Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2017

Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Camping World Holdings, Inc. (“CWH”) and its subsidiaries (collectively, the “Company”), and are presented in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for fair presentation of the results of operations, financial position and cash flows for the periods presented have been reflected. All significant intercompany accounts and transactions of the Company and its subsidiaries have been eliminated in consolidation.

The condensed consolidated financial statements as of and for the three and nine months ended September 30, 2017 are unaudited. The condensed consolidated balance sheet as of December 31, 2016 has been derived from the audited financial statements at that date but does not include all of the disclosures required by GAAP. These interim condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (the “Annual Report”) filed with the SEC on March 13, 2017. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year.

CWH was formed on March 8, 2016 as a Delaware corporation for the purpose of facilitating an initial public offering (the “IPO”) and other related transactions in order to carry on the business of CWGS Enterprises, LLC (“CWGS, LLC”). CWGS, LLC was formed in March 2011 when it received, through contribution from its then parent company, all of the membership interests of Affinity Group Holding, LLC and FreedomRoads Holding Company, LLC (“FreedomRoads”). The IPO and related reorganization transactions (the “Reorganization Transactions”) that occurred on October 6, 2016 resulted in CWH as the sole managing member of CWGS, LLC, with CWH having sole voting power in and control of the management of CWGS, LLC. Despite its position as sole managing member of CWGS, LLC, CWH has a minority economic interest in CWGS, LLC. As of September 30, 2017, CWH owned 34.1% of CWGS, LLC. Accordingly, the Company consolidates the financial results of CWGS, LLC and reports a non-controlling interest in its consolidated financial statements. As the Reorganization Transactions are considered transactions between entities under common control, the financial statements for the periods prior to the IPO and related Reorganization Transactions have been adjusted to combine the previously separate entities for presentation purposes.

The Company does not have any components of other comprehensive income recorded within its consolidated financial statements, and, therefore, does not separately present a statement of comprehensive income in its consolidated financial statements.

Description of the Business

CWGS, LLC is a holding company and operates through its subsidiaries. The operations of the Company consist of two primary businesses: (i) Consumer Services and Plans, and (ii) Retail. The Company provides consumer services and plans offerings through its Good Sam brand and the Company primarily provides its retail offerings through its Camping World brand. Within the Consumer Services and Plans segment, the Company primarily derives revenue from the sale of the following offerings: emergency roadside assistance; property and casualty insurance programs; travel assist programs; extended vehicle service contracts; co-branded credit cards; vehicle financing and refinancing; club memberships; and publications and directories. Within the Retail segment, the Company primarily derives revenues from the sale of the following products: new and used recreational vehicles (“RV”); parts and service, including RV accessories and supplies; camping, hunting, fishing, skiing, snowboarding, bicycling, skateboarding, marine and watersport equipment and supplies; and finance and insurance. The Company primarily operates in various regions throughout the United States and markets its products and services to RV owners and outdoor enthusiasts. At September 30, 2017, the Company operated 137 Camping World retail locations, of which 121 locations sell new and used RVs, and offer financing, ancillary services, protection plans, and other products for the RV purchaser and outdoor enthusiasts; two Overton’s locations offering marine and watersports products; two TheHouse.com locations offering skiing, snowboarding, bicycling, and skateboarding products; and one W82 location offering skiing, snowboarding, and skateboarding products.

Restatements of Previously Issued Financial Statements

Following the purchase of newly-issued common units from CWGS, LLC in connection with the IPO, the Company’s deferred tax balances have reflected the differences in the book and tax basis of its investment in CWGS, LLC (i.e., outside basis) (the “Outside Basis Deferred Tax Asset”). In connection with preparing its financial statements for the year ended December 31, 2017, the Company determined that a portion of the Outside Basis Deferred Tax Asset related to its acquisition of the direct interest in CWGS, LLC through newly issued LLC units is not expected to be realized unless the Company were to dispose of its investment in CWGS, LLC, which the Company has no current plan to do. Accordingly, the Company has determined that it should have established a valuation allowance of $102.7 million against this portion of its Outside Basis Deferred Tax Asset that was recorded through equity as of December 31, 2016. Following the establishment of the valuation allowance as of December 31, 2016, the Company recognizes subsequent changes to the valuation allowance through the provision for income taxes or equity, in accordance with generally accepted accounting principles, and at September 30, 2017 the valuation allowance was $140.8 million.

Because the Company’s consolidated financial statements as of and for the year ended December 31, 2016 included the Outside Basis Deferred Tax Asset, the Company has restated its consolidated financial statements as of and for the year ended December 31, 2016 to reflect a valuation allowance against the portion of the deferred tax asset related to the outside basis difference of $102.7 million. Accordingly, the Company has restated its condensed consolidated financial statements and related notes (including Notes 11 and 17) as of and for the three and nine months ended September 30, 2017 to reflect the effect of this 2016 adjustment on the subsequent periods (the “Restatement”). There was no impact on net income or cash flows for the related periods affected by the Restatement.

The Company also corrected for errors that were immaterial to previously-reported consolidated financial statements. These errors were identified in connection with the preparation of the financial statements for the year ended December 31, 2017, and related to i) the lack of deferral of a portion of Good Sam roadside assistance policies sold through the finance and insurance process with the sale of new and used vehicles, ii) the application of a portion of certain vendor rebates against the related inventory balances, iii) the elimination of intercompany allocation of certain revenue from new and used vehicles to consumer services and plans, and iv) the allocation of the intercompany markup between costs applicable to new and used vehicles. To quantify these errors, management performed an analysis of deferred roadside assistance policies and vendor rebates applicable to ending inventory for the years ended December 31, 2016, 2015, 2014, and 2013 and the interim periods in 2017 and 2016. The Company evaluated the materiality of these errors both qualitatively and quantitatively in accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108 and, determined the effect of these corrections was not material to the previously issued financial statements as of and for the years ended December 31, 2016 and 2015. As a result of also correcting these errors, new vehicles revenue, used vehicles revenue, finance and insurance, net revenue, costs applicable to revenue – new vehicles, costs applicable to revenue – used vehicles, all within the retail segment, and net income attributable to non-controlling interests and earnings per share, basic and diluted have been revised (the “Immaterial Adjustments”). There was no effect on any per share amounts prior to the quarter ended December 31, 2016 as such periods were before the Company’s IPO, see Note 16 — Earnings Per Share.

The following table presents the effect of the Restatement and the Immaterial Adjustments on the Company’s condensed consolidated balance sheets for the periods indicated.


	As of September 30, 2017						As of December 31, 2016
($ in thousands)	As Reported		Adjustment		As Corrected		As Reported		Adjustment		As Corrected
Inventories	$	1,204,138	$	(6,455)	$	1,197,683	$	909,254	$	(6,543)	$	902,711
Total current assets		1,548,247		(6,455)		1,541,792		1,132,705		(6,543)		1,126,162
Deferred tax asset		262,433		(138,645)		123,788		125,878		(101,445)		24,433
Total assets		2,378,479		(145,100)		2,233,379		1,563,765		(107,988)		1,455,777
Deferred revenues and gains, current portion		78,934		2,788		81,722		68,643		2,485		71,128
Total current liabilities		1,204,499		2,788		1,207,287		865,937		2,485		868,422
Deferred revenues and gains, long-term portion		56,782		6,768		63,550		52,210		5,449		57,659
Total liabilities		2,119,535		9,556		2,129,091		1,591,980		7,934		1,599,914
Additional paid-in capital		157,031		(143,109)		13,922		74,239		(104,245)		(30,006)
Retained earnings		35,655		(1,003)		34,652		544		(473)		71
Total stockholders' equity (deficit) attributable to Camping World Holdings, Inc.		192,994		(144,112)		48,882		74,978		(104,718)		(29,740)
Non-controlling interest		65,950		(10,544)		55,406		(103,193)		(11,204)		(114,397)
Stockholders' equity (deficit)		258,944		(154,656)		104,288		(28,215)		(115,922)		(144,137)
Total liabilities and stockholders' equity (deficit)		2,378,479		(145,100)		2,233,379		1,563,765		(107,988)		1,455,777

The following table presents the effect of the Immaterial Adjustments on the Company’s condensed consolidated statements of operations for the periods indicated.


	Three Months Ended September 30, 2017						Three Months Ended September 30, 2016
($ in thousands)	As Reported		Adjustment		As Corrected		As Reported		Adjustment		As Corrected
Revenue:
New vehicles	$	715,182	$	(1,820)	$	713,362	$	545,154	$	(1,169)	$	543,985
Used vehicles		188,331		(868)		187,463		181,675		(703)		180,972
Finance and insurance, net		101,570		(712)		100,858		67,710		(395)		67,315
Retail segment revenues		1,192,833		(3,400)		1,189,433		945,629		(2,267)		943,362
Total revenue		1,239,002		(3,400)		1,235,602		991,071		(2,267)		988,804
Costs applicable to revenue- new vehicles		614,624		(3,263)		611,361		471,140		(2,801)		468,339
Costs applicable to revenue- used vehicles		138,796		1,315		140,111		138,637		703		139,340
Retail segment costs applicable to revenue		862,250		(1,948)		860,302		690,882		(2,098)		688,784
Total costs applicable to revenue		882,335		(1,948)		880,387		710,835		(2,098)		708,737
Income from operations		112,116		(1,452)		110,664		87,741		(169)		87,572
Income before income taxes		93,594		(1,452)		92,142		70,704		(169)		70,535
Income tax expense		(8,336)		(54)		(8,390)		(2,288)		—		(2,288)
Net income		85,258		(1,506)		83,752		68,416		(169)		68,247
Net income attributable to non-controlling interests		(65,131)		968		(64,163)		—		—		—
Net income attributable to Camping World Holdings, Inc.		20,127		(538)		19,589		68,416		(169)		68,247
Earnings per share of Class A common stock:
Basic	$	0.68	$	(0.02)	$	0.66
Diluted	$	0.68	$	(0.02)	$	0.66


	Nine Months Ended September 30, 2017						Nine Months Ended September 30, 2016
($ in thousands)	As Reported		Adjustment		As Corrected		As Reported		Adjustment		As Corrected
Revenue:
New vehicles	$	1,982,644	$	(5,172)	$	1,977,472	$	1,532,919	$	(3,350)	$	1,529,569
Used vehicles		531,324		(2,427)		528,897		576,964		(2,098)		574,866
Finance and insurance, net		268,829		(1,622)		267,207		188,607		(1,132)		187,475
Retail segment revenues		3,260,966		(9,221)		3,251,745		2,720,806		(6,580)		2,714,226
Total revenue		3,405,484		(9,221)		3,396,263		2,856,674		(6,580)		2,850,094
Costs applicable to revenue- new vehicles		1,703,622		(11,190)		1,692,432		1,317,147		(8,394)		1,308,753
Costs applicable to revenue- used vehicles		393,436		3,503		396,939		454,659		1,885		456,544
Retail segment costs applicable to revenue		2,362,434		(7,687)		2,354,747		1,995,587		(6,509)		1,989,078
Total costs applicable to revenue		2,424,226		(7,687)		2,416,539		2,054,658		(6,509)		2,048,149
Income from operations		318,623		(1,534)		317,089		247,133		(71)		247,062
Income before income taxes		268,268		(1,534)		266,734		194,240		(71)		194,169
Income tax expense		(28,247)		(19)		(28,266)		(4,638)		—		(4,638)
Net income		240,021		(1,553)		238,468		189,602		(71)		189,531
Net income attributable to non-controlling interests		(193,036)		1,023		(192,013)		—		—		—
Net income attributable to Camping World Holdings, Inc.		46,985		(530)		46,455		189,602		(71)		189,531
Earnings per share of Class A common stock:
Basic	$	1.97	$	(0.02)	$	1.95
Diluted	$	1.92	$	(0.01)	$	1.91

While the error corrections did not have an impact on cash provided by or used in operating, investing, or financing activities, the applicable line items on the above tables within cash provided by operating activities on the consolidated statements of cash flows have been appropriately revised for the periods presented. The impact of these error corrections to relevant segment financial information is presented in Note 17 to these unaudited condensed consolidated financial statements.

Use of Estimates

The preparation of these unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. The Company bases its estimates and judgments on historical experience and other assumptions that management believes are reasonable. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ materially from these estimates. The Company periodically evaluates estimates and assumptions used in the preparation of the financial statements and makes changes on a prospective basis when adjustments are necessary. Significant estimates made in the accompanying unaudited condensed consolidated financial statements include certain assumptions related to accounts receivable, inventory, goodwill, intangible assets, long lived assets, assets held for sale, program cancellation reserves, and accruals related to self-insurance programs, estimated tax liabilities and other liabilities.

Recently Adopted Accounting Pronouncements and Recently Issued Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”). The amendments in the accounting standard replace the lower of cost or market test with a lower of cost and net realizable value test. The amendments in this ASU should be applied prospectively and are effective for interim and annual periods beginning after December 15, 2016. The Company adopted the amendments of this ASU as of January 1, 2017 and the adoption did not materially impact its consolidated financial statements or results of operations.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). This ASU amends guidance on the classification and measurement of financial instruments. Although ASU 2016-01 retains many current requirements, it significantly revises an entity’s accounting related to investments in equity securities, excluding those accounted for under the equity method of accounting or those that result in the consolidation of the investee. The guidance also amends certain disclosure requirements associated with the fair value of financial instruments. One of the amendments eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. The standard will be effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company early adopted the amendments of this ASU as of January 1, 2017, which eliminated the disclosure requirements discussed above, and the adoption did not materially impact its consolidated financial statements or results of operations.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, a consensus of the FASB Emerging Issues Task Force (“ASU 2016-18”). The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this ASU do not provide a definition of restricted cash or restricted cash equivalents. The standard will be effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company early adopted the amendments of this ASU as of January 1, 2017 and the adoption did not materially impact its consolidated financial statements or results of operations.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). This ASU clarifies the definition of a business to exclude gross assets acquired (or disposed of) that have substantially all of their fair value concentrated in a single identifiable asset or group of similar identifiable assets. The ASU also updates the definition of the term “output” to be consistent with Accounting Standards Codification (“ASC”) Topic No. 606. The ASU is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. The Company early adopted the amendments of this ASU as of January 1, 2017 and the adoption did not materially impact its consolidated financial statements or results of operations.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). This ASU eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and must be applied prospectively. The Company early adopted the amendments of this ASU as of January 1, 2017 and the adoption did not materially impact its consolidated financial statements or results of operations.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The FASB has subsequently issued several related ASUs that clarified the implementation guidance for certain aspects of ASU 2014-09, which are effective upon the adoption of ASU 2014-09. This ASU sets forth a five-step model for determining when and how revenue is recognized. Under the model, an entity will be required to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. The amendments in this accounting standard update are effective for interim and annual reporting periods beginning after December 15, 2017. The standard can be adopted either retrospectively to each reporting period presented or as a cumulative effect adjustment as of the date of adoption. To assess the impact of the ASU, the Company established an internal implementation team to review its current accounting policies and practices, identify all material revenue streams, assess the impact of the ASU on its material revenue streams and identify potential differences with current policies and practices. The Company’s internal implementation team is in the process of performing its initial review of the likely impacts that the application of the amendments in this ASU will have on its consolidated financial statements. The team has identified the Company’s material revenue streams to be the sale of new and used vehicles; the sale of parts, RV accessories, and supplies; the performance of vehicle maintenance and repair services; the arrangement of associated vehicle financing; the sale of insurance and emergency roadside assistance contracts; and the sale of club memberships. The team has continued to review a sample of associated contracts and other related documents, but currently, has not quantified and estimated impact of changes, if any, to its current revenue recognition policies and practices. The Company’s implementation team is continuing to evaluate the additional disclosure requirements of the ASU, as well as the change, if any, to the Company’s underlying accounting and financial reporting systems and processes necessary to support the recognition and disclosure requirements. The Company expects to identify and implement the necessary changes, if any, during 2017. The Company currently expects to adopt the amendments of this ASU as of January 1, 2018, as a cumulative effect adjustment as of the date of adoption, but will not make a final decision on the adoption method until later in 2017.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The amendments in this ASU relate to the accounting for leasing transactions. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than 12 months. In addition, this standard requires both lessees and lessors to disclose certain key information about lease transactions. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is in the process of evaluating the impact that adoption will have on its consolidated balance sheet and statement of income. However, the Company expects that the adoption of the provisions of the ASU will have a significant impact on its consolidated balance sheet, as currently most of its real estate is leased via operating leases. Adoption of this ASU is required to be done using a modified retrospective approach.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The amendment addresses several specific cash flow issues with the objective of reducing the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard will be effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of the provisions of the ASU will have on its consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). The amendments in ASU 2017-09 require entities to apply modification accounting in Topic 718 only when changes to the terms or conditions of a share-based payment award result in changes to fair value, vesting conditions or the classification of the award as equity or liability. The standard will be effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The guidance will be applied prospectively upon adoption. The Company does not expect the adoption will have a material impact on its consolidated financial statements or results of operations; however, the amount of the impact to equity-based compensation expense will depend on the terms specified in any new changes to the equity-based payment awards, if any. The Company plans to adopt this ASU on October 1, 2017.