10-Q 1 a12-16372_110q.htm 10-Q

 

 

 

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

June 30, 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

 

August 14, 2012

Membership Units

 

2,000

 

DOCUMENTS INCORPORATED BY REFERENCE:  None

 

 

 



 

GOOD SAM ENTERPRISES, LLC AND SUBSIDIARIES

 

INDEX

 

 

 

Page

 

 

 

Part I. Financial Information

 

 

 

 

 

Item 1: Financial Statements

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011

 

1

 

 

 

Unaudited Consolidated Statements of Operations for the three months ended June 30, 2012 and 2011

 

2

 

 

 

Unaudited Consolidated Statements of Operations for the six months ended June 30, 2012 and 2011

 

3

 

 

 

Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011

 

4

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

5

 

 

 

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20

 

 

 

Item 3: Quantitative and Qualitative Disclosures about Market Risk

 

37

 

 

 

Item 4: Controls and Procedures

 

37

 

 

 

Part II. Other Information

 

38

 

 

 

Signatures

 

39

 



 

GOOD SAM ENTERPRISES, LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

June 30, 2012 and December 31, 2011

(In thousands except shares and par value)

 

 

 

6/30/2012

 

12/31/2011

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

14,968

 

$

20,275

 

Accounts receivable, less allowance for doubtful accounts of $2,692 in 2012 and $2,086 in 2011

 

30,770

 

32,972

 

Note from affiliate

 

3,116

 

3,117

 

Inventories

 

79,464

 

56,558

 

Prepaid expenses and other assets

 

15,117

 

11,792

 

Total current assets

 

143,435

 

124,714

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net

 

24,908

 

22,563

 

AFFILIATE NOTES AND INVESTMENTS

 

4,831

 

4,587

 

INTANGIBLE ASSETS, net

 

11,956

 

14,715

 

GOODWILL

 

49,944

 

49,944

 

OTHER ASSETS

 

6,223

 

6,440

 

Total assets

 

$

241,297

 

$

222,963

 

 

 

 

 

 

 

LIABILITIES AND MEMBER’S DEFICIT

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

34,549

 

$

18,050

 

Accrued interest

 

3,913

 

3,989

 

Accrued income taxes

 

2,374

 

2,263

 

Accrued liabilities

 

24,536

 

27,519

 

Deferred revenues and gains

 

53,922

 

54,870

 

Current portion of long-term debt

 

6,901

 

12,422

 

Total current liabilities

 

126,195

 

119,113

 

 

 

 

 

 

 

DEFERRED REVENUES AND GAINS

 

31,516

 

30,979

 

LONG-TERM DEBT, net of current portion

 

330,395

 

325,028

 

OTHER LONG-TERM LIABILITIES

 

855

 

1,639

 

 

 

488,961

 

476,759

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

MEMBER’S DEFICIT:

 

 

 

 

 

Membership units, 2,000 units issued and outstanding

 

1

 

1

 

Member contributions

 

75,000

 

74,000

 

Accumulated deficit

 

(322,665

)

(327,797

)

Total member’s deficit

 

(247,664

)

(253,796

)

Total liabilities and member’s deficit

 

$

241,297

 

$

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

 

 

 

6/30/2012

 

6/30/2011

 

REVENUES:

 

 

 

 

 

Membership services

 

$

41,766

 

$

39,067

 

Media

 

5,625

 

7,373

 

Retail

 

98,943

 

82,650

 

 

 

146,334

 

129,090

 

 

 

 

 

 

 

COSTS APPLICABLE TO REVENUES:

 

 

 

 

 

Membership services

 

24,291

 

21,993

 

Media

 

4,229

 

6,339

 

Retail

 

60,184

 

48,231

 

 

 

88,704

 

76,563

 

 

 

 

 

 

 

GROSS PROFIT

 

57,630

 

52,527

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

Selling, general and administrative

 

38,107

 

33,022

 

Depreciation and amortization

 

3,356

 

4,003

 

 

 

41,463

 

37,025

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

16,167

 

15,502

 

 

 

 

 

 

 

NON-OPERATING ITEMS:

 

 

 

 

 

Interest income

 

218

 

125

 

Interest expense

 

(11,143

)

(11,328

)

Gain on derivative instrument

 

1,199

 

632

 

Gain on sale of assets or businesses

 

744

 

275

 

Other non-operating items, net

 

 

10

 

 

 

(8,982

)

(10,286

)

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

7,185

 

5,216

 

 

 

 

 

 

 

INCOME TAX EXPENSE

 

(7

)

(26

)

 

 

 

 

 

 

NET INCOME

 

$

7,178

 

$

5,190

 

 

See notes to consolidated financial statements.

 

2



 

GOOD SAM ENTERPRISES, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands)

(Unaudited)

 

 

 

SIX MONTHS ENDED

 

 

 

6/30/2012

 

6/30/2011

 

REVENUES:

 

 

 

 

 

Membership services

 

$

78,968

 

$

74,301

 

Media

 

17,439

 

22,759

 

Retail

 

159,985

 

136,597

 

 

 

256,392

 

233,657

 

 

 

 

 

 

 

COSTS APPLICABLE TO REVENUES:

 

 

 

 

 

Membership services

 

44,058

 

41,634

 

Media

 

12,646

 

18,188

 

Retail

 

97,446

 

79,622

 

 

 

154,150

 

139,444

 

 

 

 

 

 

 

GROSS PROFIT

 

102,242

 

94,213

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

Selling, general and administrative

 

69,200

 

62,899

 

Financing (gain) expense

 

 

(19

)

Depreciation and amortization

 

6,832

 

8,225

 

 

 

76,032

 

71,105

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

26,210

 

23,108

 

 

 

 

 

 

 

NON-OPERATING ITEMS:

 

 

 

 

 

Interest income

 

436

 

250

 

Interest expense

 

(22,361

)

(22,626

)

Gain on derivative instrument

 

2,189

 

1,478

 

Loss on debt restructure

 

(440

)

 

Gain on sale of assets or businesses

 

1,259

 

497

 

Other non-operating items, net

 

 

10

 

 

 

(18,917

)

(20,391

)

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

7,293

 

2,717

 

 

 

 

 

 

 

INCOME TAX EXPENSE

 

(111

)

(120

)

 

 

 

 

 

 

NET INCOME

 

$

7,182

 

$

2,597

 

 

See notes to consolidated financial statements.

 

3



 

GOOD SAM ENTERPRISES, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 

 

 

SIX MONTHS ENDED

 

 

 

6/30/2012

 

6/30/2011

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

7,182

 

$

2,597

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation

 

4,010

 

4,762

 

Amortization

 

2,822

 

3,463

 

Gain on derivative instrument

 

(2,189

)

(1,478

)

Loss on debt restructure

 

440

 

 

Provision for losses on accounts receivable

 

692

 

620

 

Gain on sale of assets or businesses

 

(1,259

)

(497

)

Accretion of original issue discount

 

462

 

418

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

1,710

 

2,617

 

Inventories

 

(22,906

)

(10,619

)

Prepaid expenses and other assets

 

(3,114

)

(4,108

)

Accounts payable

 

16,499

 

7,693

 

Accrued and other liabilities

 

(1,543

)

(1,383

)

Deferred revenues and gains

 

(58

)

2,953

 

Net cash provided by operating activities

 

2,748

 

7,038

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(6,406

)

(2,743

)

Net proceeds from sale of assets or businesses

 

763

 

208

 

Cash paid on loans to affiliate

 

(243

)

(109

)

Net cash used in investing activities

 

(5,886

)

(2,644

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Dividends paid

 

(2,050

)

 

Contribution from parent

 

1,000

 

 

Borrowings on debt

 

9,666

 

11,172

 

Payment of debt issue costs

 

(297

)

(507

)

Principal payments on debt

 

(10,488

)

(10,872

)

Net cash used in financing activities

 

(2,169

)

(207

)

 

 

 

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

(5,307

)

4,187

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

20,275

 

15,363

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

14,968

 

$

19,550

 

 

See notes to consolidated financial statements.

 

4



 

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 (“GSE”), 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 the statement of member’s deficit.  As a result of this new standard, OCI and its

 

5



 

(2) RECENT ACCOUNTING PRONOUNCEMENTS (continued)

 

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.  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 internet.  The Company evaluates performance based on profit or loss from operations before income taxes and unusual items.  Segment profit as presented herein excludes intercompany fees by which interest expense attributable to the Senior Secured Notes is allocated to such segments as management evaluates its lines of business performance before such allocation and this interest expense is evaluated on a consolidated level.

 

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.

 

6



 

(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 JUNE 30, 2012

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

41,766

 

$

5,625

 

$

98,943

 

$

146,334

 

Depreciation and amortization

 

162

 

771

 

1,594

 

2,527

 

Gain (loss) on sale of assets or businesses

 

 

770

 

(26

)

744

 

Interest income

 

658

 

1

 

 

659

 

Interest expense

 

 

 

648

 

648

 

Segment profit

 

14,692

 

630

 

5,582

 

20,904

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED JUNE 30, 2011

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

39,067

 

$

7,373

 

$

82,650

 

$

129,090

 

Depreciation and amortization

 

321

 

952

 

2,069

 

3,342

 

Gain on sale of assets of businesses

 

5

 

270

 

 

275

 

Interest income

 

727

 

2

 

 

729

 

Interest expense

 

 

 

594

 

594

 

Segment profit (loss)

 

15,032

 

(601

)

5,485

 

19,916

 

 

 

 

 

 

 

 

 

 

 

SIX MONTHS ENDED JUNE 30, 2012

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

78,968

 

$

17,439

 

$

159,985

 

$

256,392

 

Depreciation and amortization

 

352

 

1,567

 

3,437

 

5,356

 

Gain (loss) on sale of assets or businesses

 

529

 

772

 

(42

)

1,259

 

Interest income

 

1,333

 

3

 

 

1,336

 

Interest expense

 

 

 

1,253

 

1,253

 

Segment profit (loss)

 

30,666

 

2,449

 

2,672

 

35,787

 

 

 

 

 

 

 

 

 

 

 

SIX MONTHS ENDED JUNE 30, 2011

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

74,301

 

$

22,759

 

$

136,597

 

$

233,657

 

Depreciation and amortization

 

746

 

1,933

 

4,248

 

6,927

 

Gain (loss) on sale of assets or businesses

 

5

 

520

 

(28

)

497

 

Interest income

 

1,471

 

2

 

 

1,473

 

Interest expense

 

 

1

 

1,179

 

1,180

 

Segment profit

 

29,117

 

1,152

 

2,196

 

32,465

 

 

7



 

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

 

The following is a reconciliation of operating profit for reportable segments to the Company’s consolidated income before taxes for the three and six months ended June 30, 2012 and 2011 (in thousands):

 

 

 

THREE MONTHS ENDED

 

SIX MONTHS ENDED

 

 

 

6/30/2012

 

6/30/2011

 

6/30/2012

 

6/30/2011

 

 

 

 

 

 

 

 

 

 

 

Income Before Income Taxes

 

 

 

 

 

 

 

 

 

Total operating profit for reportable segments

 

$

20,904

 

$

19,916

 

$

35,787

 

$

32,465

 

Unallocated G & A expense

 

(3,153

)

(3,333

)

(6,759

)

(7,278

)

Unallocated depreciation and amortization expense

 

(829

)

(661

)

(1,476

)

(1,298

)

Unallocated gain on derivative instrument

 

1,199

 

632

 

2,189

 

1,478

 

Unallocated financing charges

 

 

 

 

19

 

Unallocated loss on debt extinguishment

 

 

 

 

(440

)

 

Elimination of intercompany interest income

 

(441

)

(604

)

(900

)

(1,223

)

Unallocated interest expense, net of intercompany elimination

 

(10,495

)

(10,734

)

(21,108

)

(21,446

)

Income before income taxes

 

$

7,185

 

$

5,216

 

$

7,293

 

$

2,717

 

 

The following is a reconciliation of assets of reportable segments to the Company’s consolidated total assets as of June 30, 2012 and December 31, 2011 (in thousands):

 

 

 

6/30/2012

 

12/31/2011

 

Membership services segment

 

$

269,921

 

$

268,944

 

Media segment

 

11,708

 

16,695

 

Retail segment

 

112,521

 

92,117

 

Total assets for reportable segments

 

394,150

 

377,756

 

Intangible assets not allocated to segments

 

9,854

 

10,881

 

Corporate unallocated assets

 

9,984

 

8,602

 

Elimination of intersegment receivable

 

(172,691

)

(174,276

)

Total assets

 

$

241,297

 

$

222,963

 

 

(4) STATEMENTS OF CASH FLOWS

 

Supplemental disclosures of cash flow information for the six months ended June 30 (in thousands):

 

 

 

2012

 

2011

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

21,975

 

$

22,335

 

Taxes

 

32

 

 

 

8



 

(4) STATEMENTS OF CASH FLOWS (continued)

 

For the six months ended June 30, 2012, the Company recorded an adjustment to the fair value of the interest rate swap resulting in a $2.2 million decrease in Accrued Liabilities and in the Statement of Operations as a non-cash gain on derivative instruments of $2.2 million.  For the six months ended June 30, 2011, the Company recorded an adjustment to the fair value of the interest rate swap resulting in a $1.5 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 $1.5 million.

 

In June 2012, the Company completed the sale of various home and garden shows for approximately $0.6 million, resulting in a gain of $0.7 million.  Included in the sale was $0.1 million of prepaid deposits related to the home and garden shows.

 

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 unearned membership fees.

 

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.

 

(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.

 

9



 

(5) GOODWILL AND INTANGIBLE ASSETS (continued)

 

Finite-lived intangible assets, related accumulated amortization and weighted average useful life consisted of the following at June 30, 2012 (in thousands, except as noted):

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Average Useful

 

 

 

Accumulated

 

 

 

 

 

Life (in years)

 

Gross

 

Amortization

 

Net

 

 

 

 

 

 

 

 

 

 

 

Membership and customer lists

 

6

 

$

31,910

 

$

(30,587

)

$

1,323

 

Non-compete and deferred consulting agreements

 

 

18,275

 

(18,275

)

 

Deferred financing costs

 

6

 

15,104

 

(4,768

)

10,336

 

 

 

 

 

$

65,289

 

$

(53,630

)

$

11,659

 

 

Indefinite-lived intangible assets totaling $0.3 million at June 30, 2012 consisted of the internet domain names of purchased at various times during the quarter.

 

(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 “Senior Subordinated 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 June 30, 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 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

 

10



 

(6) DEBT (continued)

 

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.  On July 31, 2012, the Company completed an excess cash flow offer to purchase up to $4,950,000 in principal amount of the Senior Secured Notes.  The amount of Senior Secured Notes tendered was $4,000.  These Senior Secured Notes were purchased by the Company and retired on August 7, 2012.

 

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

 

11



 

(6) DEBT (continued)

 

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 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 Senior Subordinated 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%.  On July 23, 2012, Camping World amended the CW Credit Facility to provide that capital expenditures may be incurred in excess of $5,000,000 if during such fiscal year (a) the holders of Camping World’s Equity Interest make a cash common equity contribution to Camping World in an amount at least equal to such excess, or (b) the Camping World or their Subsidiaries receive proceeds from asset sales (other than inventory sold in the ordinary course of business) in an amount at least equal to such excess.

 

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 June 30, 2012, the average interest rate on the CW Credit Facility was 3.489%.  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

 

12



 

(6) DEBT (continued)

 

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 June 30, 2012, $17.2 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 dividends subject to certain limitations and minimum operating covenants.  The Company was in compliance with all debt covenants at June 30, 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.

 

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 as of and for the six months ended June 30, 2012 (in thousands).

 

 

 

 

 

 

 

NON-

 

 

 

GSE

 

 

 

GSE

 

GUARANTORS

 

GUARANTOR

 

ELIMINATIONS

 

CONSOLIDATED

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash & cash equivalents

 

$

9,532

 

$

5,436

 

$

 

$

 

$

14,968

 

Accounts receivable - net of allowance for doubtful accounts

 

11,106

 

192,355

 

 

 

(172,691

)

30,770

 

Inventories

 

 

79,464

 

 

 

79,464

 

Other current assets

 

4,471

 

13,762

 

 

 

18,233

 

Total current assets

 

25,109

 

291,017

 

 

(172,691

)

143,435

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

3,513

 

21,395

 

 

 

24,908

 

Intangible assets

 

9,854

 

2,102

 

 

 

11,956

 

Goodwill

 

49,944

 

 

 

 

49,944

 

Investment in subsidiaries

 

774,368

 

 

 

(774,368

)

 

Affiliate note and investments

 

40,000

 

4,831

 

 

(40,000

)

4,831

 

Other assets

 

3,870

 

2,353

 

 

 

6,223

 

Total assets

 

$

906,658

 

$

321,698

 

$

 

$

(987,059

)

$

241,297

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,100

 

$

32,449

 

$

 

$

 

$

34,549

 

Accrued and other liabilities

 

11,071

 

19,752

 

 

 

30,823

 

Current portion of long-term debt

 

177,695

 

41,897

 

 

(212,691

)

6,901

 

Current portion of deferred revenue

 

564

 

53,358

 

 

 

53,922

 

Total current liabilities

 

191,430

 

147,456

 

 

 

(212,691

)

126,195

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

1,983

 

29,533

 

 

 

31,516

 

Long-term debt

 

315,112

 

15,283

 

 

 

330,395

 

Other long-term liabilities

 

645,797

 

(644,942

)

 

 

855

 

Total liabilities

 

1,154,322

 

(452,670

)

 

 

(212,691

)

488,961

 

 

 

 

 

 

 

 

 

 

 

 

 

Interdivisional equity

 

 

774,368

 

 

(774,368

)

 

Member’s deficit

 

(247,664

)

 

 

 

(247,664

)

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities & member’s deficit

 

$

906,658

 

$

321,698

 

$

 

$

(987,059

)

$

241,297

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

5,202

 

$

255,644

 

$

 

$

(4,454

)

$

256,392

 

Costs applicable to revenues

 

(6,712

)

(151,892

)

 

4,454

 

(154,150

)

Operating expenses

 

(8,338

)

(67,694

)

 

 

(76,032

)

Interest expense, net

 

(22,008

)

83

 

 

 

(21,925

)

Income from investment in consolidated subsidiaries

 

25,144

 

 

 

(25,144

)

 

Other non operating income (expenses)

 

14,005

 

(10,997

)

 

 

3,008

 

Income tax expense

 

(111

)

 

 

 

(111

)

Net income

 

$

7,182

 

$

25,144

 

$

 

$

(25,144

)

$

7,182

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operations

 

$

(28,176

)

$

30,924

 

$

 

$

 

$

2,748

 

Cash flows provided by (used in) investing activities

 

(1,094

)

(4,792

)

 

 

(5,886

)

Cash flows provided by (used in) financing activities

 

31,053

 

(33,222

)

 

 

(2,169

)

Cash at beginning of year

 

7,749

 

12,526

 

 

 

20,275

 

Cash at end of period

 

$

9,532

 

$

5,436

 

$

 

$

 

$

14,968

 

 

14



 

(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 June 30, 2012 (in thousands).

 

 

 

 

 

 

 

NON-

 

 

 

GSE

 

 

 

GSE

 

GUARANTORS

 

GUARANTOR

 

ELIMINATIONS

 

CONSOLIDATED

 

Revenue

 

$

2,271

 

$

146,005

 

$

 

$

(1,942

)

$

146,334

 

Costs applicable to revenues

 

(2,861

)

(87,785

)

 

1,942

 

(88,704

)

Operating expenses

 

(4,034

)

(37,429

)

 

 

(41,463

)

Interest expense, net

 

(10,936

)

11

 

 

 

(10,925

)

Income from investment in consolidated subsidiaries

 

15,419

 

 

 

(15,419

)

 

Other non operating income (expenses)

 

7,326

 

(5,383

)

 

 

1,943

 

Income tax expense

 

(7

)

 

 

 

(7

)

Net income

 

$

7,178

 

$

15,419

 

$

 

$

(15,419

)

$

7,178

 

 

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

 

 

15



 

(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 six months ended June 30, 2011 (in thousands).

 

 

 

 

 

 

 

NON-

 

 

 

GSE

 

 

 

GSE

 

GUARANTORS

 

GUARANTOR

 

ELIMINATIONS

 

CONSOLIDATED

 

Revenue

 

$

2,613

 

$

231,044

 

$

 

$

 

$

233,657

 

Costs applicable to revenues

 

(3,887

)

(135,557

)

 

 

(139,444

)

Operating expenses

 

(7,797

)

(63,308

)

 

 

(71,105

)

Interest expense, net

 

(22,669

)

293

 

 

 

(22,376

)

Income from investment in consolidated subsidiaries

 

30,422

 

 

 

(30,422

)

 

Other non operating income (expenses)

 

4,035

 

(2,050

)

 

 

1,985

 

Income tax expense

 

(120

)

 

 

 

(120

)

Net income

 

$

2,597

 

$

30,422

 

$

 

$

(30,422

)

$

2,597

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operations

 

$

(25,369

)

$

32,407

 

$

 

$

 

$

7,038

 

Cash flows provided by (used in) investing activities

 

(89

)

(2,555

)

 

 

(2,644

)

Cash flows provided (used in) by financing activities

 

35,401

 

(35,608

)

 

 

(207

)

Cash at beginning of year

 

2,071

 

13,292

 

 

 

15,363

 

Cash at end of period

 

$

12,014

 

$

7,536

 

$

 

$

 

$

19,550

 

 

The following are summarized statements setting forth certain financial information concerning the Guarantor Subsidiaries for the three months ended June 30, 2011 (in thousands).

 

 

 

 

 

 

 

NON-

 

 

 

GSE

 

 

 

GSE

 

GUARANTORS

 

GUARANTOR

 

ELIMINATIONS

 

CONSOLIDATED

 

Revenue

 

$

1,218

 

$

127,872

 

$

 

$

 

$

129,090

 

Costs applicable to revenues

 

(1,862

)

(74,701

)

 

 

(76,563

)

Operating expenses

 

(3,974

)

(33,051

)

 

 

(37,025

)

Interest expense, net

 

(11,338

)

135

 

 

 

(11,203

)

Income from investment in consolidated subsidiaries

 

19,294

 

 

 

(19,294

)

 

Other non operating income (expenses)

 

1,878

 

(961

)

 

 

917

 

Income tax expense

 

(26

)

 

 

 

(26

)

Net income

 

$

5,190

 

$

19,294

 

$

 

$

(19,294

)

$

5,190

 

 

(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

 

16



 

(8) INTEREST RATE SWAP AGREEMENTS (continued)

 

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 (0.466% at June 30, 2012 based upon the April 30, 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 (0.466% at June 30, 2012 based upon the April 30, 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 interest rate swap was effective beginning April 30, 2008 and expires on October 31, 2012.  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 fair value of the swap contracts is included in Accrued Liabilities, and totaled $1.7 million and $3.9 million as of June 30, 2012 and December 31, 2011, respectively.

 

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

 

6/30/2012

 

12/31/2011

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

Accrued liabilities

 

$

(1,682

)

$

(3,871

)

 

17



 

(8) INTEREST RATE SWAP AGREEMENTS (continued)

 

The following is the location and amount of gains and losses on derivative instruments in the statement of operations for the six months ended June 30, 2012 and 2011 (in thousands):

 

 

 

Interest Rate Swap Agreements

 

 

 

6/30/2012

 

6/30/2011

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

Amount of Gain recognized in income on Statement of Operations

 

$

2,189

 

$

1,478

 

Location of Gain recognized in Statement of Operations

 

Gain on derivative instrument

 

 

(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, 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 June 30, 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.

 

18



 

(9) FAIR VALUE MEASUREMENTS (continued)

 

The Company’s liability at June 30, 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 June 30, 2012:

 

 

 

 

 

 

 

 

 

Interest Rate Swap Contracts

 

$

(1,682

)

$

 

$

(1,682

)

$

 

 

 

 

 

 

 

 

 

 

 

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.

 

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):

 

 

 

6/30/2012

 

12/31/2011

 

 

 

Carrying Value

 

Fair Value

 

Carrying Value

 

Fair Value

 

Senior Secured Notes

 

$

320,116

 

$

339,008

 

$

326,944

 

$

326,340

 

CW Credit Facility

 

17,180

 

17,180

 

10,506

 

10,506

 

 

(10) SUBSEQUENT EVENTS

 

The Company has completed an evaluation of all subsequent events through the filing date and concluded, that except as disclosed below, no other subsequent events have occurred that would require recognition in the Company’s Consolidated Financial Statements or disclosed in the Notes to the Consolidated Financial Statements.

 

On July 31, 2012, the Company completed an excess cash flow offer to purchase up to $4,950,000 in principal amount of the Senior Secured Notes.  The amount of Senior Secured Notes tendered was $4,000.  These Senior Secured Notes were purchased by the Company and retired on August 7, 2012.

 

19



 

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

 

 

 

6/30/2012

 

6/30/2011

 

Inc/(Dec)

 

 

 

 

 

 

 

 

 

REVENUES:

 

 

 

 

 

 

 

Membership services

 

28.5

%

30.3

%

6.9

%

Media

 

3.9

%

5.7

%

(23.7

)%

Retail

 

67.6

%

64.0

%

19.7

%

 

 

100.0

%

100.0

%

13.4

%

 

 

 

 

 

 

 

 

COSTS APPLICABLE TO REVENUES:

 

 

 

 

 

 

 

Membership services

 

16.6

%

17.0

%

10.4

%

Media

 

2.9

%

4.9

%

(33.3

)%

Retail

 

41.1

%

37.4

%

24.8

%

 

 

60.6

%

59.3

%

15.9

%

 

 

 

 

 

 

 

 

GROSS PROFIT

 

39.4

%

40.7

%

9.7

%

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

Selling, general and administrative

 

26.1

%

25.6

%

15.4

%

Depreciation and amortization

 

2.3

%

3.1

%

(16.2

)%

 

 

28.4

%

28.7

%

12.0

%

 

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

11.0

%

12.0

%

4.3

%

 

 

 

 

 

 

 

 

NON-OPERATING ITEMS:

 

 

 

 

 

 

 

Interest income

 

0.2

%

0.1

%

74.4

%

Interest expense

 

(7.6

)%

(8.8

)%

(1.6

)%

Gain on derivative instrument

 

0.8

%

0.5

%

89.7

%

Gain on sale of assets or businesses

 

0.5

%

0.2

%

170.5

%

Other non-operating items, net

 

 

 

(100.0

)%

 

 

(6.1

)%

(8.0

)%

(12.7

)%

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

4.9

%

4.0

%

37.7

%

 

 

 

 

 

 

 

 

INCOME TAX EXPENSE

 

 

 

(73.1

)%

 

 

 

 

 

 

 

 

NET INCOME

 

4.9

%

4.0

%

38.3

%

 

20



 

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:

 

 

 

SIX MONTHS ENDED

 

 

 

6/30/2012

 

6/30/2011

 

Inc/(Dec)

 

 

 

 

 

 

 

 

 

REVENUES:

 

 

 

 

 

 

 

Membership services

 

30.8

%

31.8

%

6.3

%

Media

 

6.8

%

9.7

%

(23.4

)%

Retail

 

62.4

%

58.5

%

17.1

%

 

 

100.0

%

100.0

%

9.7

%

 

 

 

 

 

 

 

 

COSTS APPLICABLE TO REVENUES:

 

 

 

 

 

 

 

Membership services

 

17.2

%

17.8

%

5.8

%

Media

 

4.9

%

7.8

%

(30.5

)%

Retail

 

38.0

%

34.1

%

22.4

%

 

 

60.1

%

59.7

%

10.5

%

 

 

 

 

 

 

 

 

GROSS PROFIT

 

39.9

%

40.3

%

8.5

%

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

Selling, general and administrative

 

27.0

%

26.9

%

10.0

%

Financing expense

 

 

 

100.0

%

Depreciation and amortization

 

2.7

%

3.5

%

(16.9

)%