, primarily related to increased labor, rent and selling expense, and $0.3 million of other general and administrative expenses, partially offset by a $0.5 million reduction in wage-related expenses.

 

Depreciation and amortization expense of $3.5 million decreased $0.7 million from the prior year primarily due to reduced capital expenditures in prior years.

 

Income from Operations

 

Income from operations for the first quarter of 2012 totaled $10.0 million compared to $7.6 million for the first quarter of 2011.  This increase of $2.4 million from the first quarter of 2011 was primarily the result of an increase in gross profit for the Membership Services and Retail segments of $1.8 million and $1.2 million, respectively, that was partially offset by a $0.5 million increase in operating expenses for the first quarter of 2012, and a decrease in gross profit for the Media segment of $0.1 million.

 

Non-Operating Items

 

Non-operating expenses of $9.9 million for the first quarter of 2012 decreased $0.2 million compared to the first quarter of 2011 due to $0.3 million of incremental gain on sale of assets, a $0.2 million positive change in the loss/gain on derivative instrument

 

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related to the interest rate swap agreements and a $0.1 million increase in interest income, partially offset by a $0.4 million loss on debt extinguishment in the first quarter of 2012.

 

Income (Loss) before Income Tax

 

Income before income tax for the first quarter of 2012 was $0.1 million, compared to a loss of $2.5 million for the first quarter of 2011.  This $2.6 million favorable change was attributable to the $2.4 million increase in income from operations in the first quarter of 2012 and the decrease in non-operating items of $0.2 million mentioned above.

 

Income Tax Expense

 

The Company recorded income tax expense of $0.1 million for the first quarter of 2012, compared to $0.1 million income tax expense for the first quarter of 2011.

 

Net Income (Loss)

 

Net income in the first quarter of 2012 was $4,000 compared to loss of $2.6 million for the same period in 2011 mainly due to the reasons discussed above.

 

Segment Profit (Loss)

 

The Company’s three principal lines of business are Membership Services, Media and Retail.  The Membership Services segment operates the Good Sam Club, the Coast to Coast Club, the President’s Club, the Camp Club USA and assorted membership products and services for RV owners, campers and outdoor vacationers, and the Golf Card Club for golf enthusiasts.  The Golf Card Club was sold in March 2012.  The Media segment publishes a variety of publications for selected markets in the recreation and leisure industry, including general circulation periodicals, directories, and RV and powersports industry trade magazines.  In addition, the Media segment operates consumer outdoor recreation shows primarily focused on RV and powersports markets.  The Retail segment sells specialty retail merchandise and services for RV owners primarily through retail supercenters and mail order catalogs.  The Company evaluates performance based on profit or loss from operations before income taxes and unusual items.

 

The reportable segments are strategic business units that offer different products and services.  They are managed separately because each business requires different technology, management expertise and marketing strategies.

 

Membership services segment profit of $16.0 million for the first quarter of 2012 increased $1.9 million, or 13.4%, from the comparable period in 2011.  This increase was attributable to a $0.7 million increase in segment profit from the Good Sam Club primarily due to cost savings resulting from the combination of the President’s Club and the Good Sam Club on January 1, 2012, a $0.7 million increase from Camp Club USA, a $0.5 million gain on sale of Golf Card Club, a $0.3 million improvement in Coast to Coast Club, and a $0.3 million

 

21



 

increase from RV financing, partially offset by a decrease in segment profit of $0.6 million from member events.

 

Media segment profit of $1.8 million for the first quarter of 2012 increased by $0.1 million, or 3.7%, from the comparable period in 2011 due to $0.4 million of cost savings from the sale or closure of non-core media businesses in 2011, and a $0.3 million increase from the annual directories, partially offset by a reduction in segment profit of $0.6 million from our magazines.

 

Retail segment loss of $2.9 million for the first quarter of 2012 favorably decreased $0.4 million from a segment loss of $3.3 million for the first quarter of 2011.  This reduction in segment loss resulted from a $1.5 million increase in gross profit and a $0.3 million reduction in depreciation expense partially offset by a $1.4 million increase in selling, general and administrative expenses.

 

LIQUIDITY AND CAPITAL RESOURCES

 

We had working capital of $3.7 million and $5.6 million, respectively, as of March 31, 2012 and December 31, 2011.  The primary reason for the low levels of working capital is the deferred revenue and gains reported under current liabilities of $50.7 million and $54.9 million as of March 31, 2012 and December 31, 2011, respectively, which reduce working capital.  Deferred revenue is primarily comprised of cash collected for club memberships in advance of services to be provided which is deferred and recognized as revenue over the life of the membership.  We use net proceeds from this deferred membership revenue to lower our long-term borrowings and finance our working capital needs.

 

Contractual Obligations and Commercial Commitments

 

The following table summarizes our commitments to make long-term debt, lease, deferred compensation and letter of credit payments at March 31, 2012.  This table includes principal and future interest due under our debt agreements based on interest rates as of March 31, 2012 and assumes debt obligations will be held to maturity.

 

 

 

Payments Due by Period

 

(in thousands)

 

Total

 

Balance of 
2012

 

2013 and 
2014

 

2015 and 
2016

 

Thereafter

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt and future interest

 

$

520,727

 

$

45,877

 

$

107,446

 

$

367,404

 

$

 

Operating lease obligations

 

218,852

 

17,381

 

44,354

 

37,801

 

119,316

 

Deferred compensation

 

1,603

 

339

 

1,264

 

 

 

Standby letters of credit

 

6,091

 

4,081

 

2,010

 

 

 

Grand total

 

$

747,273

 

$

67,678

 

$

155,074

 

$

405,205

 

$

119,316

 

 

11.50% Senior Secured Notes due 2016

 

On November 30, 2010, the Company issued $333.0 million principal amount of Senior Secured Notes at an original issue discount of 2.1%.  Interest on the Senior Secured Notes at a rate of 11.5% per annum is due each December 1 and June 1 commencing

 

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June 1, 2011.  The Senior Secured Notes mature on December 1, 2016.  The Company used the net proceeds of $326.0 million from the issuance of the Senior Secured Notes: (i) to irrevocably redeem or otherwise retire all of the GSE Senior Notes in an approximate amount (including accrued interest through but not including November 30, 2010) of $142.5 million; (ii) to permanently repay all of the outstanding indebtedness under our 2010 Senior Credit Facility in an approximate amount (including call premium and accrued interest through but not including November 30, 2010) of $153.4 million; (iii) to make a $19.6 million distribution to our direct parent, to enable Parent, together with other funds contributed to the Parent, to redeem, repurchase or otherwise acquire for value and satisfy and discharge all of its outstanding 10 7/8% senior notes due 2012 (the “AGHI Notes”); and (iv) to pay related fees and expenses in connection with the foregoing transactions and to provide for general corporate purposes.  As of March 31, 2012, an aggregate of $325.6 million of Senior Secured Notes remain outstanding.

 

The Senior Secured Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by each of our existing and future domestic restricted subsidiaries.  All of the Company’s subsidiaries other than CWFR Capital Corp. (“CWFR”) are designated as restricted subsidiaries, and CWFR constitutes our only “unrestricted subsidiary”.  In the event of a bankruptcy, liquidation or reorganization of the unrestricted subsidiary, holders of the indebtedness of the unrestricted subsidiary and their trade creditors are generally entitled to payment of their claims from the assets of the unrestricted subsidiary before any assets are made available for distribution to us.  As a result, with respect to assets of unrestricted subsidiaries, the Senior Secured Notes are structurally subordinated to the prior payment of all of the debts of such unrestricted subsidiaries.

 

The indenture governing the Senior Secured Notes Indenture limits the Company’s ability to, among other things, incur more debt, pay dividends or make other distributions to our Parent, redeem stock, make certain investments, create liens, enter into transactions with affiliates, merge or consolidate, transfer or sell assets and make capital expenditures.

 

Subject to certain conditions, we must make an offer to purchase some or all of the Senior Secured Notes with the excess cash flow offer amount (as defined in the indenture) determined for each applicable period, commencing with the annual period ending December 31, 2011, and each June 30 and December 31 thereafter, at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase.  On February 27, 2012, the Company completed an excess cash flow offer to purchase of $7.4 million in principal amount of the Senior Secured Notes.  These Senior Secured Notes were purchased by the Company and retired on February 27, 2012.

 

The Senior Secured Notes and the related guarantees are our and the guarantors’ senior secured obligations.  The Senior Secured Notes (i) rank senior in right of payment to all of our and the guarantors’ existing and future subordinated indebtedness, (ii) rank equal in right of payment with all of our and the guarantors’ existing and future senior indebtedness other than the obligations of Camping

 

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World and its subsidiaries under the credit agreement dated March 1, 2010 (“CW Credit Facility”) and future replacements of that facility, (iii) are structurally subordinated to all future indebtedness of our subsidiaries that are not guarantors of the Senior Secured Notes and (iv) are effectively subordinated to the CW Credit Facility and any future credit facilities in replacement thereof to the extent of the value of the collateral securing indebtedness under such facilities.

 

The CW Credit Facility

 

On March 1, 2010, our wholly-owned subsidiary, Camping World, Inc. (“Camping World”) entered into the CW Credit Facility providing for an asset based lending facility of up to $22.0 million, of which $10.0 million is available for letters of credit and $12.0 million is available for revolving loans.  The CW Credit Facility initially matured on the earlier of March 1, 2013, 60 days prior to the date of maturity of the 2010 Senior Credit Facility, or 120 days prior to the earlier date of maturity of the GSE Senior Notes and the AGHI Notes.  Interest under the revolving loans under the CW Credit Facility floated at either 3.25% over the base rate (defined as the greater of the prime rate, federal funds rate plus 50 basis points or 1 month LIBOR) for borrowings whose interest is based on the prime rate or 3.25% over the LIBOR rate (defined as the greater of LIBOR rate applicable to the period of the respective LIBOR borrowings) for borrowings whose interest is based on LIBOR.  On December 30, 2010, the CW Credit Facility was amended to extend the maturity to September 1, 2014, to decrease the interest rate margin to 2.75%, to remove the 1% LIBOR floor, to increase the revolving loan commitment amount from $12.0 million to $20.0 million, with a $5.0 million sublimit for letters of credit, and to decrease the letters of credit commitment from $10.0 million to $5.0 million.  As of March 31, 2012, the average interest rate on the CW Credit Facility was 3.494%.  Borrowings under the CW Credit Facility are based on the borrowing base of eligible inventory and accounts receivable of Camping World and its subsidiaries.  On April 23, 2012, the Company amended the CW Credit Facility to (a) increase borrowing availability by reducing the collateral availability block from $5.0 million to $2.5 million from October 1st of each year through the last day of February of the immediately following year, (b) eliminate any restrictions on the number of new store openings during the year, and (c) increase the interest rate margin from 2.75% to 3.25%.  As of March 31, 2012, $15.1 million of CW Credit Facility remains outstanding and $6.1 million of letters of credit were issued.

 

The CW Credit Facility contains affirmative covenants, including financial covenants, and negative covenants.  Borrowings under the Camping World Credit Agreement are guaranteed by the direct and indirect subsidiaries of Camping World and are secured by a pledge on the stock of Camping World and its direct and indirect subsidiaries and liens on the assets of Camping World and its direct and indirect subsidiaries.  The administrative agent under the CW Credit Facility, the collateral agent under the Senior Secured Notes Indenture, the Company, and certain guarantor subsidiaries of the Company have entered into the intercreditor agreement that governs their rights to the collateral pledged to secure the respective indebtedness of the Company and the guarantors pursuant to the CW Credit Facility and the Senior Secured Notes Indenture.

 

The Senior Secured Notes Indenture and the CW Credit Facility contain certain restrictive covenants relating to, but not limited to, mergers, changes in the nature of the business,

 

24



 

acquisitions, additional indebtedness, sale of assets, investments, and the payment of dividends subject to certain limitations and minimum operating covenants.  We were in compliance with all debt covenants at March 31, 2012.

 

Interest Rate Swap Agreements

 

On October 15, 2007, the Company entered into a five-year interest rate swap agreement with a notional amount of $100.0 million from which it will receive periodic payments at the 3 month LIBOR-based variable rate (0.551% at March 31, 2012 based upon the January 31, 2012 reset date) and make periodic payments at a fixed rate of 5.135%, with settlement and rate reset dates every January 31, April 30, July 31, and October 31.  The interest rate swap agreement was effective beginning October 31, 2007 and expires on October 31, 2012.  On March 19, 2008, the Company entered into a 4.5 year interest rate swap agreement effective April 30, 2008 with a notional amount of $35.0 million from which it will receive periodic payments at the 3 month LIBOR-based variable rate (0.551% at March 31, 2012 based upon the January 31, 2012 reset date) and make periodic payments at a fixed rate of 3.430%, with settlement and rate reset dates every January 31, April 30, July 31, and October 31.  The fair value of the swap agreements were zero at inception.  The Company entered into the interest rate swap agreements to limit the effect of variable interest rates on the Company’s floating rate debt.  The interest rate swap agreements were originally designated as cash flow hedges of the variable rate interest payments due on $135.0 million of the term loans and the revolving credit facility issued June 24, 2003.  Due to the issuance of the Senior Secured Notes representing fixed rate debt to replace the existing variable rate debt on November 30, 2010, the interest rate swaps no longer qualified as cash flow hedges as the underlying cash flows being hedged were no longer going to occur. The interest rate swap was effective beginning April 30, 2008 and expires on October 31, 2012.  The fair value of the swap contracts is included in Accrued Liabilities, and totaled $2.9 million and $3.9 million as of March 31, 2012 and December 31, 2011, respectively.

 

Other Contractual Obligations and Commercial Commitments

 

For the three months ended March 31, 2012, the Company did not incur deferred executive compensation expense under the phantom stock agreements, and incurred payments of $0.7 million under the vested phantom stock agreements.  The Company expects to pay any additional phantom stock payments of $0.3 million in fiscal 2012.

 

Capital expenditures for the three months ended March 31, 2012 totaling $3.9 million increased $2.9 million from the first three months of 2011 primarily due new store openings, a point-of-sale system replacement, telecommunications, and leasehold improvements.  Additional capital expenditures of $2.6 million are anticipated for the balance of 2012, primarily for new stores and software and computer upgrades.  These capital expenditures will be financed through cash from operations, proceeds from the sale of assets and/or capital contributions.

 

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CRITICAL ACCOUNTING POLICIES

 

General

 

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  On an on-going basis, we evaluate our estimates, including those related to membership programs and incentives, bad debts, inventories, intangible assets, employee health insurance benefits, income taxes, restructuring, contingencies and litigation.  We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.

 

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

 

Revenue Recognition

 

Merchandise revenue is recognized when products are sold in the retail stores, shipped for mail and Internet orders, or when services are provided to customers.  Emergency Road Service (“ERS”) revenues are deferred and recognized over the life of the membership.  ERS claim expenses are recognized when incurred.  Royalty revenue is earned under the terms of an arrangement with a third party credit card provider based on a percentage of the Company’s outstanding credit card balances with such third party credit card provider.  Membership revenue is generated from annual, multi-year and lifetime memberships.  The revenue and expenses associated with these memberships are deferred and amortized over the membership period.  For lifetime memberships, an 18-year period is used, which is the actuarially determined estimated fulfillment period.  Promotional expenses, consisting primarily of direct mail advertising, are deferred and expensed over the period of expected future benefit, typically three months based on historical actual response rates.  Renewal expenses are expensed at the time related materials are mailed.  Recognized revenues and profit are subject to revisions as the membership progresses to completion.  Revisions to membership period estimates would change the amount of income and expense amortized in future accounting periods.

 

Newsstand sales of publications and related expenses are recorded at the time of delivery, net of estimated provision for returns.  Subscription sales of publications are reflected in income over the lives of the subscriptions.  The related selling expenses are expensed as incurred.  Advertising revenues and related expenses are recorded at the time of delivery.  Subscription and newsstand revenues and expenses related to annual publications are deferred until the publications are distributed.  Revenues and related expenses for consumer shows are recognized when the show occurs.

 

26



 

Accounts Receivable

 

We estimate the collectability of our trade receivables.  A considerable amount of judgment is required in assessing the ultimate realization of these receivables including the current credit-worthiness of each customer.  Changes in required reserves have been recorded in recent periods and may occur in the future due to the market conditions and the economic environment.

 

Inventory

 

We state inventories at the lower of cost or market.  In assessing the ultimate realization of inventories, we are required to make judgments as to future demand requirements and compare that with the current or committed inventory levels.  We have recorded changes in required reserves in recent periods due to changes in strategic direction, such as discontinuances of product lines as well as changes in market conditions due to changes in demand requirements.  It is possible that changes in required inventory reserves may continue to occur in the future due to the market conditions.

 

Long-Lived Assets

 

Purchased intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, ranging from one to six years.

 

Long-lived assets, such as property, plant and equipment and purchased intangible assets with finite lives are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable in accordance with accounting guidance on accounting for the impairment or disposal of long-lived assets.  We assess the fair value of the assets based on the future cash flow the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flow expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset.  When an impairment is identified, we reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, comparable market values.

 

We have evaluated the remaining useful lives of our finite-lived purchased intangible assets to determine if any adjustments to the useful lives were necessary or if any of these assets had indefinite lives and were therefore not subject to amortization.  We determined that no adjustments to the useful lives of our finite-lived purchased intangible assets were necessary.  The finite-lived purchased intangible assets consist of membership customer lists, and deferred financing costs which have weighted average useful lives of approximately 6 years, and 6 years, respectively.

 

Indefinite-Lived Intangible Assets

 

We evaluate indefinite-lived intangible assets for impairment at least annually or when events indicate that an impairment exists.  The impairment tests for goodwill and other indefinite-lived intangible assets are assessed for impairment using fair value

 

27



 

measurement techniques.  Specifically, goodwill impairment is determined using a two-step process.  The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with the net book value (or carrying amount), including goodwill.  If the fair value of the reporting unit exceeds the carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary.  If the carrying amount of the reporting unit exceeds the fair value, or if another indicator of impairment exists, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any.  The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill.  If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.  The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, accordingly the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.

 

Determining the fair value of a reporting unit under the first step of the goodwill impairment test and determining the fair value of individual assets and liabilities of a reporting unit under the second step of the goodwill impairment test is judgmental in nature and often involves the use of significant estimates and assumptions.  These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and also the extent of such charge.  Our estimates of fair value utilized in goodwill and other indefinite-lived intangible asset tests may be based upon a number of factors, including assumptions about the projected future cash flows, discount rate, growth rate, determination of market comparables, technological change, economic conditions or changes to our business operations.  Such changes may result in impairment charges recorded in future periods.

 

The fair value of our reporting units is annually determined using a combination of the income approach and the market approach.  Under the income approach, the fair value of a reporting unit is calculated based on the present value of estimated future cash flows.  Future cash flows are estimated by us under the market approach, fair value is estimated based on market multiples of revenue or earnings for comparable companies.

 

Self-insurance Program

 

Self-insurance accruals for workers compensation and general liability programs are calculated by outside actuaries and are based on claims filed and include estimates for claims incurred but not yet reported.  Projections of future loss are inherently uncertain because of the random nature of insurance claims occurrences and could be substantially affected if future occurrences and claims differ significantly from these assumptions and historical trends.

 

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Derivative Financial Instruments

 

The Company accounts for derivative instruments and hedging activities in accordance with accounting guidance for accounting for derivative instruments and hedging activities.  All derivatives are recognized on the balance sheet at their fair value.  On the date that the Company enters into a derivative contract, management formally documents all relationships between hedging instruments and hedged items, as well as risk management objectives and strategies for undertaking various hedge transactions.

 

Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge (a “swap”), to the extent that the hedge is effective, are recorded in accumulated other comprehensive loss, until earnings are affected by the variability of cash flows of the hedged transaction.  The Company measures effectiveness of the swap at each quarter end using the Hypothetical Derivative Method.  Under this method, hedge effectiveness is measured based on a comparison of the change in fair value of the actual swap designated as the hedging instrument and the change in fair value of the hypothetical swap which would have the terms that identically match the critical terms of the hedged cash flows from the anticipated debt issuance.  The amount of ineffectiveness, if any, recorded in earnings would be equal to the excess of the cumulative change in the fair value of the swap over the cumulative change in the fair value of the plain vanilla swap lock, as defined in the accounting literature.  Once a swap is settled, the effective portion is amortized over the estimated life of the hedge item.

 

The Company utilizes derivative financial instruments to manage its exposure to interest rate risks.  The Company does not enter into derivative financial instruments for trading purposes.

 

Income Taxes

 

Significant judgment is required in determining the Company’s tax provision and in evaluating its tax positions.  The Company establishes accruals for certain tax contingencies when, despite the belief that the Company’s tax return positions are fully supported, the Company believes that certain positions may be challenged and that the Company’s positions may not be fully sustained.  The tax contingency accruals are adjusted in light of changing facts and circumstances, such as the progress of tax audits, case law and emerging legislation.  The Company’s tax provision includes the impact of tax contingency accruals and changes to the accruals, including related interest and penalties, as considered appropriate by management.

 

29



 

ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are exposed to market risks relating to fluctuations in interest rates.  Our objective of financial risk management is to minimize the negative impact of interest rate fluctuations on our earnings and cash flows.  Interest rate risk is managed through the use of a combination of fixed and variable interest debt as well as the periodic use of interest rate collar contracts.

 

The following information discusses the sensitivity to our earnings.  The range of changes chosen for this analysis reflects our view of changes which are reasonably possible over a one-year period.  These forward-looking disclosures are selective in nature and only address the potential impacts from financial instruments.  They do not include other potential effects which could impact our business as a result of these interest rate fluctuations.

 

Interest Rate Sensitivity Analysis

 

At March 31, 2012, we had debt totaling $335.0 million, net of $5.7 million in original issue discount, comprised of $15.1 million of variable rate debt, and $319.9 million of fixed rate debt.  Holding other variables constant (such as debt levels), the earnings and cash flow impact of a one-percentage point increase/ decrease in interest rates would have an unfavorable/ favorable impact approximately $0.2 million.

 

Credit Risk

 

We are exposed to credit risk on accounts receivable.  We provide credit to customers in the ordinary course of business and perform ongoing credit evaluations.  Concentrations of credit risk with respect to trade receivables are limited due to the number of customers comprising our customer base.  We currently believe our allowance for doubtful accounts is sufficient to cover customer credit risks.

 

ITEM 4: CONTROLS AND PROCEDURES

 

Managements’ Report on Internal Control over Financial Reporting

 

Within 90 days prior to the filing of this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Regulation 13a-15e under the Securities Exchange Act of 1934, as amended.  Based upon that evaluation, the President and Chief Executive Officer along with the Executive Vice President and Chief Financial Officer concluded that the disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the periodic SEC filings.  Management determined that, as of March 31, 2012, there have been no significant changes in the Company’s internal control over financial reporting or in other factors that could significantly affect these controls subsequent to the date the Company carried out its evaluation.

 

30



 

PART II:  OTHER INFORMATION

 

ITEM 5:  OTHER INFORMATION

 

None

 

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SIGNATURES:

 

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

 

 

 

GOOD SAM ENTERPRISES, LLC

 

(fka Affinity Group, LLC)

 

 

 

 

 

/s/ Thomas F. Wolfe

Date: May 14, 2012

Thomas F. Wolfe

 

Executive Vice President and

 

Chief Financial Officer

 

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