10-Q 1 a11-25990_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

September 30, 2011

 

333-173290

 


 

GOOD SAM ENTERPRISES, LLC

(fka Affinity Group, LLC)

(Exact name of registrant as specified in its charter)

 

Delaware

 

13-3377709

(State of incorporation or organization)

 

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

 

 

 

2575 Vista Del Mar Drive

 

(805) 667-4100

Ventura, CA 93001

 

(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

 

November 10, 2011

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 September 30, 2011 (unaudited) and December 31, 2010

 

1

 

 

 

Unaudited Consolidated Statements of Operations for the three months ended September 30, 2011 and 2010

 

2

 

 

 

Unaudited Consolidated Statements of Operations for the nine months ended September 30, 2011 and 2010

 

3

 

 

 

Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010

 

4

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

5

 

 

 

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

 

21

 

 

 

Item 3:  Quantitative and Qualitative Disclosures about Market Risk

 

38

 

 

 

Item 4:  Controls and Procedures

 

39

 

 

 

Part II.  Other Information

 

39

 

 

 

Signatures

 

40

 



 

GOOD SAM ENTERPRISES, LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30, 2011 and December 31, 2010

(In thousands except shares and par value)

 

 

 

 

9/30/2011

 

12/31/2010

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

25,725

 

$

15,363

 

Accounts receivable, less allowance for doubtful accounts of $2,657 in 2011 and $3,770 in 2010

 

28,217

 

30,215

 

Inventories

 

59,290

 

52,673

 

Prepaid expenses and other assets

 

19,562

 

14,594

 

Total current assets

 

132,794

 

112,845

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net

 

23,422

 

27,231

 

AFFILIATE NOTES AND INVESTMENTS

 

4,464

 

4,508

 

INTANGIBLE ASSETS, net

 

16,328

 

20,852

 

GOODWILL

 

49,944

 

49,944

 

OTHER ASSETS

 

7,017

 

6,638

 

Total assets

 

$

233,969

 

$

222,018

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDER’S OR MEMBER’S DEFICIT

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

18,100

 

$

11,041

 

Accrued interest

 

13,619

 

4,148

 

Accrued income taxes

 

1,969

 

1,712

 

Accrued liabilities

 

26,705

 

28,604

 

Deferred revenues and gains

 

65,530

 

56,589

 

Current portion of long-term debt

 

12,500

 

107

 

Total current liabilities

 

138,423

 

102,201

 

 

 

 

 

 

 

DEFERRED REVENUES AND GAINS

 

32,365

 

33,800

 

LONG-TERM DEBT, net of current portion

 

314,220

 

332,124

 

OTHER LONG-TERM LIABILITIES

 

2,088

 

6,066

 

 

 

487,096

 

474,191

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDER’S OR MEMBER’S DEFICIT:

 

 

 

 

 

Membership units, 2,000 units issued and outstanding

 

1

 

 

Common stock, $.001 par value, 2,000 shares authorized, 2,000 shares issued and outstanding

 

 

1

 

Stockholder or member contributions

 

73,030

 

73,030

 

Accumulated deficit

 

(326,158

)

(325,204

)

Total stockholder’s or member’s deficit

 

(253,127

)

(252,173

)

Total liabilities and stockholder’s or member’s deficit

 

$

233,969

 

$

222,018

 

 

See notes to consolidated financial statements.

 

1



 

GOOD SAM ENTERPRISES, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands)

(Unaudited)

 

 

 

 

THREE MONTHS ENDED

 

 

 

9/30/2011

 

9/30/2010

 

REVENUES:

 

 

 

 

 

Membership services

 

$

39,151

 

$

38,010

 

Media

 

7,288

 

7,395

 

Retail

 

82,166

 

79,235

 

 

 

128,605

 

124,640

 

 

 

 

 

 

 

COSTS APPLICABLE TO REVENUES:

 

 

 

 

 

Membership services

 

22,852

 

24,413

 

Media

 

6,029

 

5,851

 

Retail

 

48,934

 

45,831

 

 

 

77,815

 

76,095

 

 

 

 

 

 

 

GROSS PROFIT

 

50,790

 

48,545

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

Selling, general and administrative

 

34,559

 

31,835

 

Financing expense

 

 

248

 

Depreciation and amortization

 

4,210

 

4,705

 

 

 

38,769

 

36,788

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

12,021

 

11,757

 

 

 

 

 

 

 

NON-OPERATING ITEMS:

 

 

 

 

 

Interest income

 

124

 

124

 

Interest expense

 

(11,321

)

(9,895

)

Gain (loss) on derivative instrument

 

1,198

 

(178

)

Gain (loss) on sale of assets

 

(7

)

1

 

Other non-operating items, net

 

7

 

7

 

 

 

(9,999

)

(9,941

)

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

2,022

 

1,816

 

 

 

 

 

 

 

INCOME TAX EXPENSE

 

(43

)

(57

)

 

 

 

 

 

 

NET INCOME

 

$

1,979

 

$

1,759

 

 

See notes to consolidated financial statements.

 

2



 

GOOD SAM ENTERPRISES, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands)

(Unaudited)

 

 

 

NINE MONTHS ENDED

 

 

 

9/30/2011

 

9/30/2010

 

REVENUES:

 

 

 

 

 

Membership services

 

$

113,452

 

$

113,745

 

Media

 

30,047

 

30,087

 

Retail

 

218,763

 

217,824

 

 

 

362,262

 

361,656

 

 

 

 

 

 

 

COSTS APPLICABLE TO REVENUES:

 

 

 

 

 

Membership services

 

64,486

 

67,706

 

Media

 

24,217

 

23,459

 

Retail

 

128,556

 

127,907

 

 

 

217,259

 

219,072

 

 

 

 

 

 

 

GROSS PROFIT

 

145,003

 

142,584

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

Selling, general and administrative

 

97,458

 

97,601

 

Financing (gain) expense

 

(19

)

7,578

 

Depreciation and amortization

 

12,435

 

14,149

 

 

 

109,874

 

119,328

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

35,129

 

23,256

 

 

 

 

 

 

 

NON-OPERATING ITEMS:

 

 

 

 

 

Interest income

 

374

 

374

 

Interest expense

 

(33,947

)

(28,950

)

Gain (loss) on derivative instrument

 

2,676

 

(698

)

Gain on sale of assets

 

490

 

24

 

Other non-operating items, net

 

17

 

6

 

 

 

(30,390

)

(29,244

)

 

 

 

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

 

4,739

 

(5,988

)

 

 

 

 

 

 

INCOME TAX EXPENSE

 

(163

)

(259

)

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

4,576

 

$

(6,247

)

 

See notes to consolidated financial statements.

 

3



 

GOOD SAM ENTERPRISES, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 

 

 

NINE MONTHS ENDED

 

 

 

9/30/2011

 

9/30/2010

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income (loss)

 

$

4,576

 

$

(6,247

)

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

 

 

 

 

 

Depreciation

 

7,288

 

8,413

 

Amortization

 

5,147

 

5,736

 

(Gain) loss on derivative instrument

 

(2,676

)

698

 

Loss on debt restructure

 

 

279

 

Provision for losses on accounts receivable

 

829

 

1,266

 

Deferred compensation

 

 

3,874

 

Gain on sale of assets

 

(490

)

(24

)

Accretion of original issue discount

 

637

 

931

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(6,852

)

(3,748

)

Inventories

 

(6,617

)

(11,804

)

Prepaid expenses and other assets

 

(6,189

)

(4,798

)

Accounts payable

 

7,059

 

(2,706

)

Accrued and other liabilities

 

14,657

 

(1,230

)

Deferred revenues and gains

 

8,589

 

5,664

 

Net cash provided by (used in) operating activities

 

25,958

 

(3,696

)

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(3,514

)

(3,097

)

Net proceeds from sale of assets

 

208

 

659

 

Cash paid on loans to affiliate

 

44

 

39

 

Net cash used in investing activities

 

(3,262

)

(2,399

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Dividends paid

 

(5,530

)

(2,400

)

Release of restricted cash

 

 

8,058

 

Borrowings on debt

 

11,172

 

153,801

 

Payment of debt issue costs

 

(695

)

(4,375

)

Principal payments on debt

 

(17,281

)

(146,883

)

Net cash (used in) provided by financing activities

 

(12,334

)

8,201

 

 

 

 

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

10,362

 

2,106

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

15,363

 

8,640

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

25,725

 

$

10,746

 

 

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, 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.  On May 2, 2011, Affinity Group, LLC changed its name to Good Sam Enterprises, LLC by filing a Certificate of Amendment to its Certificate of Organization with the Secretary of State of Delaware.

 

These interim consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2010 and notes included in the Company’s Form S-4 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

 

In January 2011, the Company was required to adopt a newly issued accounting standard which requires additional disclosure requiring an entity to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than a single amount.  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 cash flows.

 

In January 2011, the Company was required to adopt a newly issued accounting standard which requires the Company to perform step 2 of the goodwill impairment test if a reporting unit has a carrying amount equal to or less than zero and there are qualitative factors that indicate it is more likely than not that a goodwill impairment exists.  The adoption of the newly issued accounting standard did not impact our financial position, results of operations or cash flows.

 

In June 2011, a new accounting standard was issued that 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 stockholder’s or member’s deficit.  As a result of this new standard, OCI and its components will be

 

5



 

(2) RECENT ACCOUNTING PRONOUNCEMENTS (continued)

 

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.  This new standard is required to be applied retrospectively beginning in 2012.

 

(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, the Camp Club USA and assorted membership products and services for recreational vehicles (“RV”) owners, campers and outdoor vacationers, and the Golf Card Club for golf enthusiasts.  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 the RV and powersports markets.  The Retail segment sells specialty retail merchandise and services for RV owners primarily through retail supercenters, mail order catalogs and internet sales.  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)

 

Financial information by reportable business segment is summarized as follows (in thousands):

 

 

 

Membership

 

 

 

 

 

 

 

 

 

Services

 

Media

 

Retail

 

Consolidated

 

THREE MONTHS ENDED SEPTEMBER 30, 2011

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

39,151

 

$

7,288

 

$

82,166

 

$

128,605

 

Depreciation and amortization

 

276

 

924

 

2,001

 

3,201

 

Loss on sale of property and equipment

 

(7

)

 

 

(7

)

Interest income

 

710

 

1

 

 

711

 

Interest expense

 

 

 

524

 

524

 

Segment operating profit (loss)

 

14,307

 

(381

)

3,191

 

17,117

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED SEPTEMBER 30, 2010

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

38,010

 

7,395

 

79,235

 

124,640

 

Depreciation and amortization

 

604

 

1,010

 

2,400

 

4,014

 

Gain on sale of property and equipment

 

 

4

 

 

4

 

Interest income

 

776

 

 

 

776

 

Interest expense

 

 

3

 

655

 

658

 

Segment operating profit (loss)

 

11,361

 

(487

)

5,907

 

16,781

 

 

 

 

 

 

 

 

 

 

 

NINE MONTHS ENDED SEPTEMBER 30, 2011

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

113,452

 

30,047

 

218,763

 

362,262

 

Depreciation and amortization

 

1,022

 

2,857

 

6,249

 

10,128

 

Gain (loss) on sale of property and equipment

 

(2

)

520

 

(28

)

490

 

Interest income

 

2,181

 

3

 

 

2,184

 

Interest expense

 

 

1

 

1,703

 

1,704

 

Segment operating profit

 

43,424

 

771

 

5,387

 

49,582

 

 

 

 

 

 

 

 

 

 

 

NINE MONTHS ENDED SEPTEMBER 30, 2010

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

113,745

 

30,087

 

217,824

 

361,656

 

Depreciation and amortization

 

1,722

 

2,901

 

7,020

 

11,643

 

Gain on sale of property and equipment

 

 

4

 

23

 

27

 

Interest income

 

2,371

 

 

 

2,371

 

Interest expense

 

 

(5

)

1,773

 

1,768

 

Segment operating profit

 

40,382

 

455

 

5,810

 

46,647

 

 

7



 

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

 

The following is a reconciliation of profit from operations to the Company’s consolidated financial statements for the three and nine months ended September 30, 2011 and 2010 (in thousands):

 

 

 

THREE MONTHS ENDED

 

NINE MONTHS ENDED

 

 

 

9/30/2011

 

9/30/2010

 

9/30/2011

 

9/30/2010

 

 

 

 

 

 

 

 

 

 

 

Income (loss) Before Income Taxes

 

 

 

 

 

 

 

 

 

Total operating profit for reportable segments

 

$

17,117

 

$

16,781

 

$

49,582

 

$

46,647

 

Unallocated G & A expense

 

(3,900

)

(3,959

)

(11,178

)

(13,099

)

Unallocated depreciation and amortization expense

 

(1,009

)

(691

)

(2,307

)

(2,506

)

Unallocated gain (loss) on derivative instrument

 

1,198

 

(178

)

2,676

 

(698

)

Unallocated financing charges

 

 

(248

)

19

 

(6,874

)

Unallocated gain on debt restructure

 

 

 

 

(279

)

Elimination of intercompany interest income

 

(587

)

(652

)

(1,810

)

(1,997

)

Unallocated interest expense, net of intercompany elimination

 

(10,797

)

(9,237

)

(32,243

)

(27,182

)

Income (loss) before income taxes

 

$

2,022

 

$

1,816

 

$

4,739

 

$

(5,988

)

 

The following is a reconciliation of assets of reportable segments to the Company’s consolidated financial statements as of September 30, 2011 and December 31, 2010 (in thousands):

 

 

 

9/30/2011

 

12/31/2010

 

Membership services segment

 

$

264,998

 

$

252,080

 

Media segment

 

18,359

 

20,904

 

Retail segment

 

91,346

 

90,753

 

Total assets for reportable segments

 

374,703

 

363,737

 

Intangible assets not allocated to segments

 

11,415

 

12,409

 

Corporate unallocated assets

 

6,196

 

6,415

 

Elimination of intersegment receivable

 

(158,345

)

(160,543

)

Total assets

 

$

233,969

 

$

222,018

 

 

(4) STATEMENTS OF CASH FLOWS

 

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

 

 

 

2011

 

2010

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

23,839

 

$

29,697

 

Income taxes

 

177

 

 

 

For the nine months ended September 30, 2011, the Company recorded an adjustment to the fair value of the interest rate swap resulting in a $2.7 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 $2.7 million.

 

8



 

(4) STATEMENTS OF CASH FLOWS (continued)

 

For the nine months ended September 30, 2010, the Company recorded an adjustment to the fair value of the interest rate swap resulting in an $0.8 million increase in Other Long-Term Liabilities and a $0.1 million increase in Other Comprehensive Loss and a $0.7 million non-cash loss in the statement of operations for the ineffective portion.

 

In June 2010, the Company recorded an adjustment of $0.1 million to the current portion of Long-term Debt, related to the Powerboat Magazine acquisition in May 2005, to write-off the remaining contingency to amortization expense as the contingency was resolved and resulted in no final payment.

 

(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.

 

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 the goodwill impairment 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, economic conditions, or changes to the Company’s business operations.  Such changes may result in impairment charges recorded in future periods.  Also see Note 9 — Fair Value Measurements.

 

9



 

(5) GOODWILL AND INTANGIBLE ASSETS (continued)

 

The following is a summary of changes in the Company’s goodwill by business segment, for the nine months ended September 30, 2011 and 2010 (in thousands):

 

 

 

Membership
Services

 

Media

 

Retail

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

Gross goodwill

 

$

56,030

 

$

46,884

 

$

47,601

 

$

150,515

 

Impairment prior to January 1, 2011

 

(6,086

)

(46,884

)

(47,601

)

(100,571

)

Balance as of January 1, 2011

 

49,944

 

 

 

49,944

 

Impairments

 

 

 

 

 

Balance as of September 30, 2011

 

$

49,944

 

$

 

$

 

$

49,944

 

 

 

 

 

 

 

 

 

 

 

Gross goodwill

 

$

56,030

 

$

46,884

 

$

47,601

 

$

150,515

 

Impairment prior to January 1, 2010

 

(6,086

)

(46,884

)

(47,601

)

(100,571

)

Balance as of January 1, 2010

 

49,944

 

 

 

49,944

 

Impairments

 

 

 

 

 

Balance as of September 30, 2010

 

$

49,944

 

$

 

$

 

$

49,944

 

 

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 September 30, 2011 (in thousands, except as noted):

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Average Useful

 

 

 

Accumulated

 

 

 

 

 

Life (in years)

 

Gross

 

Amortization

 

Net

 

 

 

 

 

 

 

 

 

 

 

Membership and customer lists

 

6

 

$

31,910

 

$

(28,577

)

$

3,333

 

Non-compete and deferred consulting agreements

 

15

 

18,275

 

(17,753

)

522

 

Deferred financing costs

 

6

 

15,396

 

(2,923

)

12,473

 

 

 

 

 

$

65,581

 

$

(49,253

)

$

16,328

 

 

(6) DEBT

 

Senior Secured Notes

 

On November 30, 2010, the Company issued $333.0 million of 11.5% senior secured notes due 2016 (the “Senior Secured Notes”) at an original issue discount of $6.9 million, or 2.1%.  Interest on the Senior Secured Notes is due each December 1 and June 1 commencing June 1, 2011.  The Senior Secured Notes mature on December 1, 2016.  Beginning with the calendar year ended December 31, 2011 and each six-month period thereafter, the Company is required to offer to redeem Senior Secured Notes at 101% of principal amount tendered for redemption in an aggregate amount of

 

10



 

(6) DEBT (continued)

 

the Excess Cash Flow Amount (as defined in the indenture governing the Senior Secured Notes (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 (as defined in the Senior Secured Notes Indenture).  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 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.  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 “AGI 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, AGHI, to enable AGHI, together with other funds contributed to the AGHI, 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 September 30, 2011, $326.7 million, net of $6.3 million unamortized original issue discount, of Senior Secured Notes remained 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 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 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 membership units, make certain investments, create liens, enter into transactions with affiliates, merge or consolidate, transfer or sell assets and make capital expenditures.

 

11



 

(6) DEBT (continued)

 

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 (defined below) 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 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. (“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.  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.

 

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 lenders under the CW Credit Facility and trustee under the Senior Secured Notes Indenture have entered into an intercreditor agreement that governs their rights in the collateral that is pledged to secure their respective loans.  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 September 30, 2011, $0 million of CW Credit Facility remains outstanding and $6.9 million of letters of credit were issued.

 

12



 

(6) DEBT (continued)

 

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 September 30, 2011.

 

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

 

In November 2010, the Company completed an offering of $333.0 million Senior Secured Notes due in 2016.  Interest is payable on the Senior Secured Notes twice a year on June 1 and December 1, beginning June 1, 2011.  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 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 nine months ended September 30, 2011 (in thousands).

 

 

 

 

 

 

 

NON-

 

 

 

GSE

 

 

 

GSE

 

GUARANTORS

 

GUARANTOR

 

ELIMINATIONS

 

CONSOLIDATED

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash & cash equivalents

 

$

17,140

 

$

8,585

 

$

 

$

 

$

25,725

 

Accounts receivable - net of allowance for doubtful accounts

 

9,457

 

177,105

 

 

 

(158,345

)

28,217

 

Inventories

 

 

59,290

 

 

 

59,290

 

Other current assets

 

2,262

 

17,300

 

 

 

19,562

 

Total current assets

 

28,859

 

262,280

 

 

(158,345

)

132,794

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

3,095

 

20,327

 

 

 

23,422

 

Intangible assets

 

11,415

 

4,913

 

 

 

16,328

 

Goodwill

 

49,944

 

 

 

 

49,944

 

Investment in subsidiaries

 

740,390

 

 

 

(740,390

)

 

Affiliate note and investments

 

40,000

 

4,464

 

 

(40,000

)

4,464

 

Other assets

 

4,376

 

2,641

 

 

 

7,017

 

Total assets

 

$

878,079

 

$

294,625

 

$

 

$

(938,735

)

$

233,969

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,234

 

$

15,866

 

$

 

$

 

$

18,100

 

Accrued and other liabilities

 

23,675

 

18,618

 

 

 

42,293

 

Current portion of long-term debt

 

170,845

 

40,000

 

 

(198,345

)

12,500

 

Current portion of deferred revenue

 

646

 

64,884

 

 

 

65,530

 

Total current liabilities

 

197,400

 

139,368

 

 

 

(198,345

)

138,423

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

2,076

 

30,289

 

 

 

32,365

 

Long-term debt

 

314,220

 

 

 

 

314,220

 

Other long-term liabilities

 

617,510

 

(615,422

)

 

 

2,088

 

Total liabilities

 

1,131,206

 

(445,765

)

 

 

(198,345

)

487,096

 

 

 

 

 

 

 

 

 

 

 

 

 

Interdivisional equity

 

 

740,390

 

 

(740,390

)

 

Member’s deficit

 

(253,127

)

 

 

 

(253,127

)

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities & member’s deficit

 

$

878,079

 

$

294,625

 

$

 

$

(938,735

)

$

233,969

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NON-

 

 

 

GSE

 

 

 

GSE

 

GUARANTORS

 

GUARANTOR

 

ELIMINATIONS

 

CONSOLIDATED

 

Revenue

 

$

5,571

 

$

356,691

 

$

 

$

 

$

362,262

 

Costs applicable to revenues

 

(7,156

)

(210,103

)

 

 

(217,259

)

Operating expenses

 

(12,576

)

(97,298

)

 

 

(109,874

)

Interest expense, net

 

(34,053

)

480

 

 

 

(33,573

)

Income from investment in consolidated subsidiaries

 

31,762

 

 

 

(31,762

)

 

Other non operating income (expenses)

 

21,186

 

(18,003

)

 

 

3,183

 

Income tax expense

 

(158

)

(5

)

 

 

(163

)

Net income

 

$

4,576

 

$

31,762

 

$

 

$

(31,762

)

$

4,576

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operations

 

$

(25,159

)

$

51,117

 

$

 

$

 

$

25,958

 

Cash flows provided by (used in) investing activities

 

(560

)

(2,702

)

 

 

(3,262

)

Cash flows provided by (used in) financing activities

 

40,788

 

(53,122

)

 

 

(12,334

)

Cash at beginning of year

 

2,071

 

13,292

 

 

 

15,363

 

Cash at end of period

 

$

17,140

 

$

8,585

 

$

 

$

 

$

25,725

 

 

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 September 30, 2011 (in thousands).

 

 

 

 

 

 

 

NON-

 

 

 

GSE

 

 

 

GSE

 

GUARANTORS

 

GUARANTOR

 

ELIMINATIONS

 

CONSOLIDATED

 

Revenue

 

$

2,958

 

$

125,647

 

$

 

$

 

$

128,605

 

Costs applicable to revenues

 

(3,269

)

(74,546

)

 

 

(77,815

)

Operating expenses

 

(4,779

)

(33,990

)

 

 

(38,769

)

Interest expense, net

 

(11,384

)

187

 

 

 

(11,197

)

Income from investment in consolidated subsidiaries

 

1,340

 

 

 

(1,340

)

 

Other non operating income (expenses)

 

17,151

 

(15,953

)

 

 

1,198

 

Income tax expense

 

(38

)

(5

)

 

 

(43

)

Net income

 

$

1,979

 

$

1,340

 

$

 

$

(1,340

)

$

1,979

 

 

The following are summarized balance sheet statements setting forth certain financial information concerning the Guarantor Subsidiaries as of December 31, 2010 (in thousands).

 

 

 

 

 

 

 

NON-

 

 

 

GSE

 

 

 

GSE

 

GUARANTORS

 

GUARANTOR

 

ELIMINATIONS

 

CONSOLIDATED

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash & cash equivalents

 

$

2,071

 

$

13,292

 

$

 

$

 

$

15,363

 

Accounts receivable- net of allowance

 

1,721

 

189,037

 

 

 

(160,543

)

30,215

 

Inventories

 

 

52,673

 

 

 

52,673

 

Other current assets

 

2,233

 

12,361

 

 

 

14,594

 

Total current assets

 

6,025

 

267,363

 

 

(160,543

)

112,845

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

3,375

 

23,856

 

 

 

27,231

 

Intangible assets

 

12,409

 

8,443

 

 

 

20,852

 

Goodwill

 

49,944

 

 

 

 

49,944

 

Investment in subsidiaries

 

711,298

 

 

 

(711,298

)

 

Affiliate note and investments

 

40,000

 

4,508

 

 

(40,000

)

4,508

 

Other assets

 

4,506

 

2,132

 

 

 

6,638

 

Total assets

 

$

827,557

 

$

306,302

 

$

 

$

(911,841

)

$

222,018

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,289

 

$

9,752

 

$

 

$

 

$

11,041

 

Accrued and other liabilities

 

14,170

 

20,294

 

 

 

34,464

 

Current portion of long-term debt

 

160,544

 

40,106

 

 

(200,543

)

107

 

Current portion of deferred revenue

 

507

 

56,082

 

 

 

56,589

 

Total current liabilities

 

176,510

 

126,234

 

 

 

(200,543

)

102,201

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

2,168

 

31,632

 

 

 

33,800

 

Long-term debt

 

326,083

 

6,041

 

 

 

332,124

 

Other long-term liabilities

 

574,969

 

(568,903

)

 

 

6,066

 

Total liabilities

 

1,079,730

 

(404,996

)

 

 

(200,543

)

474,191

 

 

 

 

 

 

 

 

 

 

 

 

 

Interdivisional equity

 

 

711,298

 

 

(711,298

)

 

Stockholders’ deficit

 

(252,173

)

 

 

 

(252,173

)

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities & stockholders’ deficit

 

$

827,557

 

$

306,302

 

$

 

$

(911,841

)

$

222,018

 

 

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 nine months ended September 30, 2010 (in thousands).

 

 

 

 

 

 

 

NON-

 

 

 

GSE

 

 

 

GSE

 

GUARANTORS

 

GUARANTOR

 

ELIMINATIONS

 

CONSOLIDATED

 

Revenue

 

$

3,258

 

$

358,398

 

$

 

$

 

$

361,656

 

Costs applicable to revenues

 

(7,507

)

(211,565

)

 

 

(219,072

)

Operating expenses

 

(22,432

)

(96,896

)

 

 

(119,328

)

Interest expense, net

 

(29,179

)

603

 

 

 

(28,576

)

Income from investment in consolidated subsidiaries

 

46,270

 

 

 

(46,270

)

 

Other non operating income (expenses)

 

3,517

 

(4,185

)

 

 

(668

)

Income tax expense

 

(174

)

(85

)

 

 

(259

)

Net income

 

$

(6,247

)

$

46,270

 

$

 

$

(46,270

)

$

(6,247

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operations

 

$

(45,904

)

$

42,208

 

$

 

$

 

$

(3,696

)

Cash flows provided by (used in) investing activities

 

(1,250

)

(1,149

)

 

 

(2,399

)

Cash flows provided (used in) by financing activities

 

56,670

 

(48,469

)

 

 

8,201

 

Cash at beginning of year

 

402

 

8,238

 

 

 

8,640

 

Cash at end of period

 

$

9,918

 

$

828

 

$

 

$

 

$

10,746

 

 

The following are summarized statements setting forth certain financial information concerning the Guarantor Subsidiaries for the three months ended September 30, 2010 (in thousands).

 

 

 

 

 

 

 

NON-

 

 

 

GSE

 

 

 

GSE

 

GUARANTORS

 

GUARANTOR

 

ELIMINATIONS

 

CONSOLIDATED

 

Revenue

 

$

2,333

 

$

122,307

 

$

 

$

 

$

124,640

 

Costs applicable to revenues

 

(3,540

)

(72,555

)

 

 

(76,095

)

Operating expenses

 

(5,251

)

(31,537

)

 

 

(36,788

)

Interest expense, net

 

(9,889

)

118

 

 

 

(9,771

)

Income from investment in consolidated subsidiaries

 

16,923

 

 

 

(16,923

)

 

Other non operating income (expenses)

 

1,213

 

(1,383

)

 

 

(170

)

Income tax expense

 

(30

)

(27

)

 

 

(57

)

Net income

 

$

1,759

 

$

16,923

 

$

 

$

(16,923

)

$

1,759

 

 

(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

 

16



 

(8) INTEREST RATE SWAP AGREEMENTS (continued)

 

trading purposes and is not a party to leveraged derivatives.  The Company recognizes all of its 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 (0.253% at September 30, 2011 based upon the July 31, 2011 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 (0.253% at September 30, 2011 based upon the July 31, 2011 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 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, and accordingly, the effective portion of gains and losses on the fair value of the interest rate swap agreements are reported in accumulated other comprehensive loss and reclassified to earnings in the same period in which the hedged interest payment affects earnings.

 

On June 11, 2009, the Company partially terminated the $35.0 million interest rate swap, subject to a partial termination fee of $0.6 million which was expensed.  The notional amount was reduced to $20.0 million.  All other terms of the interest rate swap agreement remained unchanged.  As a result, the amount included in other comprehensive income related to the $35.0 million interest rate swap was reduced prorata and included in earnings as a gain (loss) on derivative instrument.

 

Due to the issuance of fixed rate debt to replace the existing variable rate debt on November 30, 2010, the interest rate swaps no longer qualify as cash flow hedges as the underlying cash flows being hedged were no longer going to occur.  As a result, the net

 

17



 

(8) INTEREST RATE SWAP AGREEMENTS (continued)

 

loss on the fair value of the interest rate swap agreements included in other comprehensive loss of $6.5 million related to previously effective cash flow hedges as of November 30, 2010, was reclassified to earnings as gain (loss) on derivative instrument and all future changes in the fair value of the interest rate swaps will be included in earnings as gain (loss) on derivative instrument.

 

The following is the location and amounts of derivative instruments fair values in the statement of financial position segregated between designated, qualifying hedging instruments and those that are not segregated by assets and liabilities as required by accounting guidance.

 

Derivatives not designated

 

 

 

Fair Value as of:

 

as hedging instruments

 

Balance Sheet Location

 

9/30/2011

 

12/31/2010

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

Accrued liabilities

 

$

(4,702

)

$

(4,238

)

Interest rate swap contracts

 

Other long-term liabilities

 

(392

)

(3,532

)

 

The following is the location and amount of gains and losses on derivative instruments in the statement of operations for nine months ended September 30, 2011 and September 30, 2010 segregated between designated, qualifying hedging instruments and those that are not, and segregated by assets and liabilities as required by the accounting guidance for derivative instruments (in thousands):

 

 

 

Interest Rate Swap Agreements

 

 

 

9/30/2011

 

9/30/2010

 

Derivatives in Cash Flow Hedging Relationships:

 

 

 

 

 

Amount of gain or (loss) recognized in OCI on derivatives

 

$

 

$

(376

)

Location of gain (loss) recognized on derivatives

 

Other Comprehensive Loss

 

 

 

 

 

 

 

 

 

9/30/2011

 

9/30/2010

 

Amount of gain or (loss) reclassified from OCI into statement of operations (effective portion)

 

$

 

$

(281

)

Location of gain (loss) reclassified from accumulated OCI into statement of operations (effective portion)

 

Gain (loss) on derivative instrument

 

 

 

 

 

 

 

 

 

9/30/2011

 

9/30/2010

 

Amount of gain or (loss) recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)

 

$

 

$

(417

)

Location of gain (loss) recognized in statement of operations on derivatives (ineffective portion and amount excluded from effectiveness testing)

 

Gain (loss) on derivative instrument

 

 

 

 

 

 

 

 

 

9/30/2011

 

9/30/2010

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

Amount of gain (loss) recognized in the statement of operations

 

$

2,676

 

$

 

Location of gain (loss) recognized in statement of operations

 

Gain (loss) on derivative instrument

 

 

18



 

(8) INTEREST RATE SWAP AGREEMENTS (continued)

 

The fair value of these swaps included in accrued liabilities and other long-term liabilities was $5.1 million of which $0 is in accumulated other comprehensive loss and $5.1 million has been recorded in the statement of operations in aggregate periods through September 30, 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, 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 September 30, 2011, 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.

 

The Company’s liabilities at September 30, 2011 and December 31, 2010, measured at fair value on a recurring basis subject to the disclosure requirements of fair value measurements, were 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 September 30, 2011:

 

 

 

 

 

 

 

 

 

Interest Rate Swap Contracts

 

$

(5,094

)

$

 

$

(5,094

)

$

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2010:

 

 

 

 

 

 

 

 

 

Interest Rate Swap Contracts

 

(7,770

)

 

(7,770

)

 

 

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 remeasurements to fair value during the nine months ended September 30, 2011 and 2010 of assets and liabilities that are not measured at fair value on a recurring basis.

 

19



 

(9) FAIR VALUE MEASUREMENTS (continued)

 

The following table presents the reported carrying value, net of unamortized original issue discount, and fair value information for the Senior Secured Notes and the CW Credit Facility.  The fair values shown below for the Senior Secured Notes are based on quoted prices in the market for identical assets (Level 1), and the fair value shown for the CW Credit Facility are based on indirect observable inputs (Level 2) (in thousands):

 

 

 

9/30/2011

 

12/31/2010

 

 

 

Carrying Value

 

Fair Value

 

Carrying Value

 

Fair Value

 

Senior Secured Notes

 

$

326,720

 

$

311,355

 

$

326,083

 

$

327,173

 

CW Credit Facility

 

 

 

6,041

 

6,041

 

 

20



 

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

 

 

 

9/30/2011

 

9/30/2010

 

Inc/(Dec)

 

 

 

 

 

 

 

 

 

REVENUES:

 

 

 

 

 

 

 

Membership services

 

30.4

%

30.5

%

3.0

%

Media

 

5.7

%

5.9

%

(1.4

)%

Retail

 

63.9

%

63.6

%

3.7

%

 

 

100.0

%

100.0

%

3.2

%

 

 

 

 

 

 

 

 

COSTS APPLICABLE TO REVENUES:

 

 

 

 

 

 

 

Membership services

 

17.8

%

19.6

%

(6.4

)%

Media

 

4.7

%

4.7

%

3.0

%

Retail

 

38.0

%

36.8

%

6.8

%

 

 

60.5

%

61.1

%

2.3

%

 

 

 

 

 

 

 

 

GROSS PROFIT

 

39.5

%

38.9

%

4.6

%

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

Selling, general and administrative

 

26.9

%

25.5

%

8.6

%

Financing expense

 

 

0.2

%

(100.0

)%

Depreciation and amortization

 

3.3

%

3.8

%

(10.5

)%

 

 

30.2

%

29.5

%

5.4

%

 

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

9.3

%

9.4

%

2.2

%

 

 

 

 

 

 

 

 

NON-OPERATING ITEMS:

 

 

 

 

 

 

 

Interest income

 

0.1

%

0.1

%

 

Interest expense

 

(8.7

)%

(7.9

)%

14.4

%

Gain (loss) on derivative instrument

 

0.9

%

(0.1

)%

(773.0

)%

Gain on sale of assets

 

 

 

(275.0

)%

Other non-operating items, net

 

 

 

75.0

%

 

 

(7.7

)%

(7.9

)%

0.6

%

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

1.6

%

1.5

%

11.3

%

 

 

 

 

 

 

 

 

INCOME TAX EXPENSE

 

(0.1

)%

(0.1

)%

(24.6

)%

 

 

 

 

 

 

 

 

NET INCOME

 

1.5

%

1.4

%

12.5

%

 

21



 

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:

 

 

 

NINE MONTHS ENDED

 

 

 

9/30/2011

 

9/30/2010

 

Inc/(Dec)

 

 

 

 

 

 

 

 

 

REVENUES:

 

 

 

 

 

 

 

Membership services

 

31.3

%

31.5

%

(0.3

)%

Media

 

8.3

%

8.3

%

(0.1

)%

Retail

 

60.4

%

60.2

%

0.4

%

 

 

100.0

%

100.0

%

0.2

%

 

 

 

 

 

 

 

 

COSTS APPLICABLE TO REVENUES:

 

 

 

 

 

 

 

Membership services

 

17.8

%

18.7

%

(4.8

)%

Media

 

6.7

%

6.5

%

3.2

%

Retail

 

35.5

%

35.4

%

0.5

%

 

 

60.0

%

60.6

%

(0.8

)%

 

 

 

 

 

 

 

 

GROSS PROFIT

 

40.0

%

39.4

%

1.7

%

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

Selling, general and administrative

 

26.9

%

27.0

%

(0.1

)%

Financing expense

 

 

2.1

%

(100.3

)%

Depreciation and amortization

 

3.4

%

3.9

%

(12.1

)%

 

 

30.3

%

33.0

%

(7.9

)%

 

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

9.7

%

6.4

%

51.1

%

 

 

 

 

 

 

 

 

NON-OPERATING ITEMS:

 

 

 

 

 

 

 

Interest income

 

0.1

%

0.1

%

 

Interest expense

 

(9.4

)%

(8.0

)%

17.3

%

Gain (loss) on derivative instrument

 

0.7

%

(0.2

)%

(483.4

)%

Gain on sale of assets

 

0.2

%

 

1714.8

%

Other non-operating items, net

 

 

 

466.7

%

 

 

(8.4

)%

(8.1

)%

3.9

%

 

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

 

1.3

%

(1.7

)%

179.1

%

 

 

 

 

 

 

 

 

INCOME TAX EXPENSE

 

 

 

(37.1

)%

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

1.3

%

(1.7

)%

173.3

%

 

22



 

RESULTS OF OPERATIONS

 

Three Months Ended September 30, 2011

Compared With Three Months Ended September 30, 2010

 

Revenues

 

Revenues of $128.6 million for the third quarter of 2011 increased by $4.0 million, or 3.2%, from the comparable period in 2010.

 

Membership Services revenues of $39.2 million for the third quarter of 2011 increased $1.1 million, or 3.0%, from the comparable period in 2010.  This revenue increase was largely attributable to a $1.2 million increase in extended vehicle warranty program revenue due to a contract price increase, $0.9 million of license fees received from FreedomRoads Holding LLC (“FreedomRoads”) and a $0.2 million increase in emergency road service revenue,  partially offset by a $0.6 million decrease in membership services revenue primarily attributable to reduced advertising revenue in the Good Sam Club publication, a $0.4 million decrease in other ancillary product revenue and a $0.2 million reduction in dealer program marketing revenue.

 

Media revenues of $7.3 million for the third quarter of 2011 decreased $0.1 million, or 1.4%, from the comparable period in 2010.  This decrease was primarily attributable to the sale of three non-core publications in the second quarter partially offset by increased revenue from consumer shows and from book sales.

 

Retail revenues of $82.2 million for the third quarter of 2011 increased by $2.9 million, or 3.7%, from the comparable period in 2010.  Store merchandise sales decreased $1.2 million from the third quarter of 2010 due to a same store sales decrease of $1.5 million, or 2.5%, compared to a 1.8% decrease for the third quarter of 2010, and decreased revenue from discontinued stores of $0.5 million, were partially offset by a $0.8 million increase due to the opening of four new stores over the last twenty-one months.  Two stores were closed in the last twenty-one months in order to reduce fixed operating costs and to consolidate operations within the respective trade areas.  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 $4.0 million, supplies and other revenue increased $0.4 million, and installation and service fees decreased $0.3 million.

 

Costs Applicable to Revenues

 

Costs applicable to revenues totaled $77.8 million for the third quarter of 2011, an increase of $1.7 million, or 2.3%, from the comparable period in 2010.

 

Membership Services costs applicable to revenues of $22.9 million for the third quarter of 2011 decreased $1.6 million, or 6.4%, from the comparable period in 2010.  This decrease consisted of a $1.4 million decrease in emergency road service costs primarily due to lower average claims costs, a $0.6 million decrease in expenses primarily attributable to the Good Sam Club publication, a $0.4 million decrease in wage-related

 

23



 

costs, primarily the result of headcount reductions in the first and second quarter, and a $0.2 million reduction relating to reduced dealer program marketing  partially offset by a $0.6 million increase in extended vehicle warranty program costs relating to increased revenue from those programs, and a $0.4 million increase in member events costs.

 

Media costs applicable to revenues of $6.0 million for the third quarter of 2011 increased $0.2 million, or 3.0%, from the comparable period in 2010 primarily related to increased marketing associated with our book sales and increased consumer shows costs, both associated with increased revenue, partially offset by reduced expenses related to the sale of three non-core publications in the first six months of 2011.

 

Retail costs applicable to revenues for the third quarter of 2011 increased $3.1 million, or 6.8%, to $48.9 million.  The retail gross profit margin of 40.4% for the third quarter of 2011 decreased from 42.2% for the comparable period in 2010 due to incremental merchandise discounts and markdowns, and increased shipping and freight-in costs.

 

Operating Expenses

 

Selling, general and administrative expenses of $34.6 million for the third quarter of 2011 increased $2.7 million compared to the third quarter of 2010.  This increase was primarily due to $3.3 million increase in retail selling, general and administrative expenses, primarily related to increased advertising, selling, and rent expense, a $1.0 million reimbursement of legal expenses in 2010 relating to the collection of a 2000 judgment for such expenses that was a lien on real estate owned by the obligor, and $0.5 million of additional wage-related expenses, partially offset by a $2.1 million reduction in deferred executive compensation.

 

Financing expense of approximately $0.2 million was incurred in the third quarter of 2010 related to closing fees, legal and consulting costs associated with the 2010 Senior Credit Facility entered into on March 1, 2010.

 

Depreciation and amortization expense of $4.2 million decreased $0.5 million from the prior year primarily due to reduced capital expenditures in prior years.

 

Income from Operations

 

Income from operations for the third quarter of 2011 totaled $12.0 million compared to $11.8 million for the third quarter of 2010.  This increase of approximately $0.3 million from the third quarter of 2010 was primarily the result of the following favorable changes in the third quarter of 2011 compared to the third quarter of 2010: an increase in gross profit for the Membership Services segment of $2.7 million, and reduced financing expense of $0.2 million for the third quarter of 2011, that were partially offset by a $2.2 million increase in operating expenses for the third quarter of 2011, and a decrease in gross profit for the Media and Retail segment of $0.3 million and $0.1 million, respectively.

 

24



 

Non-Operating Items

 

Non-operating expenses of $10.0 million for the third quarter of 2011 increased $0.1 million compared to the third quarter of 2010 due to a $1.4 million increase in interest expense relating to higher interest rates on the Company’s debt, partially offset by a $1.3 million positive change in the loss/gain on derivative instrument related to the interest rate swap agreements.

 

Income before Income Tax

 

Income before income tax for the third quarter of 2011 was $2.0 million, compared to $1.8 million for the third quarter of 2010.  This $0.2 million favorable change was attributable to the $0.3 million increase in income from operations in the third quarter of 2011 only partially offset by the increase in non-operating items of approximately $0.1 million mentioned above.

 

Income Tax Expense

 

The Company recorded income tax expense of $43,000 for the third quarter of 2011, compared to $57,000 income tax expense for the third quarter of 2010.

 

Net Income

 

Net income in the third quarter of 2011 was $2.0 million compared to $1.8 million for the same period in 2010 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 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 $14.3 million for the third quarter of 2011 increased $2.9 million, or 25.9%, from the comparable period in 2010.  This increase was attributable to a $1.4 million increase in emergency road service segment profit, $0.9 of license fees paid by FreedomRoads and a $0.6 million increase in segment profit from the extended vehicle warranty programs.

 

25



 

Media segment loss of $0.4 million for the third quarter of 2011 was reduced by $0.1 million, or 21.8%, from a $0.5 million loss in the third quarter of 2010 due to increased segment profit of $0.3 million in the consumer shows group partially offset by decreased segment profit in the RV publication group of $0.2 million.

 

Retail segment profit of $3.2 million for the third quarter of 2011 decreased $2.7 million, or 46.0%, from the comparable period in 2010.  This decrease resulted from a $3.3 million increase in selling, general and administrative expenses, partially offset by a $0.4 million reduction in depreciation and amortization expense, a $0.1 million increase in gross profit, and a $0.1 million decrease in interest expense.

 

Nine Months Ended September 30, 2011

Compared With Nine Months Ended September 30, 2010

 

Revenues

 

Revenues of $362.3 million for the first nine months of 2011 increased by $0.6 million, or 0.2%, from the comparable period in 2010.

 

Membership Services revenues of $113.5 million for the first nine months of 2011 decreased $0.3 million, or 0.3%, from the comparable period in 2010.  This revenue decrease was largely attributable to a $3.1 million decrease in vehicle insurance program revenue primarily from the $2.5 million fee received in the first nine months of 2010 as a result of waiving our right of first refusal regarding the sale of the third party provider of vehicle insurance, a $1.1 million reduction in membership services revenue primarily attributable to a membership reduction in the Good Sam Club, Coast Club and Golf Card Club, a $1.0 million reduction in dealer program marketing revenue, a $0.3 million reduction in emergency road service revenue and a $0.3 million reduction in member events revenue, partially offset by a $2.8 million increase in license fees received from FreedomRoads, and a $2.7 million increase in extended vehicle warranty program revenue, resulting from an increase in the average price per contract.

 

Media revenues of $30.0 million for the first nine months of 2011 remained unchanged from the comparable period in 2010.  Revenue increases from corporate sponsorships, and increased book and annual directory sales were offset by the sale of three publications in the first six months of 2011 and two fewer issues published in the motorcycle group.

 

Retail revenues of $218.8 million for the first nine months of 2011 increased $0.9 million, or 0.4%, from the comparable period in 2010.  Store merchandise sales decreased $4.1 million from the first nine months of 2010 due to a same store sales decrease of $4.8 million, or 2.9%, compared to a 1.5% increase in same store sales for the first nine months of 2010, and decreased revenue from discontinued stores of $1.3 million were partially offset by a $2.0 million increase due to the opening of four new stores over the last twenty-one months.  Two stores were closed in the last twenty-one months in order

 

26



 

to reduce fixed operating costs and to consolidate operations within the respective trade areas.  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 $4.3 million, and supplies and other revenues increased $0.7 million.

 

Costs Applicable to Revenues

 

Costs applicable to revenues totaled $217.3 million for the first nine months of 2011, a decrease of $1.8 million, or 0.8%, from the comparable period in 2010.

 

Membership Services costs applicable to revenues of $64.5 million for the first nine months of 2011 decreased $3.2 million, or 4.8%, from the comparable period in 2010.  This decrease consisted of a $3.7 million decrease in emergency road service costs primarily due to lower average claims costs, a $0.9 million reduction relating to reduced dealer program marketing, a $0.5 million decrease in overhead costs, and a $0.2 million reduction in other ancillary product costs, partially offset by a $1.3 million increase in extended vehicle warranty program costs relating to increased revenue from those programs, $0.4 million of severance expense, and a $0.4 million increase in membership services costs relating to increased selling and fulfillment in the President’s Club.

 

Media costs applicable to revenues of $24.2 million for the first nine months of 2011 increased $0.8 million, or 3.2%, from the comparable period in 2010 primarily due to $0.7 million of incremental promotional costs associated with the book division, $0.4 million of severance costs primarily associated with the sale of various publications, and $0.3 million of incremental annual directory costs, partially offset by a $0.6 million reduction in publication costs, resulting from the sale of various publications in the second quarter.

 

Retail costs applicable to revenues increased $0.6 million, or 0.5%, to $128.6 million for the first nine months of 2011.  The retail gross profit margin of 41.2% for the first nine months of 2011 decreased from 41.3% for the comparable period in 2010 primarily due to merchandise markdowns.

 

Operating Expenses

 

Selling, general and administrative expenses of $97.5 million for the first nine months of 2011 decreased $0.1 million compared to the first nine months of 2010.  This decrease was primarily due to a $3.9 million reduction in deferred executive compensation, a $0.3 million decrease in other general and administrative expenses, partially offset by a $1.9 million increase in retail selling, general and administrative expenses, primarily related to increased advertising and other selling expenses, $1.3 million of incremental wage-related expense in the first nine months of 2011, consisting of $0.9 million of severance and a $0.4 million increase in other wage-related expense, and a $1.0 million reimbursement of legal expenses in 2010 relating to the collection of a 2000 judgment for such expenses that was a lien on real estate owned by the obligor.

 

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Financing expense of $7.6 million was incurred in the first nine months of 2010 related to closing fees, legal and consulting costs associated with the 2010 Senior Credit Facility entered into on March 1, 2010.

 

Depreciation and amortization expense of $12.4 million decreased $1.7 million from the prior year primarily due to reduced capital expenditures in prior years, and completed amortization of membership software and amortization of finance costs associated with the 2010 Senior Credit Facility entered into on March 1, 2010.

 

Income from Operations

 

Income from operations for the first nine months of 2011 totaled $35.1 million compared to $23.3 million for the first nine months of 2010.  This change of $11.9 million from the first nine months of 2010 was primarily the result of the following favorable changes in the first nine months of 2011 compared to the first nine months of 2010: reduced financing expense of $7.6 million for the first nine months of 2011, a $1.9 million reduction in operating expenses for the first nine months of 2011,and increases in gross profit for the Membership Services and Retail segments of $2.9 million and $0.3 million, respectively, for the first nine months of 2011, that were only partially offset by an $0.8 million decrease in gross profit for the Media segment.

 

Non-Operating Items

 

Non-operating expenses of approximately $30.4 million for the first nine months of 2011 increased approximately $1.1 million compared to the first nine months of 2010 due to a $5.0 million increase in interest expense relating to higher interest rates on the Company’s debt, partially offset by a $3.4 million positive change in the loss/gain on derivative instrument related to the interest rate swap agreements and a $0.5 million gain on sale of publications in the first nine months of 2011.

 

Income (loss) before Income Tax

 

Income before income tax for the first nine months of 2011 was $4.7 million, compared to a loss of $6.0 million for the first nine months of 2010.  This favorable change of $10.7 million favorable change was attributable to the $11.9 million increase in income from operations in the first nine months of 2011 partially offset by an increase in non-operating items of approximately $1.1 million, mentioned above.

 

Income Tax Expense

 

The Company recorded income tax expense of $0.2 million for the first nine months of 2011, compared to $0.3 million income tax expense for the first nine months of 2010.

 

Net Income (loss)

 

Net income in the first nine months of 2011 was $4.6 million compared to a net loss of $6.2 million for the same period in 2010 mainly due to the reasons discussed above.

 

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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 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 required different technology, management expertise and marketing strategies.

 

Membership services segment profit of $43.4 million for the first nine months of 2011 increased $3.0 million, or 7.5%, from the comparable period in 2010.  This increase was largely attributable to a $2.8 million quarterly license fee received from FreedomRoads, a $2.8 million increase in segment profit from emergency road services programs, and a $1.4 million increase in segment profit from the extended vehicle warranty programs, partially offset by a $3.0 million reduction in vehicle insurance program profit primarily relating to the $2.5 million fee received in the first nine months of 2010 as a result of waiving our right of first refusal regarding the sale of the third party partner, a $0.5 million profit reduction in the Good Sam Club relating to reduced membership and increase marketing expense, and a $0.5 million profit reduction in the Coast and Golf Card Clubs, relating to reduced membership.

 

Media segment profit of $0.8 million for the first nine months of 2011 increased $0.3 million, or 69.5%, from the comparable period in 2010 due to increased segment profit from the consumer shows group of $0.7 million, and increased profit from the outdoor power sport magazine group of $0.4 million primarily due to the $0.7 million gain on sale of assets in the first six months of 2011, partially offset by $0.4 million of additional promotional costs in the books division and $0.4 million of reduced segment profit in the RV magazine group primarily due to increased pages per issue.

 

Retail segment profit of $5.4 million for the first nine months of 2011 decreased $0.4 million, or 7.3%, from the comparable period in 2010.  This decrease resulted from a $1.9 million increase in selling, general and administrative expenses, partially offset by a $0.3 million increase in gross profit, a $0.4 million reduction in financing expense and a $0.8 million reduction in depreciation and amortization expense.

 

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LIQUIDITY AND CAPITAL RESOURCES

 

We had a working capital deficit of $5.6 million as of September 30, 2011 and working capital of $10.6 million as of December 31, 2010, respectively.  The primary reason for the low levels of working capital is the deferred revenue and gains reported under current liabilities of $64.5 million and $56.6 million as of September 30, 2011 and December 31, 2010, respectively.  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.

 

During the third quarter ended September 30, 2011, the Company made distributions in the aggregate of approximately $5.5 million to our parent, AGHI, of which approximately $2.5 million was a permitted restricted payment under the Company’s Senior Secured Indenture and the balance was a permitted tax distribution.

 

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 September 30, 2011.  This table includes principal and future interest due under our debt agreements based on interest rates as of September 30, 2011 and assumes debt obligations will be held to maturity.

 

 

 

Payments Due by Period

 

(in thousands)

 

Total

 

2011

 

2012 and
2013

 

2014 and
2015

 

Thereafter

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt and future interest

 

$

530,683

 

$

20,527

 

$

100,827

 

$

88,828

 

$

320,501

 

Operating lease obligations

 

209,990

 

5,882

 

42,473

 

37,279

 

124,356

 

Deferred compensation

 

2,310

 

 

2,050

 

260

 

 

Standby letters of credit

 

6,891

 

 

6,891

 

 

 

Grand total

 

$

749,874

 

$

26,409

 

$

152,241

 

$

126,367

 

$

444,857

 

 

11.50% Senior Secured Notes due 2016

 

On November 30, 2010, the Company issued $333.0 million of 11.5% senior secured notes due 2016 (the “Senior Secured Notes”) at an original issue discount of 2.1%.  Interest on the Senior Secured Notes 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 our outstanding 9% senior subordinated notes due 2012 (the “AGI 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 then 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 our

 

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direct parent, AGHI, to enable AGHI, together with other funds contributed to the AGHI, 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 September 30, 2011, an aggregate of $333.0 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 (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.

 

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 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.

 

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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 AGI 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.  Borrowings under the CW Credit Facility are based on the borrowing base of eligible inventory and accounts receivable of Camping World and its subsidiaries.  As of September 30, 2011, $0 million of CW Credit Facility remains outstanding and $6.9 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, 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 September 30, 2011.

 

Interest Rate Swap Agreements

 

The Company is exposed to certain risks related to its business operations.  The primary risk that we managed by using derivatives is interest rate risk.  We use financial instruments, including interest rate swap agreements, to reduce our risk to this exposure.  We do not use derivatives for speculative trading purposes and are not a party to leveraged derivatives.

 

We recognize all of our 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

 

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relationship.  For derivatives designated as hedges under the accounting guidance for derivative instruments and hedging activities, we formally assess, 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.  Our 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 (0.253% at September 30, 2011 based upon the July 31, 2011 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 fair value of the swap was zero at inception.  The Company entered into the interest rate swap to limit the effect of increases on our floating rate debt.  The interest rate swap is designated as a cash flow hedge of the variable rate interest payments due on $100.0 million of the term loans issued June 24, 2003 under the 2003 Senior Credit Facility, and accordingly, gains and losses on the fair value of the interest rate swap agreement are reported in accumulated other comprehensive loss and reclassified to earnings in the same period in which the hedged interest payment affects earnings.  The interest rate swap agreement 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 (0.253% at September 30, 2011 based upon the July 31, 2011 reset date) and make periodic payments at a fixed rate of 3.43%, 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 contracts is included in Accrued Liabilities and Other Long-Term Liabilities, and totaled $4.7 million and $0.4 million as of September 30, 2011, and $4.2 million and $3.5 million as of December 31, 2010, respectively.

 

On June 11, 2009, the Company partially terminated the $35.0 million interest rate swap, subject to a partial termination fee of $0.6 million which was expensed.  The notional amount was reduced to $20.0 million.  All other terms of the interest rate swap agreement remained unchanged.  As a result, the amount included in other comprehensive income related to the $35.0 million interest rate swap was reduced prorata and included in earnings as a gain (loss) on derivative instrument.

 

Due to the issuance of fixed rate debt to replace the existing variable rate debt on November 30, 2010, the interest rate swaps no longer qualify as cash flow hedges as the underlying cash flows being hedged were no longer going to occur.  As a result, the net loss on the fair value of the interest rate swap agreements included in other comprehensive loss of $6.5 million related to previously effective cash flow hedges as of November 30, 2010, was reclassified to earnings as gain (loss) on derivative instrument and all future changes in the fair value of the interest rate swaps will be included in earnings as gain (loss) on derivative instrument.

 

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Other Contractual Obligations and Commercial Commitments

 

For the nine months ended September 30, 2011, the Company did not incur deferred executive compensation expense under the phantom stock agreements, and made $0.8 million of payments to terminated employees under the terms of the vested phantom stock agreements.  The Company does not expect to pay any additional phantom stock payments in fiscal 2011.

 

Capital expenditures for the nine months ended September 30, 2011 totaling $3.5 million increased $0.4 million from the first nine months of 2010 primarily due to a point-of sale system replacement, telecommunications, computer hardware upgrades and retail warehouse scan guns.  Additional capital expenditures of $1.4 million, including $1.0 million funded through a capital contribution and $0.2 million funded through asset sales during 2011, are anticipated for the balance of 2011 primarily for leasehold improvements and a point-of-sale system replacement.

 

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

 

34



 

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.

 

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 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 fifteen 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 new accounting guidance for accounting for the impairment or disposal of long-lived assets.  The Company assesses 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, the Company reduces 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.

 

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The Company has evaluated the remaining useful lives of its 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.  The Company determined that no adjustments to the useful lives of its finite-lived purchased intangible assets were necessary.  The finite-lived purchased intangible assets consist of membership customer lists, non-compete and deferred consulting agreements and deferred financing costs which have weighted average useful lives of approximately 6 years, 15 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 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.

 

36



 

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.

 

We have evaluated the remaining useful lives of our property and equipment and finite-lived purchased intangible assets to determine if any adjustments to the useful lives were necessary.  The Company determined that no adjustments to the useful lives of its property and equipment or finite-lived purchased intangible assets were necessary. Future goodwill impairment tests could result in a charge to earnings.  We will continue to evaluate goodwill on an annual basis and whenever events and changes in circumstances indicate that there may be a potential impairment.

 

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.

 

Derivative Financial Instruments

 

As discussed in Note 8 — Interest Rate Swap Agreements in the Consolidated Financial Statements, we account for derivative instruments and hedging activities in accordance with new 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.  We measure 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.

 

37



 

We utilize derivative financial instruments to manage our exposure to interest rate risks.  We do not enter into derivative financial instruments for trading purposes.

 

Due to the issuance of fixed rate debt to replace the existing variable rate debt in November 2010, the interest rate swaps no longer qualify as cash flow hedges.  As a result, the net loss included in other comprehensive loss of $6.5 million as of November 30, 2010 was reclassed to earnings and all future changes in the fair value of the interest rate swaps will be included in earnings.

 

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.

 

The Company has determined that it utilizes observable (Level 2) inputs in determining the fair value of its interest rate swap agreements.  The Company has determined that it utilizes unobservable (Level 3) inputs in determining the fair value of the preferred interest held by an indirect subsidiary of Camping World in FreedomRoads and Media and Retail segment goodwill.

 

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.

 

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 agreements.

 

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.

 

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Interest Rate Sensitivity Analysis

 

At September 30, 2011, the total debt of the Company was $326.7 million, net of $6.3 million of unamortized original issue discount, consisting entirely 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 a $0 impact because this debt is at a fixed interest rate.

 

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 September 30, 2011, 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.

 

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/ James M. DeBruzzi

Date: November 10, 2011

James M. DeBruzzi

 

Executive Vice President and

 

Chief Financial Officer

 

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