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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ------ SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 OR
- ------ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
---------------- --------------
Commission File Number 333-26389
- ------------------------------------------------------------------------------
AFFINITY GROUP HOLDING, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-2922099
(State of incorporation or organization) (I.R.S. Employer Identification No.)
64 Inverness Drive East (303) 792-7284
Englewood, CO 80112 (Registrant's telephone number,
(Address of principal executive offices) 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% Senior Notes Due 2007
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
--- ---
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 MARCH 26, 1999
----- -----------------
Common stock, $.01 par value 100
DOCUMENTS INCORPORATED BY REFERENCE: DOCUMENTS REFERENCED ON EXHIBIT INDEX
PART I
ITEM 1: BUSINESS
GENERAL
Except where the context indicates otherwise, the term "Company", or "AGHI"
means Affinity Group Holding, Inc. and its predecessors and subsidiaries but
excludes the operations of the National Association for Female Executives
("NAFE"), Affinity Insurance Group ("AINS"), and Affinity Bank ("AB"), which are
classified as discontinued operations.
The Company is a member-based direct marketing organization primarily engaged in
selling club memberships and publications to selected recreational affinity
groups principally comprised of recreational vehicle owners, campers, outdoor
recreationists and, to a lesser extent, golfers. The Company's club members form
a receptive audience to which it sells products, services, merchandise and
publications targeted to the recreational interests of such members. The
Company's three principal lines of business are (i) club memberships and related
products, services and club magazines, (ii) specialty retail merchandise
distributed primarily through retail supercenters and mail order catalogs, and
(iii) subscription magazines and other publications including directories. The
Company's affinity groups and publishing operations provide its club members
with access to discounts for certain activities and competitively priced
products and services addressing club members' specific needs. See Footnote 13
in the Notes to Consolidated Financial Statements for financial information
about the Company's segments.
On March 6, 1997, Affinity Group Inc. ("AGI"), a wholly owned subsidiary of
AGHI, acquired the stock of Ehlert Publishing Group, Inc. ("EPG"), a specialty
sports and recreation magazine publisher and on April 2, 1997, AGI acquired the
stock of Camping World, Inc. ("CWI"), a specialty retailer offering merchandise
and services through retail supercenters, mail order catalogs and via the
internet. These acquisitions significantly furthered the business strategy of
AGI and enhanced its marketing prospects by providing the following benefits:
(i) opportunities to cross sell club memberships between AGI's Good Sam Club and
Camping World's President's Club through both Camping World's supercenters and
catalog operations as well as AGI's direct mail operation and RV publications;
(ii) access to products and services, such as its emergency road service program
and the then recently introduced extended vehicle warranty program, and to
Camping World's recreational vehicle merchandise which will be marketed to AGI's
Good Sam Club members and (iii) expansion of AGI's recreational publishing niche
to provide additional opportunities for the development of new clubs, products
and services.
At December 31, 1998, there were approximately 1.8 million dues paying members
enrolled in the Company's clubs, remaining level with the 1.8 million at
December 31, 1997. The paid circulation per issue of the Company's general
circulation magazines is estimated at approximately 584,000 with an aggregate
readership estimated at over 5.7 million at December 31, 1998. The Company
believes its club members have favorable demographic characteristics and
comparatively high renewal rates. Revenues of the Company were $359.0 million
for the year ended December 31, 1998, compared to $301.0 million for the year
ended December 31, 1997, representing a 19.3% increase. On a pro forma basis,
assuming the EPG and CWI acquisitions had occurred on January 1, 1997, revenues
for 1998 increased by 4.6%.
1
BUSINESS STRATEGY
The Company's business strategy is to increase (i) the enrollment of its clubs
through internal growth and acquisitions, (ii) the sales of its products and
services by marketing to club members through the most effective distribution
channels and by developing and enhancing its product and service offerings, and
(iii) the circulation of its publications by introducing new magazines and
acquiring publications which are complementary to the Company's recreational
market niche. The Company also seeks to realize operational efficiencies
through the integration of acquired businesses such as occurred with the
acquisitions of Camping World and Ehlert Publishing in 1997, Golf Card Club in
1990 and Woodall Publishing in 1994.
ENHANCE CLUB MEMBERSHIP ENROLLMENT
The Company seeks to increase the number of its club members by maximizing
renewals, establishing an optimal mix of channels for soliciting new members and
re-acquiring inactive members. Management believes that the participation
levels and renewal rates of club members reflect the benefits derived from
membership. In order to maintain high participation rates in its clubs, the
Company continuously evaluates member satisfaction and actively responds to
changing member preferences through the enhancement or introduction of new
membership benefits including products and services. The Company also seeks to
optimize its use of alternative channels for acquiring club members.
ACQUIRE AND DEVELOP OTHER AFFINITY GROUPS
The Company believes that the experience it has accumulated in managing its
existing recreational affinity groups is applicable to the management of other
recreational interest organizations. As a result, the Company conducts ongoing
evaluations for developing or acquiring affinity groups for which it can build
membership enrollment and to which it can market products and services. The
Company expects to concentrate its efforts over the near term on integrating and
cross promoting the benefits of CWI's President's Club and AGI's Good Sam Club.
INCREASE SALES OF PRODUCTS AND SERVICES
The Company seeks to increase the sale of its products and services due to their
profitability and the favorable impact such programs have on club membership
growth and retention. Management believes that a substantial opportunity exists
to market its products and services through the national network of Camping
World supercenters and mail order catalogs. A significant percentage of Good
Sam Club members currently subscribe to one or more of its products and
services, such as the emergency road service program and the recently introduced
extended vehicle warranty program. Management believes it can successfully
market such products and services to Camping World's President's Club members
who have interests and demographic characteristics similar to those of Good Sam
Club members and for whom there is limited penetration of such products and
services. Management also believes that the Good Sam Club members who are not
currently President's Club members represent a focused group of customers to
which it can sell Camping World's RV accessory merchandise. The Company
regularly studies the feasibility of introducing new products and services.
IMPROVE OPERATING PERFORMANCE
The Company seeks to achieve operating efficiencies by selectively acquiring and
developing recreational affinity groups which enable the Company to increase
membership enrollment and to realize cost savings. The Company also seeks to
enhance its importance with third party providers of products and services by
maintaining high membership enrollment levels in such programs, thereby
increasing the fees it receives from such vendors.
2
EXPAND NICHE RECREATIONAL PUBLICATIONS
The Company seeks to expand its presence as a dominant publisher in select
recreational niches through the introduction of new magazine formats and the
acquisition of other publications in its market or in complementary recreational
market niches. Publications in complementary niches may also provide the
Company with the opportunity to launch new membership clubs, to market its
products and services to members of new clubs and to develop other products and
services which meet the special needs of such members. The Company believes
overall circulation of its magazines is an important factor in determining the
amount of revenues it can obtain from advertisers.
RV INDUSTRY
The use of recreational vehicles ("RVs") and the demand for club memberships and
related products and services may be influenced by a number of factors including
general economic conditions, the availability and price of propane and gasoline,
and the total number of RVs. The Company believes that both the installed base
of RVs and the type of RV owned (full service vehicles excluding van
conversions) are the most important factors affecting the demand for its
membership clubs, merchandise, products and services. Based on the most recent
survey conducted by the Survey Research Center of the University of Michigan
(the "Survey"), the number of households owning RVs increased from 8.2 million
in 1993 to 8.6 million in 1997. The Survey also indicates that the percentage
of households owning RVs during this period rose slightly from 9.6% to 9.8%.
According to the Survey, the average RV owner is 49 years old. RV ownership
also increases with age reaching its highest percentage level among those 55 to
64 years old. According to the 1994 U. S. Census, households in this age group
are projected to increase from 23.8 million in 1994 to 28.9 million in 2005. RV
ownership also is concentrated in the western United States, an area in which
the population growth rate is expected to be greater than the national average
through 2005. The Survey also indicates that RV ownership is associated with
higher than average annual household income which among RV owners was
approximately $47,000 per annum as compared to the national average of $31,000
per annum according to the 1994 U. S. Census.
The median age and annual household income of the Company's club members were 65
years and $49,000 in 1995 based on member survey data. The Company believes
that the demographic profile of its typical club member, coupled with a
demographic trend towards an aging population will have a favorable impact on RV
ownership and the demand for club memberships and related products and services.
MEMBERSHIP CLUBS
The Company operates the Good Sam Club, Coast to Coast Club, and Camping World's
President's Club for RV owners, campers and outdoor vacationers, and the Golf
Card Club for golf enthusiasts. The membership clubs form a receptive audience
to which the Company markets its products and services.
3
The following table sets forth the number of members at December 31, 1998,
annual membership dues and average annual renewal rates during the period of
1994 to 1998 for each club:
Number of Members at Average Renewal
Membership Club December 31, 1998 Annual Fee (1) Rate (2)
- -------------------------------------------------------------------------------------
Good Sam Club 936,230 $12 - $25 71%
Coast to Coast Club 229,930 $60 - $70 80%
President's Club 524,300 $15 - $20 64%
Golf Card Club 111,048 $75 - $79 61%
- ----------------------
(1) For a single member, subject to special discounts and promotions.
(2) Excludes members having life-time memberships.
In addition to regular memberships, the Company also sells multi-year
memberships. Management believes that multi-year memberships provide several
advantages, including the up-front receipt of dues in cash, reduced membership
costs and a strengthened member commitment.
Beginning in 1992, the Company began selling life-time memberships for the Good
Sam Club. As of December 31, 1998, the average price for a life-time membership
was $189 with 102,775 members registered. Based on an actuarial analysis of the
life-time members, the Company expects the average length of a life-time
membership to be 18 years.
GOOD SAM CLUB
The Good Sam Club, founded in 1966, is a membership organization for owners of
recreation vehicles. The Good Sam Club is the largest RV club in North America
with over 936,000 member families and approximately 2,000 local chapters as of
December 31, 1998. The average renewal rate for Good Sam Club members was
approximately 71% during the period 1994 through 1998. The Company has focused
on selling higher margin multi-year memberships which, among other advantages,
reduces the cost of membership renewal. At December 31, 1998, the average
length of time for participation in the Good Sam Club was approximately 7 years
with most club members purchasing annual memberships.
Membership fees range from $12 to $25, subject to the term and type (new vs.
renewal). The benefits of club memberships include: discounts for overnight
stays at approximately 1,700 participating RV parks and campgrounds; discounts
on the purchase of supplies and accessories for recreation vehicles at
approximately 193 RV service centers; a free annual subscription to HIGHWAYS,
the club's regular news magazine; discounts on other Company publications; trip
routing and mail-forwarding; and access to products and services developed for
club members. Based on typical usage patterns, the Company estimates that Good
Sam Club members realize estimated annual savings from discounts of $156.
The Good Sam Club establishes quality standards for RV parks and campgrounds
participating in its discount program. Campgrounds and parks participating in
the Good Sam program benefit from increased occupancy and sales of camping
related products. The Company believes it has established considerable
penetration of those for-profit RV parks and campgrounds which meet its quality
standards for network affiliation.
4
The following table lists the number of club members and RV parks and
campgrounds from 1994 through 1998 at which discounts for members were available
at December 31st of the respective year:
Year Ended December 31
----------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------
Number of Good Sam Members (1) 936,200 927,000 911,400 900,500 930,200
Life-time members included above 102,775 82,942 68,490 57,786 45,251
Number of RV campgrounds offering 1,682 1,697 1,682 1,624 1,674
discounts to Good Sam members
- ---------------------
(1) A member consists of a household.
COAST TO COAST
The Coast to Coast Club operates the largest reciprocal use network of private
RV resorts in North America. The Company offers a series of membership benefits
depending upon pricing and program type under the Coast to Coast name. Members
of Coast to Coast belong to a private RV resort owned and operated by parties
unrelated to the Company. Club members may use most of the participating
resorts in the Coast to Coast network subject to availability. At December 31,
1998, there were approximately 229,900 member families in the Coast to Coast
club. Approximately 400 private RV resorts nationwide participated in the Coast
to Coast reciprocal use programs, representing approximately 80% of such resorts
in the US. These private resorts are designed primarily for RV owners, but
typically provide camping or lodging facilities, comprised of RVs, cabins and
condominiums. For an initial membership fee plus annual maintenance fees, both
paid by the customer to the resort, the private resorts provide an RV site with
water, sanitary and electrical hook-ups and recreational amenities, such as
swimming, tennis or fishing, or proximity to theme parks or other recreational
activities. The Company has established quality criteria for resorts to join
and remain in the Coast to Coast networks.
For standard annual renewal dues from $69.95 for a single year membership to
$159.95 for a multiple-year membership, Coast to Coast Club members receive the
following benefits: discounts for overnight stays at participating resorts,
hotels and campgrounds; an annual subscription to COAST TO COAST MAGAZINE; the
COAST TO COAST DIRECTORY providing information on the participating resorts;
discounts on other Company publications, access to discount travel services;
trip routing; and access to products and services developed for club members.
Coast to Coast Resort Club members also have the right to use, subject to
availability, the lodging facilities at 369 participating resorts at a
discounted rate.
The Company believes that resorts participating in the Coast to Coast networks
view access to reciprocating member resorts as an incentive for their customers
to join their resort. Because a majority of members of Coast to Coast clubs own
RVs, access to participating resorts throughout North America can be an
important complement to local resort membership. During 1998, Coast to Coast
members utilized approximately 900,000 nightly stays under the reciprocal use
program. Based on typical use patterns, the Company estimates that Coast to
Coast members realize estimated annual savings from these discounts of over $200
from discounted overnight stay accommodations at participating resorts. The
average annual renewal rate for members of the Coast to Coast clubs after the
initial one year membership (which is generally paid by the member resort not
the club member) was approximately 80% during the period 1994 through 1998.
5
The following table sets forth the number of members in Coast to Coast Club and
of resorts participating in the reciprocal use program at December 31st of the
respective year:
Year Ended December 31
----------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------
Number of member families in Coast 229,900 241,500 257,200 283,900 296,300
to Coast Club
Number of resorts 369 387 461 463 473
Coast to Coast Club members declined 4.8% from 1997 to 1998, and 22.4% from 1994
to 1998. While the number of new members increased in 1998 over 1997, the
number of non-renewing members continued to result in a net attrition. Three
major resort systems that either experienced bankruptcy or left the Coast system
directly impacted the 1997 and 1998 Coast to Coast membership enrollment.
PRESIDENT'S CLUB
Camping World's President's Club program, which was established in 1986, has
grown to approximately 524,300 members. President's Club memberships may
initially be obtained for one, two or three years at a cost of $20, $35 or $50,
respectively. The average life (including renewals) of club membership is three
years and approximately 83% of club members are enrolled for one year.
President's Club members receive a 10% discount on the purchase of all of
Camping World's merchandise and installation fees and receive special mailings,
including newsletters and flyers offering selected products and services at
special prices. Camping World recently upgraded its point-of-sale system, which
management believes has increased sales, generated new club members and
increased club renewal rates through improved customer data collection.
The following table lists the number of President's Club members and number of
retail stores at year end for 1994 through 1998 for the respective year:
Year Ended December 31
-----------------------------------------------------
1998 1997 1996 1995 1994
-----------------------------------------------------
Camping World's Presidents Club 524,300 510,900 465,200 459,100 409,800
Members
Number of stores (1) 29 27 27 25 23
- -----------------
(1) Includes supercenters and one 1,800 square foot retail showroom
located within the Bakersfield, California distribution center.
GOLF CARD CLUB
The Golf Card Club, founded in 1974, had approximately 111,000 members at
December 31, 1998. The major attraction for membership is the financial savings
which members receive when playing at one of over 3,400 participating golf
courses located throughout the US and Canada. The annual membership fee varies
with the length and type (single or double) of membership. Based on surveys
conducted by the Company, members realize savings on green fees, ranging from
$150 to $250 annually, which significantly exceed the cost of membership.
Members of the Golf Card Club receive the following benefits: (i) two rounds
annually for up to 50% savings on combined cart and green
6
fees or two complementary 18-hole rounds annually with the rental of a
powered golf cart, (ii) discounts at 300 "Stay and Play" resorts, (iii) free
National Car Rental Emerald Club membership, (iv) annual subscription to GOLF
TRAVELER magazine, published six times per year, and (v) access to other
products and services developed for club members. The Company believes that
the participating golf courses providing playing privileges to club members
represent the largest number of golf courses participating in a discount
program in North America. None of the participating golf courses are owned or
operated by the Company.
The standard annual membership fee is $75 for a single membership and $120 for a
double membership. Multi-year memberships range from a single two-year for $140
to a five-year double of $479.
Daily-fee, semi-private and privately-owned golf courses participate in the Golf
Card program. The program is attractive to participating courses because it
builds traffic and fills empty tee times during off-peak hours. Members also
purchase other merchandise or services when exercising their playing privileges.
In this manner, the Golf Card members tend to provide incremental revenue to the
golf courses. Eight field marketing representatives visit golf courses in their
assigned territories to manage relationships with participating courses and to
solicit additional courses for the program.
The average renewal rate for Golf Card Club members at December 31, 1998 was
approximately 61% for the period 1994 to 1998, with a renewal rate of 60% for
1998, up from 54% in 1997. The following table lists the number of Golf Card
members, participating golf courses and "Stay and Play" resorts at December 31st
of each year in this period:
Year Ended December 31
-------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------------
Number of Members in the Golf Card 111,048 134,400 136,200 132,300 118,500
Club (1)
Number of Participating Golf Courses 3,400 3,513 3,100 2,980 2,707
Number of "Stay and Play" Golf Resorts 300 305 310 350 373
- -----------------
(1) A single membership counts as one member and a double membership as two
members.
The decline in membership reflects increased competition and abandonment of the
Partner-Free acquisition strategy. A complete market repositioning of the club
in 1998 included a new marketing strategy, new benefits, and staff and cost
restructuring, all expected to address competitive challenges.
MEMBERSHIP PRODUCTS AND SERVICES
The Company's 1.8 million club members form a receptive audience to which it
sells products and services targeted to the recreational interests of its club
members. The Company promotes products and services which either address
special needs arising in the activities of the club members or appeal generally
to persons with the demographic characteristics of club members. The two most
established products are the emergency road service and the vehicle insurance
program. Most of the Company's products and services are provided by third
parties who pay the Company a marketing fee, except for emergency road service
("ERS") and extended warranty programs where the Company pays third party
administers to administer the programs.
7
EMERGENCY ROAD SERVICE (ERS)
The ERS products provide towing and roadside assistance. The Company developed
the ERS program initially for Good Sam Club members in 1984 as an enhancement to
their club membership. Currently 24% of the general Good Sam Club membership is
enrolled in the Good Sam ERS program. The Company has since expanded the ERS
programs to include the other membership clubs as well as promoting products to
non-club members. The Company believes it is important to target the
diversified market niches with identifiable products that have various service
level objectives. The Company currently markets these products through direct
mail, advertising in publications, campground directories, promotional events,
space ads, internet and telemarketing. Annual subscriber dues range from $69.00
to $99.95 for which the member receives roadside assistance and towing benefits
at no additional cost to the subscriber. The table below sets forth the number
of enrolled members in the various programs as of December 31, for each year
indicated:
Year Ended December 31
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------------------------------
ERS members in the Good Sam Club 222,600 206,700 209,200 215,100 230,900
ERS members in the Coast to Coast Club 9,000 9,800 10,000 9,700 11,500
Rapid Response 59,600 59,000 - - -
Camping World RoadCare 31,900 33,700 - - -
------- ------- ------- ------- -------
Totals 323,100 309,200 219,200 224,800 242,400
------- ------- ------- ------- -------
------- ------- ------- ------- -------
For the first time since 1994, membership in the various ERS programs has
internally grown through promotional and marketing efforts which have attracted
new members and improved renewal rates. Combined enrollment in the programs has
increased almost 14,000 or 4.5% over 1997. The Company acquired the Rapid
Response program in August 1997 from a competitor and acquired Camping World
RoadCare in conjunction with the acquisition of Camping World.
VEHICLE INSURANCE PROGRAMS
The Company has two vehicle insurance programs, Vehicle Insurance Program
("VIP") and Motor Vehicle Program ("MVP"), to facilitate the availability of
cost-effective vehicle insurance suitable to the demographic characteristics and
vehicle usage patterns of its various club members. At December 31, 1998, the
VIP program had 200,587 members which represented a 18.5% and 3.2% penetration,
respectively, of the Good Sam Club and Coast to Coast clubs. During the period
1994 to 1998, the average annual renewal rate of members participating in the
VIP program was approximately 90.0%. The Company acquired the Motor Vehicle
Program ("MVP") in conjunction with the acquisition of Camping World. This
program, marketed to President's Club members, had 45,889 policies at December
31, 1998. These policies generated $2.5 million of marketing fee revenue from
$53.6 million of written premiums.
The Company's marketing fee is based on the amount of written premiums, the
number of policies in force and the profitability of the program. The insurance
providers assume all claim risks.
8
The table below sets forth the number of policies in force for the VIP and MVP
programs, the dollar amount of written premiums by the insurance providers, and
the marketing fees generated as of December 31 of each year indicated:
Year Ended December 31
--------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------
VIP and MVP policies in force 246,500 258,600 215,100 214,800 209,800
Written premiums by the insurance providers $ 252.9 $ 249.5 $ 208.7 $ 207.2 $ 200.1
under the VIP and MVP programs (millions)
Marketing fees generated (millions) $ 16.5 $ 22.6 $ 17.2 $ 17.3 $ 12.6
Management believes that the RV industry and auto insurance markets have become
increasingly competitive and has led to consumers comparison shopping and
competitors dropping rates. In addition, VIP's underwriter is restricting the
policy renewals for many New Jersey residents due to unfavorable claims
experience.
OTHER PRODUCTS AND SERVICES
Other products and services marketed to club members include credit cards,
vehicle financing, supplemental health and life insurance, financial services
and extended vehicle warranties. Most of these services are provided to club
members by third parties who pay the Company a marketing fee. The Company also
sells subscriptions to its various publications, including TRAILER LIFE,
MOTORHOME and the annual campground directories.
The RV financing program is administered by Ganis Credit Corporation ("Ganis").
The number of Ganis RV loans to the Company's club members increased by 20.3%
from 1997 to 1998 primarily due to a decline in interest rates.
During 1996, the Company introduced its extended vehicle warranty program. This
program has grown from 1,600 polices in force from 1996 to approximately 9,800
policies as of December 31, 1998 by utilizing existing Company direct mail
marketing channels, and by expanding into the retail direct mail channels. The
Company earned marketing fees of approximately $5.3 million in 1998, increasing
approximately 52.3% over 1997. Marketing fees are earned based on approximately
50% of written premiums.
In addition, the Company is evaluating other products and services that club
members may find attractive. When introducing new products and services, the
Company concentrates on products and services provided by third parties, which
it can market without significant capital investment by the Company, and for
which it receives a marketing fee from the service provider based on sales
volume. The Company seeks to utilize the purchasing power of its club members
to obtain products and services at attractive prices.
PUBLICATIONS
The Company produces and distributes a variety of publications for select
markets in the recreation and leisure industry, including general circulation
periodicals, club magazines, directories, and RV industry trade magazines.
Revenues are recognized from the sale of advertising, subscriptions and direct
sales of some of the publications. The Company believes that the focused
audience of each publication is an important factor in attracting advertisers.
9
The following chart sets forth the circulation and frequency of the Company's
publications:
1998 Number of Issues
Publication Circulation Published Each Year
- ----------------------------------------------------------------------- ------------------------
GENERAL CIRCULATION MAGAZINES:
Trailer Life 289,814 (1) 12
MotorHome 145,014 (1) 12
Rider 104,195 (1) 12
American Rider 44,958 (1) 6
CONTROLLED CIRCULATION- BUSINESS (2):
Campground Management 10,000 12
RV Business 15,780 12
Archery Business 11,066 7
PowerSports Business 18,000 16
CONTROLLED CIRCULATION- CONSUMER:
Snowmobile 582,177 (3) 4
SnowGoer 76,821 (1) 6
Snow Week 23,231 (1) 18
PWC Magazine 289,091 (3) 4
Watercraft World 37,448 (1) 9
Roads to Adventure 292,005 (3) 4
Woodall's Regional News Tabloids 165,000 (4) 12
Woodall Specials 440,000 (4) 1
ATV Magazine 215,230 (3) 4
ATV Sport 48,644 (3) 6
Bowhunting World 117,024 (3) 8
Cruising Rider 142,910 (3) 4
ANNUALS:
Trailer Life Campground/RV Park & 302,000 (1) 1
Services Directory
Trailer Life's RV Buyers Guide 56,500 (3) 1
Woodall Campground Directory 412,612 (3) 1
Woodall Buyer's Guide 41,849 (1) 1
Woodall Plan-it Pack-it Go 30,320 (1) 1
CLUB MAGAZINES:
Highways 946,057 (5) 11
Coast to Coast Magazine 225,667 (5) 8
Golf Traveler 111,048 (5) (6) 6
RV View 531,096 (5) 5
- ------------
(1) Paid circulation.
(2) Trade publication distributed to industry-specific groups.
(3) Includes sales and free distribution.
(4) Distribution to RV outlets, including campgrounds and dealerships.
(5) Circulation is limited to club members and the price is included in the
annual membership fee.
(6) Only one magazine is issued when two members are from the same household.
10
GENERAL CIRCULATION MAGAZINES
TRAILER LIFE, initially published in 1941, is the leading consumer magazine for
the RV industry with a paid circulation of approximately 290,000 in 1998.
TRAILER LIFE features articles on subjects including product tests, travel and
tourist attractions.
MOTORHOME is a monthly periodical for owners and prospective buyers of motor
homes which has been published since 1968 with a paid circulation of
approximately 145,000 in 1998. MOTORHOME features articles on subjects such as
product tests, travel and tourist attractions.
RIDER is a monthly magazine for motorcycle touring enthusiasts and has been
published since 1974. Each issue focuses on motorcycles, personalities,
technical subjects, travel notes and other features of interest to this
recreational affinity group.
AMERICAN RIDER, introduced in November 1993, is targeted to owners and operators
of Harley-Davidson motorcycles.
CRUISING RIDER was introduced in March 1998 and targets cruiser motorcycle
owners and buyers.
ATV SPORT was introduced May 1998 and targets recreational and racing sport quad
riders.
CONTROLLED CIRCULATION MAGAZINES- BUSINESS
The Company publishes the following trade magazines:
CAMPGROUND MANAGEMENT is the leading trade magazine for the campground industry.
RV BUSINESS is the leading trade magazine covering industry news and trends for
RV dealers, manufacturers, suppliers, associations and others.
ARCHERY BUSINESS is the leading trade publication for archery dealers and
presents a mix of industry news and trends, product reviews and sales tips
designed to improve financial performance of archery product dealers.
POWER SPORTS BUSINESS is an industry trade magazine introduced in January 1998
which combines previously issued SNOWMOBILE BUSINESS and WATERCRAFT BUSINESS
with a motorcycle and ATV business section. Distribution is to dealers
servicing these industries, which in numerous cases have combined operations to
service one or more of these segments.
CONTROLLED CIRCULATION MAGAZINES- CONSUMER
SNOWMOBILE magazine delivers broad-based editorial and snowmobile-related
information to its audience of active snowmobile enthusiasts. The publication
includes reviews of new machines, clothing and accessories, and articles on
responsible riding practices, snowmobiling vacation
11
destinations and special events, and serves as the front-end medium for all
snowmobile-related product promotions.
SNOWGOER is designed for the sport's highly active participants and provides
detailed equipment and product critiques and maintenance tips.
SNOW WEEK is the central source of information for the competition and
high-performance snowmobiling market segment. The publication provides timely,
year-round stories on racing, performance enhancing products, technical
assistance, new product introductions, and industry general information.
PWC MAGAZINE is the complete guide for the personal watercraft owner and
provides reviews of personal watercraft, gear and accessories as well as
information on maintenance procedures, safety tips and travel destinations. PWC
Magazine was first published in January 1995.
WATERCRAFT WORLD is targeted to avid personal watercraft enthusiasts and
provides detailed critiques of watercraft, in-depth gear and accessory
evaluations, technical tips and racing information.
ROADS TO ADVENTURE, introduced in 1996, is targeted to younger families pursuing
camping and other outdoor recreation activities. Issued quarterly in 1998,
circulation will be reduced to a single issue per year beginning in 1999.
ATV MAGAZINE'S first issue was published in October 1995. The publication is
designed to reach large numbers of active ATV owners with comprehensive product
information during the peak periods when equipment is purchased. ATV SPORT
magazine debuted in 1998.
BOWHUNTING WORLD is the archery equipment authority which provides information
on new equipment reviews and maintenance techniques, and features articles which
discuss ethical hunting, hunting rights, and pertinent legislative issues.
ANNUAL DIRECTORIES
TRAILER LIFE CAMPGROUND/ RV PARK & SERVICES DIRECTORY, initially published in
1972, is an annually updated directory which provides information on and ratings
for approximately 12,250 public and private campgrounds, 2,200 RV service
centers, and over 1,000 tourist attractions in North America. In 1998,
approximately 302,000 directories were distributed. The publication features
Good Sam Parks that offer discounts on overnight camping fees for the Company's
club members. This directory is sold by direct mail to Good Sam Club members,
at RV dealerships and in bookstores.
WOODALL CAMPGROUND DIRECTORY, initially published in 1948, is an annual consumer
directory offered in both national and regional editions. In 1998,
approximately 413,000 directories were distributed. The Woodall directory is
primarily distributed through book stores.
CLUB OR TRADE MAGAZINES AND BOOKS
Each of the Company's membership clubs has its own publication which provides
information on club activities and events, feature stories and other articles.
The Company publishes HIGHWAYS for the Good Sam Club, COAST TO COAST MAGAZINE
for the Coast to Coast clubs, THE GOLF TRAVELER for the Golf Card Club, and RV
VIEW for Camping World's President's Club. The Company also periodically
publishes books targeted for its club membership which address the RV lifestyle.
12
RETAIL
Camping World is a national specialty retailer of merchandise and services for
RV owners. The 28 Camping World retail supercenters, which are located in 18
states, accounted for approximately 65.0% of the merchandise revenues for the
year ended December 31, 1998 while approximately 22.1% were derived from catalog
sales and approximately 12.9% were derived from fees or non-merchandise
revenues.
The Company believes that Camping World's leading position in the RV
accessory industry results from a high level of name recognition, an
effective dual channel distribution strategy and a commitment to offer a
broad selection of specialized RV products and services at competitive prices
combined with technical assistance and on-site installation. Camping World's
supercenters offer over 8,000 SKUs, approximately 80% of which are not
regularly available in general merchandise stores. In addition, general
merchandise stores do not provide installation or repair services for RV
products, which are available at Camping World's supercenters. Products sold
by Camping World include specialty-sized refrigerators, housewares and other
appliances, bedding and furniture, generators and hydraulic leveling systems,
awnings, folding boats, chairs, bicycles, and sanitation products. Further,
kiosks have been installed at numerous locations to market such products and
services as vehicle insurance, extended warranty and emergency road service.
Camping World supercenters are strategically located in areas where many RV
owners live or in proximity to destinations frequented by RV users. Camping
World's supercenters are designed to provide one-stop shopping by combining
broad product selection, technical assistance and on-site installation
services.
Camping World sources its products from approximately 800 vendors. Camping
World attends regional, national and international trade shows to determine the
products it will offer. The purchasing activities of Camping World are focused
on RV parts and accessories, electronics, housewares, hardware, automotive,
crafts, clothing, home furnishings, gifts, camping and sporting goods. Camping
World has developed an automated "plan-o-gram" system to provide merchandising
plans to each supercenter and a minimum/maximum inventory system for its
operations to improve fulfillment rates on key items. Camping World believes
that the volume of merchandise it purchases and its ability to buy direct from
manufacturers together with the utilization of its transportation fleet enables
Camping World to obtain merchandise at costs which compare favorably to local RV
dealers and retailers. Camping World does not enter into material long-term
contracts or commitments with its vendors. Camping World's largest vendor, a
supplier of awnings, refrigerators and air conditioners, accounted for
approximately 8% of Camping World's total purchases during the last two fiscal
years.
MAIL ORDER OPERATIONS
Camping World initiated its mail order operations in 1967. Camping World
currently has a proprietary mailing list of approximately 2.3 million RV owners,
all of whom have made a purchase or requested a catalog from Camping World
within the prior 60 months. Camping World maintains a database of these names,
which includes information such as order frequency, size of order, date of most
recent order and type of merchandise purchased. Camping World analyzes its
database to determine those customers most likely to order from Camping World's
catalogs. As a result, Camping World is able to target catalog mailings more
effectively than direct marketers of catalogs offering general merchandise.
Camping World continually expands its proprietary mailing list through in-store
subscriptions and requests for catalogs in response to advertisements in
regional publications directed to RV owners. In addition, Camping World rents
mailing lists of RV owners from third parties.
During 1998, Camping World distributed 12.0 million catalogs, of which 10.0
million were mailed in 14 separate mailings, and the remaining 2.0 million
catalogs were distributed in supercenters, at
13
campgrounds, and as package inserts. In 1998, Camping World processed
approximately 494,000 catalog orders at an average net order size of $86,
excluding postage and handling charges. The average net order size increased
7.5% from the prior year. Camping World distributes eight high quality, full
color catalogs each year: the master, a spring, fall, holiday, two sale
editions and two prospecting catalogs. Camping World also distributes
specialty catalogs directed to targeted customers in order to develop market
niches.
MARKETING
Club memberships and related products and services are the result of direct
marketing efforts by the Company. Direct response promotions include direct
mail, target marketing inserts, advertisements, promotional events and
telemarketing. Direct response marketing efforts account for approximately 70%
of new enrollments with the remaining 30% derived from other sources. The
Company uses a variety of commercially available mailing lists of RV owners in
its direct mail efforts. The most useful lists are compiled from vehicle
registrations provided by the motor vehicles departments in over 30 states,
direct response lists from RV industry participants, and in-house lists.
The Publications segment solicits advertisements through its internal sales
force and by paying commissions to advertising agencies and independent
contractors who place advertisements. Many advertisers are repeat customers
with whom the Company has long standing relationships.
The Merchandise segment solicits customers through mail order catalogs, direct
mail retail flyers, advertisements in national and regional industry
publications, vendor co-op advertising programs, promotional events, President's
Club direct mailings and personal solicitations and referrals. Camping World's
principal marketing strategy is to capitalize on its broad name recognition
among RV owners.
OPERATIONS
MEMBER SERVICES AND PUBLICATIONS
The Company's member service operations are located in Denver, Colorado and
Bowling Green, Kentucky. The primary focus of member services is to handle
information requests from club members through the Company's toll-free telephone
number. Member service representatives take orders and market products and
services to existing and potential club members in response to telephone
inquiries. The Company expects to increase sales through better management of
its member service operations coupled with greater efficiency in its
telemarketing efforts. Camping World's mail order operations, located at its
headquarters in Bowling Green, Kentucky, offer toll-free customer service seven
days a week, 24 hours a day. Camping World has established a sales training
program for its customer service personnel and also provides experienced
technical advisors to answer specific questions by telephone. Orders are
usually processed and shipped within 24 hours of receipt. On average, these
member service operations process approximately 7,900 telephone calls daily.
Fulfillment operations involve the processing of orders and checks principally
received by mail. Certain fulfillment operations are performed by third
parties. The Company's publication operations develop the layout for
publications and outsource printing to third parties.
14
RETAIL
Camping World's supercenters generally range in size from approximately
12,000 to 36,000 square feet. Approximately 40% of each supercenter is
devoted to a retail sales floor, a customer service area, and a technical
information counter; 40% is comprised of the installation facility which
contains 4 to 16 drive-through installation bays; and 20% is allocated to
office and warehouse space. Large parking areas provide sufficient space and
facilitate maneuvering of RVs. By combining broad product selection,
technical assistance and installation and repair services, Camping World's
supercenters provide one-stop shopping for RV owners. Camping World
maintains toll-free telephone numbers for customers to schedule installation
and repair appointments. All supercenters are open seven days a week.
Camping World intends to continue the controlled, limited expansion of its
supercenter store network. Camping World's expansion strategy is based on a
comprehensive process that analyzes the sales trends and travel patterns of
existing and potential customers as well as the sales patterns of RV
vehicles. Camping World researches the travel routes used by RV owners and
the location of camping areas in order to ensure the convenient location of
its supercenters. Sales and shipment of new RVs together with analysis of
demographic data derived from its customer database and mail order shipments
and RV ownership lists from other sources are used to identify high
concentrations of RV owners. Once an area has been identified, Camping World
surveys its customers to select specific locations for a new supercenter.
Camping World credits this detailed analytical approach with the fact that it
has closed only one store since inception. During 1998, new supercenters were
opened in Tucson, Arizona and Manassas, Virginia with plans to open one or
two new supercenters in 1999.
The aggregate cost to construct and open an 18,000 square foot supercenter
(the anticipated typical size of new supercenters) is estimated to be
$2,750,000 including land, building, furniture, fixtures, equipment and
inventory. In 1998, for the two stores opened, the Company entered into a
long-term lease agreement with large RV dealers, and avoided the capital
requirements for the land and construction cost of the building. These
facilities were also smaller utilizing the service bays of the RV dealers.
It typically takes six months to complete construction of a store.
INFORMATION SUPPORT SERVICES
The Company utilizes integrated computer systems to support its membership
club and publishing operations. Comprehensive information on each member,
including a profile of the purchasing activities of members, is available to
customer service representatives when responding to member requests, and when
sales representatives market the Company's products and services. The
Company employs publishing software for publication makeup and content and
for advertising to support its publications operations. An area wide network
facilitates communication within and between the Company's offices. The
Company also utilizes information technology, including list segmentation and
merge and purge programs, to select prospects for direct mail solicitations
and other direct marketing efforts.
Camping World's management information systems and electronic data processing
systems consist of an extensive range of retail, mail order, financial and
merchandising systems, including purchasing, inventory distribution and
control, sales reporting, accounts payable and merchandise management.
Camping World's management information system includes point-of-sale
registers that are equipped with bar code readers in each supercenter. These
registers are polled nightly by a central computer. With this point-of-sale
information and the information from Camping World's on-line distribution
centers, Camping World compiles comprehensive data, including detailed sales
volume and inventory information by product, merchandise transfers and
receipts, special orders,
15
supply orders and returns of product purchases to vendors. In conjunction
with its nightly polling, Camping World's central computer sends price
changes to registers at the point of sale. The registers capture President's
Club member numbers and associated sales and references to specific
promotional campaigns. Management monitors the performance of each
supercenter and mail order operation to evaluate inventory levels, determine
markdowns and analyze gross profit margins by product.
Camping World's catalog operations also utilize a computerized management
system allowing on-line desktop access to information which previously
required manual retrieval. Screen prompts which provide product,
promotional, and revenue potential have allowed Camping World to maintain
high service levels during seasonal sales peaks. The installation of an
automatic call distribution switch with scheduling software has facilitated
more effective management of customer inquiries and reduced set-up time for
call processing.
REGULATION
The Company's operations are subject to varying degrees of federal, state and
local regulation. Specifically, the Company's outbound telemarketing, direct
mail, and emergency road service programs, as well as certain services
provided by third parties, including insurance, RV Financing, and extended
warranty, are currently subject to certain regulation and may be subjected to
increased scrutiny in the future. The Company does not believe that such
federal, state and local regulations currently have a material impact on its
operations. However, new regulatory efforts impacting the Company's
operations may be proposed from time to time in the future at the federal,
state and local level. There can be no assurance that such regulatory efforts
will not have a material adverse effect on the Company's ability to operate
its businesses or on its results of operations.
COMPETITION
In general, the Company's membership clubs, retail and catalog operations and
publications compete with numerous organizations in the recreation industry
for disposable income spent on leisure activities. By offering significant
membership benefits at a reasonable cost and actively marketing to club
members, the Company believes that it has been able to maintain a loyal
following for its membership organizations as evidenced by such clubs' high
renewal rates. The products and services marketed by the Company compete
with similar products and services offered by other providers. However,
management believes that it is able to use the large volume of purchases by
its club members to secure attractive pricing for the products and services
marketed by the Company.
EMPLOYEES
As of December 31, 1998, the Company had 1,307 full-time and 164 part-time or
seasonal employees, including 8 executives, 824 employees in retail
operations, 385 employees in administrative and club operations, 201
employees in publishing and advertising sales, 15 employees in resort
services and 38 employees in marketing. No employees are covered by a
collective bargaining agreement. The Company believes that its employee
relations are good.
TRADEMARKS AND COPYRIGHTS
The Company owns a variety of registered trademarks and service marks for the
names of its clubs,
16
magazines and other publications. The Company also owns the copyrights to
certain articles in its publications. The Company believes that its
trademark and copyrights have significant value and are important to its
marketing efforts.
ITEM 2: PROPERTIES
The table below sets forth certain information concerning the Company's
properties. The leased properties generally provide for fixed monthly
rentals with annual escalation clauses.
SQUARE ACRES OWNED/ LEASE
FEET ----- LEASED EXPIRATION
------- ------ ----------
CORPORATE HEADQUARTERS:
Ventura, CA 74,100 Owned -
OTHER OFFICE FACILITIES:
Denver, Colorado (for its customer service, warehousing 60,000 Owned -
fulfillment, and information system functions).
Bowling Green, Kentucky (for its retail administrative 26,000 Owned -
headquarters and mail order operations).
Bowling Green Headquarters Annex 3,000 Leased 2001
Seattle, Washington 672 Leased 1999
Elkhart, Indiana 4,076 Leased 2001
Lake Forest, Illinois 20,000 Leased 2000
Maple Grove, Minnesota 17,496 Leased 2005
Greenville, Michigan 2,000 Leased 2000
DISTRIBUTION CENTERS:
Bowling Green, Kentucky 104,000 6.780 Leased 2010
Bakersfield, California (includes an 1,800 square foot retail 81,500 8.430 Owned -
showroom)
CAMPING WORLD SUPERCENTER LOCATIONS:
Tucson, AZ........................................................... 12,145 2.000 Leased 2018
Mesa, AZ............................................................. 27,500 3.140 Leased 2010
La Mirada, CA........................................................ 30,647 4.450 Owned -
San Marcos, CA....................................................... 25,522 2.212 Leased 2027
Fairfield, CA........................................................ 43,434 3.780 Leased 2020
Rocklin, CA.......................................................... 29,085 4.647 Leased 2037
San Bernardino, CA................................................... 18,126 1.665 Leased 2012
San Martin, CA....................................................... 29,486 5.000 Leased 2023
Valencia, CA......................................................... 58,800 9.310 Owned -
Denver, CO........................................................... 27,085 4.132 Leased 2037
Ft. Myers, FL........................................................ 22,886 4.217 Leased 2012
Kissimmee, FL........................................................ 56,850 6.043 Owned -
Tampa, FL............................................................ 40,334 3.711 Leased 2026
Bolingbrook, IL...................................................... 25,126 5.299 Owned
Bowling Green, KY.................................................... 38,368 2.895 Owned -
Belleville, MI....................................................... 44,197 8.790 Owned -
Rogers, MN........................................................... 24,700 6.303 Leased 2025
17
SQUARE ACRES OWNED/ LEASE
FEET ----- LEASED EXPIRATION
------- ------ ----------
Bridgeport, NJ....................................................... 24,581 6.920 Leased 2031
Henderson, NV........................................................ 25,850 4.400 Leased 2025
Brunswick, OH........................................................ 23,233 4.087 Leased 2038
Wilsonville, OR...................................................... 32,850 4,653 Leased 2016
Myrtle Beach, SC..................................................... 38,935 5.690 Owned -
Nashville, TN........................................................ 30,000 3.238 Owned -
Denton, TX........................................................... 22,984 6.887 Leased 2037
Mission, TX.......................................................... 23,094 3.430 Leased 2015
Draper, UT........................................................... 27,675 8.031 Leased 2026
Manassas, VA......................................................... 16,348 1.880 Leased 2018
Fife, WA............................................................. 35,659 5,840 Leased 2032
In addition, the Company leases a research facility of approximately 8,000
square feet on 60 acres in Wisconsin and other miscellaneous office equipment.
ITEM 3: LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation arising in the
normal course of business operations. None of such current litigation is
expected, individually or in the aggregate, to have a material adverse effect
on the Company.
On January 28, 1998, Travel America, Inc., First Nationwide Resort
Management, Inc., Revcon Motorcoach, Inc., Adventure Resorts of America,
Inc., Thousand Adventures, Inc., and other related entities filed a complaint
in the Superior Court of California in Orange County, California, against
Camp Coast to Coast, Inc., Affinity Group, Inc., certain employees and former
employees of Camp Coast to Coast, Inc. and Affinity Group, Inc. and certain
membership campground resorts within the Coast to Coast system. The complaint
relates to the termination by the plaintiffs of their affiliation contracts
with Camp Coast to Coast, Inc. The suit alleges causes of action for breach
of contract, unfair competition, interference with contracts, interference
with prospective economic advantage, misappropriation of trade secrets,
fraud, defamation, accounting, conspiracy and injunctive relief. The suit
seeks compensatory damages, injunctive relief, general and special damages,
punitive damages and an accounting. The Company and all other defendants
believe the complaint to be without merit and intend to vigorously defend the
action and assert all available rights and seek all appropriate remedies. The
Company believes that such litigation will not have a material adverse effect
on its results of operations or on its financial position.
ITEM 4: SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Not Applicable
18
ITEM 6: SELECTED FINANCIAL DATA
The selected financial data of the Company for each of the five years ended
December 31 are derived from the audited consolidated financial statements of
the Company. Certain reclassifications of prior year amounts have been made
to conform to the current presentation. The selected financial data of the
Company should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and the notes thereto included elsewhere
herein.
YEARS ENDED DECEMBER 31,
------------------------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA: 1998 1997 1996 1995 1994
----------------------------------------------------------
REVENUES:
Membership services $116,325 $ 114,175 $ 99,354 $ 100,679 $ 92,702
Publications 60,354 53,891 39,545 38,290 36,084
Merchandise 182,367 132,953 - - -
----------------------------------------------------------
359,046 301,019 138,899 138,969 128,786
COSTS APPLICABLE TO REVENUES:
Membership services 71,460 62,607 55,793 55,400 53,220
Publications 42,703 36,554 28,236 27,906 25,723
Merchandise 121,320 90,378 - - -
----------------------------------------------------------
235,483 189,539 84,029 83,306 78,943
GROSS PROFIT 123,563 111,480 54,870 55,663 49,843
OPERATING EXPENSES:
Selling, general and administrative 72,737 57,435 16,326 18,376 13,615
Depreciation and amortization 14,868 13,859 8,181 9,013 11,020
----------------------------------------------------------
87,605 71,294 24,507 27,389 24,635
----------------------------------------------------------
INCOME FROM OPERATIONS 35,958 40,186 30,363 28,274 25,208
NON-OPERATING ITEMS:
Interest expense, net (31,823) (27,825) (16,690) (16,447) (16,716)
Other non-operating income (expense), net 2,501 232 (996) (1,579) (811)
----------------------------------------------------------
(29,322) (27,593) (17,686) (18,026) (17,527)
----------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 6,636 12,593 12,677 10,248 7,681
INCOME TAX (EXPENSE) BENEFIT (4,422) (7,114) (6,690) (5,167) 13,255
----------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 2,214 5,479 5,987 5,081 20,936
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations, net
of applicable income tax benefits (1,935) (1,424) (1,592) 235 265
Loss on disposal, net of applicable
income tax benefits (54) (294) (5,866) - -
----------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 225 3,761 (1,471) 5,316 21,201
AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGE
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of
applicable current income tax benefit (5,135) (239) - - (1,277)
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE FOR START-UP COSTS, net of applicable
current income tax benefit (124) - - - -
----------------------------------------------------------
NET INCOME (LOSS) $ (5,034) $ 3,522 $ (1,471) $ 5,316 $ 19,924
----------------------------------------------------------
----------------------------------------------------------
19
SELECTED FINANCIAL DATA (CONTINUED)
1998 1997 1996 1995 1994
-------------------------------------------------------------
(dollars in thousands)
Balance Sheet Data (at period end):
Working capital (deficiency) (1) $ (42,111) $ (40,417) $ (44,679) $ (41,396) $(48,113)
Total assets 496,169 388,265 179,173 191,309 180,790
Deferred revenues (2) 88,671 79,057 70,049 68,702 67,448
Total debt 305,467 294,361 147,375 164,496 157,270
Total stockholder's deficit (80,946) (75,912) (79,434) (77,963) (74,279)
_________________
(1) Restated to give effect to the reclassifications of NAFE, AINS and AB as
discontinued operations. Excludes net current assets or (liabilities) of
discontinued operations in the amount of ($129,596), ($32,237), ($11,985),
($5,409) and $277 for 1998, 1997, 1996, 1995 and 1994, respectively.
(2) Deferred revenues represent cash received by the Company in advance of the
recognition of revenues in accordance with generally accepted accounting
principles. Deferred revenues primarily reflect club membership dues, annual
ERS fees, advances on third party credit card fee revenues and publication
subscriptions. These revenues are recognized at the time the goods or services
are provided or over the membership period, which averages approximately 18
months.
20
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following tables set forth the components of the statement of operations
for the years ended December 31, 1998, 1997, and 1996 as a percentage of
total revenues, and the comparison of those components from period to period.
The following discussion is based on the Company's Consolidated Financial
Statements included elsewhere herein. The Company's revenues are derived
principally from membership services, including club membership dues and
marketing fees paid to the Company for services provided by third parties,
and from publications, including subscriptions and advertising, and
merchandise sales. In the fourth quarter of 1996, the Company adopted a plan
to dispose of the operations of the National Association for Female
Executives ("NAFE") club which was acquired in 1994 and disposed of in August
1997. In the fourth quarter of 1998, the Company sold Affinity Insurance
Group, Inc. ("AINS") and adopted a plan to dispose of the operations of
Affinity Bank ("AB"), subject to regulatory approval, which were both
acquired in 1995. The "Management's Discussion and Analysis of Financial
Condition and Results of Operations" discussion below excludes the operations
of NAFE, AINS and AB since they have been classified as discontinued
operations. During the three years ended December 31,1998, the Company
completed three acquisitions: (i) Ehlert Publishing companies ("Ehlert" or
"EPG"), a specialty publisher of sports and recreation magazines, in March
1997, (ii) Camping World, Inc. ("Camping World" or "CWI"), a national
specialty retailer of merchandise and services for RV owners, in April 1997,
and (iii) Rapid Response emergency road service contracts, in August 1997.
21
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
TABLE FOR PERCENTAGE COMPARISONS OF TOTAL REVENUES
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
Percentage of Percentage Increase
Total Revenues (Decrease)
-------------- -----------
Year 1998 Year 1997
1998 1997 1996 over 1997 over 1996
------------------------------ ----------------------
REVENUES:
Membership services 32.4% 37.9% 71.5% 1.9% 14.9%
Publications 16.8% 17.9% 28.5% 12.0% 36.3%
Merchandise 50.8% 44.2% - 37.2% -
------------------------------ --------------------
100.0% 100.0% 100.0% 19.3% 116.7%
COSTS APPLICABLE TO REVENUES:
Membership services 19.9% 20.9% 40.2% 14.1% 12.2%
Publications 11.9% 12.1% 20.3% 16.8% 29.5%
Merchandise 33.8% 30.0% - 34.2% -
------------------------------ --------------------
65.6% 63.0% 60.5% 24.2% 125.6%
------------------------------ --------------------
GROSS PROFIT 34.4% 37.0% 39.5% 10.8% 103.2%
OPERATING EXPENSES:
Selling, general and administrative 20.3% 19.1% 11.7% 26.6% 251.8%
Depreciation and amortization 4.1% 4.6% 5.9% 7.3% 69.4%
------------------------------ --------------------
24.4% 23.7% 17.6% 22.9% 190.9%
------------------------------ --------------------
INCOME FROM OPERATIONS 10.0% 13.3% 21.9% (10.5%) 32.4%
NON-OPERATING ITEMS:
Interest expense, net (8.9%) (9.2%) (12.1%) 14.4% 66.7%
Other non-operating income (expense), net 0.7% 0.1% (0.7%) 978.0% (123.3%)
------------------------------ --------------------
(8.2%) (9.1%) (12.8%) 6.3% 56.0%
------------------------------ --------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 1.8% 4.2% 9.1% (47.3%) (0.7%)
INCOME TAX EXPENSE (1.2%) (2.4%) (4.8%) (37.8%) 6.3%
------------------------------ --------------------
INCOME FROM CONTINUING OPERATIONS 0.6% 1.8% 4.3% (59.6%) (8.5%)
DISCONTINUED OPERATIONS:
Loss from discontinued operations, net of
applicable income tax benefits (0.6%) (0.5%) (1.1%) 35.9% (10.6%)
Loss on disposal, net of applicable
income tax benefits - (0.1%) (4.3%) (81.6%) (95.0%)
------------------------------ --------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - 1.2% (1.1%) (94.0%) (355.7%)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of
applicable current income tax benefit (1.4%) - - - -
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE FOR START-UP COSTS, net of
applicable current income tax benefit - - - - -
------------------------------ --------------------
NET INCOME (LOSS) (1.4%) 1.2% (1.1%) (242.9%) (339.4%)
------------------------------ --------------------
------------------------------ --------------------
22
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
REVENUES
Revenues of $359.0 million for 1998 increased by approximately $58.0 million or
19.3% from the comparable period in 1997. On a proforma basis, assuming the CWI
and EPG acquisitions occurred January 1, 1997, 1998 revenues increased $15.7
million, or 4.6%, over 1997.
Membership services revenues for 1998 of $116.3 million increased by
approximately $2.1 million or 1.9% compared to $114.2 million for 1997. On a
pro forma basis, assuming the Camping World acquisition had occurred at January
1, 1997, membership services revenue decreased $0.4 million or 0.3% compared to
1997. This revenue decrease is largely attributable to a $6.4 million decrease
in fee income generated from the sales of vehicle insurance policies, a $2.4
million decrease in membership services revenue principally associated with
reduced Coast to Coast Club enrollment and $0.8 million in reduced member event
revenue. These decreases were partially offset by a $7.1 million revenue
increase from the extended vehicle warranty program, and a $2.1 million revenue
increase from the Rapid Response emergency road service contracts acquired
August 4, 1997.
Publications revenues for 1998 of $60.4 million increased 12.0% from $53.9
million for 1997. On a pro forma basis, assuming the EPG acquisition had
occurred at January 1, 1997, revenue increased $4.3 million. This increase was
primarily due to $1.5 million in revenue from new book title sales, $1.2 million
from increased advertising and circulation revenue from the TRAILER LIFE
CAMPGROUND/ RV PARK & SERVICES DIRECTORY, $0.7 million associated with increased
advertising and circulation revenue from other various RV-related publications,
$0.8 million increase for the Rider magazine group, primarily due to the
introduction of a new motorcycle title, CRUISING RIDER and $0.2 million in
increased Ehlert publication revenue comprised of net increases for the ATV
Group and PowerSports Business partially offset by decreases for the Archery
Group and the consolidation of the Watercraft Business publication into the
PowerSports Group.
Merchandise revenue of $182.4 million related entirely to Camping World acquired
in April 1997. On a pro forma basis, assuming the CWI acquisition had occurred
at January 1, 1997, merchandise revenue for 1998 increased $11.8 million or
6.9%. This increase was principally attributable to a $7.9 million increase in
retail showroom sales, representing a 3.8% same store growth over 1997, and a
$3.9 million increase in mail order sales.
COSTS APPLICABLE TO REVENUES
Costs applicable to revenues totaled $235.5 million in 1998, an increase of
$45.9 million or 24.2% over 1997. On a pro forma basis, assuming the CWI and
EPG acquisitions had occurred at January 1, 1997, costs applicable to revenues
increased $17.3 million for 1998 compared to 1997, a 7.9% increase.
Membership services costs and expenses increased by approximately $8.9 million
or 14.1% to $71.5 million for 1998 compared to $62.6 million in 1997. On a pro
forma basis, assuming the CWI acquisition had occurred at January 1, 1997,
membership services costs increased $7.9 million or 1.6%. This increase was
primarily the result of $6.2 million associated with the increase in extended
warranty policies, a $2.1 million increase associated with the Rapid Response
emergency road service contracts and a $0.5 million increase from Camping World
Roadcare. These increases were partially offset by $1.4 million in reduced
expenses associated with the credit card program, and $0.5 million in increased
membership services expenses, consisting of $1.1 million in reduced expenses
associated with the Coast to Coast Clubs partially offset by increased expenses
in the other membership clubs.
23
Publication costs and expenses of $42.7 million for 1998 increased $6.1 million
or 16.8% compared to 1997. On a pro forma basis, assuming the EPG acquisition
had occurred at January 1, 1997, costs increased $4.6 million or 12.0%. This
increase was primarily due to $1.2 million associated with increased book sales,
$1.2 million associated with incremental EPG publication revenues, $0.9 million
from increased circulation of the TRAILER LIFE CAMPGROUND/ RV PARK & SERVICES
DIRECTORY, and $1.3 million associated with higher circulation of RV-related
publications.
Merchandise costs applicable to revenues of $121.3 million related entirely to
Camping World acquired in April 1997. On a pro forma basis, assuming the
Camping World acquisition had occurred at January 1, 1997, merchandise costs for
1998 increased $4.9 million or 4.2%. The increase in merchandise costs was
primarily attributable to the 6.9% increase in merchandise sales. The gross
profit margin increased by $6.9 million from 31.7% in 1997 to 33.5% in 1998
primarily due to the consolidation of vendor product lines and the utilization
of enhanced merchandising software.
OPERATING EXPENSES
Selling, general and administrative expenses of $72.7 million for 1998 were
$15.3 million over 1997. On a pro forma basis, assuming the Camping World
acquisition had occurred on January 1, 1997 general and administrative expenses
increased $2.5 million. This increase is the result a $3.6 million increase in
wage-related expenses of which $2.6 million is related to the retail segment, a
$1.0 million increase in consulting and professional services, a $0.5 million
increase in Year 2000 information systems expenses, a $0.4 million increase in
travel and related expenses, and a $1.0 million increase in other expenses which
were only partially offset by a $4.0 million reduction in deferred executive
compensation in 1998. Depreciation and amortization expenses of $14.9 million
were $1.0 million higher than in 1997. These increases were primarily
attributable to the amortization of goodwill related to the acquisition of CWI
and EPG.
INCOME FROM OPERATIONS
Income from operations of $36.0 million for 1998 decreased by $4.2 million or
10.5% compared to 1997. Assuming the EPG and CW acquisitions had occurred on
January 1, 1997, income from operations decreased $4.4 million or 11.0%.
Increased gross profit from the CWI retail operations of $6.9 million were
more than offset by decreases in gross profit from membership services of
$8.3 million and publications of $0.2 million and increases in operating
expenses of $2.8 million.
NON-OPERATING ITEMS
Net non-operating expense for 1998 was $29.3 million compared to $27.6 million
for 1997. This $1.7 million increase reflects higher interest expense due to
increased borrowings, offset by the gain recognized on the condemnation proceeds
received on certain retail property located in Anaheim California.
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
Income from continuing operations before income taxes, extraordinary item and
cumulative effect of accounting change in 1998 was $6.6 million compared to
$12.6 million for 1997. This decrease is due to the declines in income from
operations reflected above combined with higher net non-operating expenses,
principally interest expense.
INCOME TAXES
24
Income taxes for 1998 of $4.4 million decreased $2.7 million from 1997. The
effective income tax rates in both 1998 and 1997 are higher than statutory
rates due primarily to the amortization of non-deductible goodwill.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations for 1998 was $2.2 million compared to $5.5
million for 1997. This decrease was due to the decrease in income from
operations, combined with increased non-operating expenses, principally
interest expense.
DISCONTINUED OPERATIONS
As further described in Note 15 to the consolidated financial statements, the
Company adopted a plan to dispose of the assets of NAFE in the fourth quarter
of 1996, and AINS and AB in the fourth quarter of 1998. Aggregate losses of
$0.3 million, net of taxes, were recognized in 1997 to finalize the disposal
of the NAFE operations. Aggregate losses of $2.0 million, net of taxes, were
recognized in 1998 from the disposal of AINS and AB.
EXTRAORDINARY ITEM
The Company refinanced the $120.0 million, 11.5%, AGI Senior Subordinated
Notes in December 1998 and incurred a write-off of unamortized financing
costs of $3.0 million and a redemption premium of $5.2 million. The income
tax benefit related to this refinancing totalled $3.1 million.
NET INCOME (LOSS)
The net loss for 1998 was $5.0 million compared to a net income of $3.5
million for 1997. This $8.5 million difference resulted from a $4.2 million
decrease in income from operations, combined with an increase in net tax
losses of $5.3 million recognized on discontinued operations, extraordinary
item, and cumulative effect of accounting change for start-up costs, and a
$1.7 million increase in non-operating expenses. A reduction of $2.7 million
in income taxes on continuing operations partially offset these items.
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
REVENUES
Revenues of $301.0 million for 1997 increased by approximately $162.1 million
or 116.7% from the comparable period in 1996. Excluding the Ehlert
operations acquired March 1997 and the Camping World operations acquired
April 1997, revenues were $146.3 million for 1997 compared to $138.9 million
for the comparable period in 1996, a 5.3% increase.
Membership services revenues for 1997 of $114.2 million increased by
approximately $14.8 million or 14.9% compared to $99.4 million for 1996.
Excluding the Camping World membership services operations, 1997 membership
services revenue of $105.2 million increased $5.9 million compared to 1996.
This increase is largely attributable to a $3.8 million increase in fee
income generated from the sales of vehicle insurance policies, $2.7 million
increase in revenues from the extended vehicle warranty programs, and a $1.4
million increase from the Rapid Response emergency road service programs.
These increases were partially offset by (i) a net decrease in club
membership revenue of $1.5 million, comprised primarily of a $2.2 million
decrease associated with reduced Coast to Coast Club enrollment
25
and a $0.8 million increase in Good Sam Club membership, and (ii) a $0.5
million decrease in member event revenue.
Publications revenues for 1997 of $53.9 million increased 36.3% from $39.5
million for 1996. This $14.3 million revenue increase was primarily due to
$12.8 million in additional revenue from the acquisition of Ehlert. The
remaining increase is due to (i) $0.5 million as a result of additional
issues of Woodalls Specials and ROADS TO ADVENTURE, (ii) $0.5 million in
additional TRAILER LIFE magazine advertising revenue, and (iii) $0.5 million
in increased book and directory sales.
Merchandise revenue of $133.0 million related entirely to Camping World
acquired in April 1997. On a pro forma basis, assuming the Camping World
acquisition had occurred at January 1, 1996, merchandise revenue for 1997
increased $6.9 million or 4.6%. This increase was principally attributable
to a $3.5 million increase in retail showroom sales and a $3.4 million
increase in mail order sales.
COSTS APPLICABLE TO REVENUES
Costs applicable to revenues totaled $189.5 million in 1997, an increase of
$105.5 million or 125.6% over 1996. Excluding the Ehlert and Camping World
operations acquired in 1997, costs applicable to revenues increased $3.8
million for 1997 compared to 1996, a 4.5% increase.
Membership services costs and expenses increased by approximately $6.8
million or 12.2% to $62.6 million for 1997 compared to $55.8 million in 1996.
Excluding the Camping World acquisition, membership services costs increased
$3.6 million to $59.4 million. This increase was primarily the result of a
$1.7 million increase in marketing expenses associated with the new credit
card program introduced in the fourth quarter of 1996, $1.9 million increase
for emergency road service claims and marketing expenses, of which $1.0
million relates to the operations of the Rapid Response acquisition.
Publication costs and expenses of $36.6 million for 1997 increased $8.3
million or 29.5% compared to 1996. Excluding the Ehlert operations, costs
increased $0.2 million to $28.4 million in 1997. Paper cost decreases
realized in 1997 as a result of a re-negotiated paper contract were more than
offset by increases associated with additional issues of ROADS TO ADVENTURE
and Woodall Specials and increased book marketing and fulfillment costs.
Merchandise costs applicable to revenues of $90.4 million related entirely to
Camping World acquired in April 1997. On a pro forma basis, assuming the
Camping World acquisition had occurred at January 1, 1996, merchandise costs
for 1997 increased $6.2 million or 5.7%. In addition to the corresponding
$5.0 million increase attributable to the increase in merchandise sales, the
gross profit margin on merchandise sales decreased by $1.2 million or 0.8%.
OPERATING EXPENSES
Selling, general and administrative expenses of $57.4 million for 1997 were
$41.1 million over 1996. Excluding Ehlert and Camping World operations,
general and administrative expenses increased $2.2 million largely attributed
to recording $2.3 million of deferred executive compensation in 1997.
Depreciation and amortization expenses of $13.8 million were $5.7 million
over 1996. This increase was primarily due to depreciation and amortization
of fixed assets and intangibles attributable to the Ehlert and Camping World
acquisitions.
INCOME FROM OPERATIONS
Income from operations of $40.2 million for 1997 increased by $9.8 million or
32.3% compared to 1996. This was primarily due to $9.3 million of income
from operations generated by the Ehlert and Camping
26
World acquisitions, $2.2 million gross profit increase from membership
services, $1.3 million gross profit from publications which were partially
offset by a $3.0 million increase in operating expenses.
NON-OPERATING ITEMS
Non-operating items for 1997 were $27.6 million compared to $17.7 million for
1996. This increase is primarily interest on the $130.0 million 11% Senior
Notes issued April 1997 and the absence of restructuring charges incurred in
1996.
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
Income from continuing operations before income taxes and extraordinary item
in 1997 was $12.6 million compared to $12.7 million for 1996. This decrease
was due to increases in operating expenses as noted above, partially offset
by the increase in income from operations from the Ehlert and Camping World
acquisitions and the increase in gross profit from membership services and
publications.
INCOME TAXES
Income taxes for 1997 of $7.1 million increased slightly from 1996 primarily
as a result of additional amortization of non-deductible goodwill. The
effective income tax rates in both 1997 and 1996 are higher than statutory
rates due primarily to the amortization of non-deductible goodwill.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations for 1997 was $5.5 million compared to $6.0
million for 1996. This decrease was due to the increase in income from
operations, as noted above, which was more than offset by an increase in
interest expense.
DISCONTINUED OPERATIONS
As further described in Note 15 to the consolidated financial statements, the
Company adopted a plan to dispose of the assets of NAFE in the fourth quarter
of 1996, and AINS and AB in the fourth quarter of 1998. Aggregate losses of
$0.3 million, net of taxes, were recognized in 1997 to finalize the disposal
of the NAFE operations. Aggregate losses of $1.4 million, net of taxes, were
recognized in 1997 from the AINS and AB discontinued operations.
EXTRAORDINARY ITEM
The Company refinanced its senior term and revolving credit facilities in
April 1997. As a result, the Company incurred a write-off of unamortized
financing costs of $0.2 million, net of tax.
NET INCOME (LOSS)
Net income for 1997 was $3.5 million compared to a net loss of $1.5 million
for 1996. This $5.0 million difference resulted from $9.8 million of income
from operations, and a $5.5 million decrease in loss from discontinued
operations and extraordinary item, offset by a $9.9 million increase in
non-operating expenses, and a $0.4 million increase in income tax expense.
27
LIQUIDITY AND CAPITAL RESOURCES
AGHI is a holding company whose only assets are the capital stock of AGI and
AB, which operations have been classified in the accompanying financial
statement as discontinued. AGI, and its subsidiaries, provide the operating
cash flow necessary to service its debt as well as that of AGHI.
On April 2, 1997, AGI acquired the stock of Camping World for $108.0 million
in cash, including $19.0 million for non-competition and consulting
agreements with certain Camping World executives. In addition, AGHI entered
into the Camping World Management Incentive Agreements with certain Camping
World executives pursuant to which up to an additional $15.0 million will be
paid subject to Camping World achieving certain operating goals (the "Camping
World Management Incentive Agreements"). Such contingent amounts will be
payable in $1.0 million annual installments on the first four anniversaries
of the closing and $11.0 million on the fifth anniversary of the closing.
The purchase price of Camping World was funded through the net proceeds of
the AGHI $130.0 million 11.0% Senior Notes, dated April 2, 1997, ("AGHI
Senior Notes") together with borrowings under AGI's senior credit facility
established on April 2, 1997.
On November 13, 1998, AGI entered into a $200.0 million revolving credit and
term loan facility ("AGI Revolving Credit and Term Loan Facility") consisting
of two term loans aggregating $130.0 million (initially reducing in quarterly
principal installments of $1.65 million) and a revolving credit facility of
$70.0 million of which the outstanding balance will be due and payable at the
conclusion of the credit arrangement. The proceeds were used to redeem the
$120.0 million, 11.5%, AGI Senior Subordinated Notes issued in 1993 at
104.313% of par, retire AGI's senior credit facility established April 2,
1997 and to fund the acquisition of AGI Real Estate Holding, Inc. The
interest on borrowings under the AGI Revolving Credit and Term Loan Facility
is at variable rates based on the ratio of total cash flow to outstanding
indebtedness (as defined). Interest rates float with prime and the London
Interbank Offered Rates ("LIBOR"), plus an applicable margin ranging from
1.625% to 3.625% over the stated rates. As of December 31, 1998, the average
interest rates on the term loans and revolving credit facility were 8.29% and
8.54%, respectively, and permitted borrowings under the undrawn revolving
line were $38.5 million. AGI also pays a commitment fee of 0.5% per annum on
the unused amount of the revolving credit line. The AGI Revolving Credit and
Term Loan Facility is secured by virtually all the assets and a pledge of the
stock of AGI.
Effective November 1, 1998, AGI entered into an interest rate floor and cap
transaction agreement ("AGI Interest Rate Collar") at no cost. The notional
amount of the AGI Interest Rate Collar is $75.0 million with a cap rate of
6.0% and a floor rate of 5.585% over the three month LIBOR index. The
floating rate is adjusted quarterly and was 5.22% at December 31, 1998. This
facility has a maturity date of November 1, 2001. The AGI Interest Rate
Collar protects the Company against a rise in the base rate over 6% on $75.0
million of the floating rate term loans noted above.
The AGI Revolving Credit and Term Loan Facility allows for, among other
things, the distribution of payments by AGI to AGHI to service the
semi-annual interest due on the AGHI Senior Notes and the annual amounts due
under the Camping World Management Incentive Agreements. Such distributions
are subject to AGI's compliance with certain restrictive covenants,
including, but not limited to, an interest coverage ratio, fixed charge
coverage ratio, minimum operating cash flow, and limitations on capital
expenditures and total indebtedness. Further, AGI is permitted to make
dividends to AGHI subject to certain limitations and covenants as defined in
the agreement.
The AGHI indenture pursuant to which the AGHI Senior Notes were issued and
the AGI Revolving Credit and Term Loan Facility individually 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, payment of dividends, and minimum coverage ratios
pertaining to interest expense, fixed
28
charges, levels of consolidated cash flow and cash flow leverage ratio. The
Company was in compliance with all debt covenants at December 31, 1998.
During 1998, payments under the terms of several phantom stock agreements
totaled $0.4 million. Additional phantom stock payments of $1.7 million are
scheduled to be made over the next twelve months.
Capital expenditures in 1998 totaled $10.3 million compared to capital
expenditures of $4.6 million in 1997. This increase was principally
attributable to the purchase of the previously leased Camping World retail
facility in Bolingbrook, Illinois, the addition of two Camping World
supercenters and enhancements to the Company's various computer systems, some
related to Year 2000 compliance. Additionally, on November 13, 1998, AGI
purchased AGI Real Estate Holding, Inc., which owned the Company's corporate
facilities in Ventura, California, for $9.2 million in cash plus assumption
of debt in the amount of $2.4 million. Capital expenditures are anticipated
to be approximately $7.0 million for 1999, primarily for the addition of two
Camping World supercenters, and continued enhancements to membership
marketing databases, inbound and outbound tele-communications, and computer
software and hardware, some related to the Year 2000 compliance.
The Company's Board of Directors adopted a plan to sell the stock of AB,
subject to regulatory approval, to an affiliate of the Company at its net
book value, which in the opinion of management approximates market value.
The assets of AB are subject to regulatory restrictions on dividends or other
distributions to the Company and are unavailable to reduce Company debt. In
addition, AB, although required to be consolidated with the Company, is
recognized as "unrestricted" or non-guarantying subsidiary under the terms of
the AGHI Senior Notes.
Management believes that funds generated by operations together with
available borrowings under its revolving credit line will be sufficient to
satisfy the Company's operating cash needs, debt obligations and capital
requirements of its existing operations during the next twelve months.
FACTORS AFFECTING FUTURE PERFORMANCE
Although increases in operating costs could adversely affect the Company's
operations, management does not believe that inflation has had a material
effect on operating profit during the past several years. However, fuel
shortages and substantial increases in propane and gasoline costs could have
a significant impact on the Company's travel-related membership services and
publications revenues. Historically such events have caused declines in
advertisements but have not significantly affected club membership
enrollment. The Company is unable to predict at what point fluctuating fuel
prices may begin to adversely impact revenues or cash flow. The Company
believes it will be able to partially offset any cost increases with price
increases to its members and certain cost reducing measures.
SEASONALITY
The Company's cash flow is highest in the second half of the year due to the
seasonal nature of the retail segment and membership renewals of the Coast to
Coast clubs in the fourth quarter.
YEAR 2000 DATE CONVERSION
Many of the Company's computerized systems could be affected by the Year 2000
issue, which refers to the inability of such systems to properly process
dates beyond December 31, 1999. The Company also has numerous computerized
interfaces with third parties and is possibly vulnerable to failure by such
29
third parties if they do not adequately address their Year 2000 issues.
System failures resulting from these issues could cause significant
disruption to the Company's operations and result in a material adverse
effect on the Company's business, results of operations, financial condition
or liquidity. Management believes that a significant portion of its "mission
critical" computer systems are Year 2000 compliant and is continuing to
assess the balance of its computer systems as well as equipment and other
facilities systems. Management plans to complete its investigation,
remediation and contingency planning activities for all critical systems by
mid 1999, although there can be no assurance that it will be completed within
this time frame. At this time, management believes that the Company does not
have any internal critical Year 2000 issues that it cannot remedy.
Management is in the process of surveying third parties with which it has a
material relationship primarily through written correspondence. Despite its
efforts to survey its customers, management is depending on the response of
these third parties in its assessment of Year 2000 readiness. Management
cannot be certain as to the actual Year 2000 readiness of these third parties
or the impact that any non-compliance on their part may have on the Company's
business, results of operations, financial condition or liquidity.
The Company expects to incur internal staff costs as well as consulting and
other expenses in preparing for the Year 2000. Because the Company has
replaced or updated a significant portion of its computer systems, both
hardware and software, in recent years, the cost to be incurred in addressing
the Year 2000 issue is not expected to have a material impact on the
Company's business, results of operations, financial condition or liquidity.
As of December 31, 1998, these costs have totaled $0.2 million in capital
equipment and software purchases and $0.4 million for expense. Expenditures
on Year 2000 issues in 1999 are expected to be in the range of $0.7 million
to $0.8 million. This expectation assumes that our existing forecast of
costs to be incurred contemplates all significant actions required and that
we will not be obligated to incur significant Year 2000 related costs on
behalf of our customers, suppliers and other third parties.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risks relating to fluctuations in interest
rates. The Company's objective of financial risk management is to minimize
the negative impact of interest rate fluctuations on the Company's earnings
and cash flows.
Interest rate risk is managed through the use of interest rate collar
contracts. These contracts are entered into with major financial institutions
thereby minimizing risk of credit loss. See Note 6 to the consolidated
financial statements for a more complete description of the Company's
interest rate collars.
The following analysis presents the sensitivity to the earnings of the
Company if these changes occurred at December 31, 1998. The range of changes
chosen for this analysis reflects the Company's 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
the Company's business as a result of these interest rate fluctuations.
INTEREST RATE SENSITIVITY ANALYSIS
At December 31, 1998, the Company had debt, excluding capital leases,
totaling $305.2 million and interest rate collar contracts with a notional
value of $75.0 million. The interest rate collar contracts limit LIBOR
fluctuations to interest rate changes from 5.585% to 6.0%. As of December 31,
1998, the LIBOR rate was 5.22%.
30
At December 31, 1998, the Company had $163.9 million of variable rate debt
and $141.3 million of fixed rate debt. Holding other variables constant (such
as debt levels), the earnings and cash flow impact of a one-percentage point
increase in interest rates would have an unfavorable impact of approximately
$0.7 million. The earnings and cash flow impact of a one-percentage point
decrease in interest rates would have a favorable impact of approximately
$0.1 million, holding other variables constant.
CREDIT RISK
The Company is exposed to credit risk on accounts receivable. The Company
provides credit to customers in the ordinary course of business and performs
ongoing credit evaluations. Concentrations of credit risk with respect to
trade receivables are limited due to the number of customers comprising the
Company's customer base. The Company currently believes its allowance for
doubtful accounts is sufficient to cover customer credit risks.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This filing contains statements that are "forward looking statements," and
includes, among other things, discussions of the Company's business strategy
and expectations concerning market position, future operations, margins,
profitability, liquidity and capital resources, as well as statements
concerning the integrations of acquired operations and the achievement of
financial benefits and operational efficiencies in connection with
acquisitions. Forward looking statements are included in "Business--
General," "Business-- Business Strategy," "Business-- RV Industry,"
"Business-- Operations," "Business--Competition," "Legal Proceedings," and in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Although the Company believes that the expectations reflected
in such forward looking statements are reasonable, it can give no assurance
that such expectations will prove to have been correct. Generally, these
statements relate to business plans or strategies, projected or anticipated
benefits or other consequences of such plans or strategies, number of
acquisitions and projected or anticipated benefits from acquisitions made by
or to be made by the Company, or projections involving anticipated revenues,
expenses, earnings, levels of capital expenditures or other aspects of
operating results. All phases of the operations of the Company are subject
to a number of uncertainties, risks and other influences, including consumer
spending, fuel prices, general economic conditions, regulatory changes and
competition, many of which are outside the control of the Company, any one of
which, or a combination of which, could materially affect the results of the
Company's operations and whether the forward looking statements made by the
Company ultimately prove to be accurate.
31
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Reports of Independent Public Accountants 33
Consolidated Balance Sheets as of December 31, 1998 and 35
1997
Consolidated Statements of Operations for the years ended 36
December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholder's Deficit for the 37
years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended 38
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements 39
Schedule II - Valuation and Qualifying Accounts 52
All other financial statement schedules not listed have been omitted since the
required information is included in the consolidated financial statements, the
notes thereto, is not applicable, or not required.
32
[TYPED ON ARTHUR ANDERSEN LLP LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Affinity Group Holding, Inc. and subsidiaries
We have audited the accompanying consolidated balance sheet of Affinity Group
Holding, Inc. [a Delaware corporation and a wholly-owned subsidiary of AGI
Holding Corp.] and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, stockholder's deficit, and cash flows for
the year then ended. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Affinity
Group Holding, Inc. and subsidiaries as of December 31, 1998, and the results
of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Valuation and Qualifying Accounts
data on page 52 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. This information has been
subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Los Angeles, California
February 19, 1999
33
[TYPED ON DELOITTE AND TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Affinity Group Holding, Inc. and subsidiaries
We have audited the accompanying consolidated balance sheet of Affinity Group
Holding, Inc. and subsidiaries as of December 31, 1997 and the related
consolidated statements of operations, stockholder's deficit, and cash flows
for the years ended December 31, 1997 and 1996. Our audits also included the
financial statement schedule listed in the index at Item 8 for the years
ended December 31, 1997 and 1996. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Affinity Group Holding, Inc. and
subsidiaries as of December 31, 1997, and the results of their operations and
their cash flows for the years ended December 31, 1997 and 1996 in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedule for the years ended December 31, 1997 and 1996,
when considered in relations to the basic 1997 and 1996 consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE AND TOUCHE LLP
March 5, 1998
Denver, Colorado
34
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- ------------------------------------------------------------------------------
1998 1997
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,863 $ 4,026
Accounts receivable, less allowance for doubtful accounts
of $1,071 in 1998 and $731 in 1997 24,248 24,944
Inventories 32,972 30,283
Prepaid expenses and other assets 8,939 10,884
------------- -------------
Total current assets 69,022 70,137
PROPERTY AND EQUIPMENT 69,417 51,320
NOTE FROM AFFILIATE 3,100 -
INTANGIBLE ASSETS 196,917 205,866
DEFERRED TAX ASSET 7,842 8,163
OTHER ASSETS 3,255 5,108
NET LONG-TERM ASSETS OF DISCONTINUED OPERATIONS 146,616 47,671
------------- -------------
$ 496,169 $ 388,265
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 19,893 $ 16,307
Accrued interest 4,995 7,371
Accrued income taxes 332 5,035
Accrued liabilities 22,750 22,211
Deferred revenues 53,395 51,366
Deferred tax liability 1,964 2,132
Current portion of long-term debt 7,804 6,132
Net current liabilities of discontinued operations 129,596 32,237
------------- -------------
Total current liabilities 240,729 142,791
DEFERRED REVENUES 35,276 27,691
LONG-TERM DEBT 297,663 288,229
OTHER LONG-TERM LIABILITIES 3,447 5,466
COMMITMENTS AND CONTINGENCIES - -
------------- -------------
577,115 464,177
------------- -------------
STOCKHOLDER'S DEFICIT:
Common stock, $.01 par value, 1,000 shares authorized,
100 shares issued and outstanding 1 1
Additional paid-in capital 12,021 12,021
Accumulated deficit (92,968) (87,934)
------------- -------------
Total stockholder's deficit (80,946) (75,912)
------------- -------------
$ 496,169 $ 388,265
------------- -------------
------------- -------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
35
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
- -------------------------------------------------------------------------------
1998 1997 1996
------------- ------------ ------------
REVENUES:
Membership services $ 116,325 $ 114,175 $ 99,354
Publications 60,354 53,891 39,545
Merchandise 182,367 132,953 -
------------- ------------- ------------
359,046 301,019 138,899
COSTS APPLICABLE TO REVENUES:
Membership services 71,460 62,607 55,793
Publications 42,703 36,554 28,236
Merchandise 121,320 90,378 -
------------- ------------- ------------
235,483 189,539 84,029
GROSS PROFIT 123,563 111,480 54,870
OPERATING EXPENSES:
Selling, general and administrative 72,737 57,435 16,326
Depreciation and amortization 14,868 13,859 8,181
------------- ------------- ------------
87,605 71,294 24,507
------------- ------------- ------------
INCOME FROM OPERATIONS 35,958 40,186 30,363
NON-OPERATING ITEMS:
Interest expense, net (31,823) (27,825) (16,690)
Other non-operating income, net 2,501 232 (996)
------------- ------------- ------------
(29,322) (27,593) (17,686)
------------- ------------- ------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES, EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 6,636 12,593 12,677
INCOME TAX EXPENSE (4,422) (7,114) (6,690)
------------- ------------- ------------
INCOME FROM CONTINUING OPERATIONS 2,214 5,479 5,987
DISCONTINUED OPERATIONS:
Loss from discontinued operations, net of applicable
income tax benefits of $201, $874 and $930
for 1998, 1997 and 1996, respectively (1,935) (1,424) (1,592)
Loss on disposal, net of applicable income
tax benefits of $33, $176 and $1,060 in 1998, 1997 and
1996, respectively (54) (294) (5,866)
------------- ------------- ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 225 3,761 (1,471)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of applicable current
income tax benefit of $3,147 and $147 in 1998 and 1997,
respectively (5,135) (239) -
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
FOR START-UP COSTS, net of applicable current income
tax benefit of $77 in 1998 (124) - -
------------- ------------- ------------
NET INCOME (LOSS) $ (5,034) $ 3,522 $ (1,471)
------------- ------------- ------------
------------- ------------- ------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
36
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- ------------------------------------------------------------------------------
Common Stock Additional
------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
--------- -------- ------------ ------------- -------------
BALANCES AT JANUARY 1, 1996 100 $1 $12,021 ($89,985) ($77,963)
Net loss (1,471) (1,471)
--------- -------- ------------ ------------- -------------
BALANCES AT DECEMBER 31, 1996 100 1 12,021 (91,456) (79,434)
Net income 3,522 3,522
--------- -------- ------------ ------------- -------------
BALANCES AT DECEMBER 31, 1997 100 1 12,021 (87,934) (75,912)
Net loss (5,034) (5,034)
--------- -------- ------------ ------------- -------------
BALANCES AT DECEMBER 31, 1998 100 $1 $12,021 ($92,968) ($80,946)
--------- -------- ------------ ------------- -------------
--------- -------- ------------ ------------- -------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
37
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
- -------------------------------------------------------------------------------
1998 1997 1996
-------------- ------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($5,034) $3,522 ($1,471)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Deferred tax provision 153 2,000 2,495
Depreciation and amortization 14,868 13,859 8,181
Provision for losses on accounts receivable 1,053 90 278
Provision for estimated loss on disposal of NAFE - - 6,926
Deferred compensation (1,725) 2,300 -
(Gain) loss on disposal of property and equipment (14) (6) 1
Extraordinary item - loss on early extinguishment of debt 8,282 386 -
Loss on write-off of start-up costs 201 - -
Changes in operating assets and liabilities (net of purchased
businesses):
Accounts receivable (357) (6,113) (120)
Inventories (2,689) 3,612 1,400
Prepaids and other assets 1,450 (2,609) (451)
Accounts payable 3,586 (11,950) 68
Accrued and other liabilities (6,840) 3,468 (1,967)
Deferred revenues 9,614 4,643 1,347
Net assets and liabilities of discontinued operations (4,686) (10,396) (908)
-------------- ------------- ------------
Net cash provided by operating activities 17,862 2,806 15,779
-------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (10,303) (4,613) (1,376)
Proceeds from sale of property and equipment 80 46 2
Net changes in intangible assets (3,078) (10,805) (396)
Purchase of Ehlert Publishing Group, Inc. - (20,889) -
Purchase of Camping World, Inc., net of cash acquired - (97,418) -
Purchase of AGI Real Estate Holding, Inc., net of cash acquired (9,247) - -
Note receivable from affiliate - - 3,113
-------------- ------------- ------------
Net cash provided by (used in) investing activities (22,548) (133,679) 1,343
-------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption premium on prepayment of long-term debt (5,176) - -
Borrowings on long-term debt 241,123 205,580 34,200
Principal payments of long-term debt (232,424) (70,682) (51,321)
-------------- ------------- ------------
Net cash provided by (used in) financing activities 3,523 134,898 (17,121)
-------------- ------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,163) 4,025 1
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,026 1 -
-------------- ------------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,863 $ 4,026 $ 1
-------------- ------------- ------------
-------------- ------------- ------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
38
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Affinity Group Holding, Inc. ("AGHI"), its wholly-owned
subsidiary, Affinity Group, Inc. ("AGI"), and AGI's subsidiaries
(collectively the Company). AGHI was formed in November 1996 and all of
the stock of AGI was contributed to AGHI from its parent, AGI Holding Corp.
("AGHC"), formerly Affinity Group Holding, Inc., upon formation. All
significant intercompany transactions and balances have been eliminated.
Certain reclassifications of prior year amounts have been made to conform
to the current presentation.
DESCRIPTION OF THE BUSINESS - The Company is a membership based direct
marketing company which sells club memberships, products, services, and
publications to selected affinity groups primarily in North America. The
Company markets club memberships, merchandise and services to RV owners,
camping and golf enthusiasts. The Company also publishes magazines,
directories and books. In connection with the acquisition of Camping World
(see Note 2), the Company now offers a full array of merchandise and
services for RV owners through retail supercenters and mail order
operations.
USE OF ESTIMATES - The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
requires the Company's management to make estimates and assumptions that
affect the amounts reported in these financial statements and accompanying
notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - The Company considers all short-term, highly
liquid investments purchased with a maturity date of three months or less
to be cash equivalents. The carrying amount approximates fair value
because of the short maturity of these instruments.
CONCENTRATION OF CREDIT RISK - The Company is potentially subject to
concentrations of credit risk in accounts receivable and loans receivable.
Concentrations of credit risk with respect to accounts receivable is
limited due to the large number of customers and their geographical
dispersion.
INVENTORIES - Inventories are stated at lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method for approximately 91.5%
and 89% of the Company's inventories at December 31, 1998 and 1997,
respectively, and the first-in, first-out (FIFO) method for all other
inventories. The FIFO and LIFO values approximate the current market cost.
Inventories consist of retail travel and leisure specialty merchandise.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation of property and equipment is provided using the straight-line
method over the following estimated useful lives of the assets:
Years
-----
Buildings and improvements 3-38
Furniture and equipment 3-12
Software 3-5
39
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Leasehold improvements, included in buildings and improvements, are
amortized over the lives of the respective leases.
INTANGIBLE ASSETS - Intangible assets are amortized over the following
lives:
Years
-----
Goodwill 40
Membership and customer lists 3-10
Resort and golf course agreements 4
Noncompete and deferred consulting agreements 3-15
Deferred financing costs are amortized over the lives of the related
debt agreements.
LONG-TERM DEBT - The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar issues
or on the current rates offered for debt of the same or similar remaining
maturities. The fair value of the Company's long-term debt was $310.0
million as of December 31, 1998.
REVENUE RECOGNITION - Merchandise revenue is recognized when products are
sold in the retail stores, shipped via mail order or when services are
provided to customers. Membership and Emergency Road Service ("ERS")
revenues are deferred and recognized over the life of the membership.
Advances on third party credit card fee revenues are deferred and
recognized based on increases in credit card receivables held by third
parties. Good Sam Club lifetime membership revenues and expenses are
deferred and recognized over 18 years which is the actuarially determined
fulfillment period. Promotional expenses, consisting primarily of direct
mail advertising, are deferred and expensed over the period of expected
future benefit. Renewal expenses are expensed at the time related
materials are mailed. ERS claim expenses are recognized when incurred.
PUBLICATIONS REVENUE AND EXPENSE - 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.
START-UP ACTIVITY COSTS - In April 1998, the American Institute of
Certified Public Accountants ("AICPA") issued Statement of Position
No. 98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5),
which requires that costs of start-up activities be expensed as incurred.
In addition, start-up costs that are currently capitalized must be
written-off when SOP 98-5 is adopted. The Company implemented SOP 98-5
effective December 31, 1998, and recorded a charge of $124,000, which is
net of a $76,000 income tax benefit to reflect the cumulative effect of
this change in accounting principle.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - In June 1998, the
Financial Accounting Standards Board issued SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 establishes
accounting and reporting standards for derivative instruments, including
certain
40
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
derivative instruments embedded in other contracts, (collectively referred
to as derivatives) and for hedging activities. The Company currently has
no items related to SFAS 133 other than the income/loss related to the
interest floor and cap transaction agreement noted in Note 6. This SFAS
will be implemented January 1, 2000. The adoption by the Company of SFAS
133 is not expected to have a material effect on its results of operations
or on its financial position.
2. ACQUISITIONS
On April 2, 1997, the Company acquired the common stock of Camping World,
Inc. ("CWI") for $108.0 million in cash, including $19.0 million for
non-competition and consulting agreements with certain Camping World
executives. In addition, AGHI entered into a management incentive
agreement with certain Camping World executives pursuant to which up to
$15.0 million will be paid subject to Camping World achieving certain
goals. The purchase price of Camping World was funded through the April 2,
1997 issuance by AGHI of $130.0 million in 11% senior notes due 2007,
together with borrowings under the AGI's $75.0 million senior credit
facility established April 2, 1997. Camping World is a national specialty
retailer of merchandise and services for RV owners.
On March 6, 1997, AGI acquired the stock of Ehlert Publishing Group, Inc.
("EPG") for $22.4 million, of which $20.9 million was paid in cash at
closing. In addition, a $1.5 million note was issued by AGHI, to the
seller, of which $1.0 million was repaid in April 1997. The purchase price
of EPG was funded primarily through borrowings under the AGI's senior
credit facility. EPG is a specialty publisher of sports and recreation
magazines focusing on four niches: snowmobiling, personal watercraft,
archery and all-terrain vehicles.
The operating results of CWI and EPG have been included in the Company's
consolidated results of operations from the dates of their respective
acquisition. These acquisitions have been accounted for using the purchase
method of accounting and, accordingly, the assets and liabilities of these
companies have been recorded at their estimated fair value at the date of
their respective acquisitions. In connection with these acquisitions, the
Company has recorded goodwill of approximately $67,567,000.
The following unaudited pro forma results of operations for the years
ended December 31, 1997 and 1996 assumes the acquisition of CWI and EPG
occurred as of January 1, 1996. The summary pro forma results are based
on assumptions and are not necessarily indicative of the actual results
which would have occurred had these acquisitions occurred on January 1,
1996, or of the future results of operations of the Company (in
thousands).
Year ended
---------------------------
1997 1996
------------ ------------
Revenue $343,492 $322,918
Income from continuing operations 2,047 4,775
Net income (loss) 1,514 (1,777)
41
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31 (in
thousands):
1998 1997
------------------------
Land $ 18,289 $ 14,376
Building and improvements 38,319 25,205
Furniture and equipment 18,151 17,041
Software 6,595 4,633
Systems development in progress 2,623 872
------------------------
83,977 62,127
Less: accumulated depreciation (14,560) (10,807)
------------------------
$ 69,417 $ 51,320
------------------------
------------------------
4. INTANGIBLES
Intangible assets consisted of the following at December 31 (in thousands):
1998 1997
------------------------
Goodwill $ 184,511 $ 184,511
Membership and customer lists 3,947 3,947
Resort and golf course participation agreements 13,744 13,692
Noncompete and deferred consulting agreements 28,015 29,197
Deferred financing costs 15,350 12,428
------------------------
245,567 243,775
Less: accumulated amortization (48,650) (37,909)
------------------------
$ 196,917 $ 205,866
------------------------
------------------------
5. ACCRUED LIABILITIES
Accrued liabilities consisted of the following at December 31 (in
thousands):
1998 1997
------------------------
Compensation and benefits $ 8,611 $ 8,042
Other accruals 14,139 14,169
------------------------
$ 22,750 $ 22,211
------------------------
------------------------
42
6. LONG-TERM DEBT
The following reflects outstanding long-term debt as of December 31 (in
thousands):
1998 1997
------------- ------------
AGHI Senior Notes $ 130,000 $ 130,000
Camping World management incentive obligation 10,000 10,000
AGI Senior Credit Term Loan Facility:
Term A 70,000 -
Term B 60,000 -
Revolving credit line 31,475 -
AGI Senior Subordinated Notes - 120,000
AGI Senior Credit Facility:
Term loan - 25,500
Revolving credit line - 7,380
Other long-term obligations 3,992 1,481
------------- ------------
305,467 294,361
Less: current portion (7,804) (6,132)
------------- ------------
$ 297,663 $ 288,229
------------- ------------
------------- ------------
On April 2, 1997, AGHI issued a total of $130.0 million of senior notes
("AGHI Senior Notes"). The notes bear interest at the rate of 11% per
annum with interest payable semi-annually each April 1 and October 1, and
mature on April 1, 2007. These notes are general unsecured obligations of
AGHI and rank pari passu with all existing indebtedness of AGHI and senior
in right of payment to all existing and future subordinated indebtedness of
the Company.
On April 2, 1997, AGHI entered into management incentive agreements
("Camping World Management Incentive Agreements") with certain Camping
World executives pursuant to which up to an additional $15.0 million will
be paid subject to Camping World achieving certain operating goals. Such
contingent amounts will be payable in $1.0 million annual installments on
the first four anniversaries of the closing and $11.0 million on the fifth
anniversary of the closing. This obligation was recorded at the present
value of $10.0 million and accrues interest at the rate of 10% per annum on
the unpaid balance.
On November 13, 1998, AGI entered into a $200.0 million revolving credit
and term loan facility ("AGI Revolving Credit and Term Loan Facility") with
certain lenders and Fleet National Bank, as agent, consisting of two term
loans aggregating $130.0 million (initially reducing in quarterly principal
installments of $1.65 million) and a revolving credit facility of $70.0
million of which the outstanding balance will be due and payable at the
conclusion of the credit arrangement. The interest on borrowings under the
AGI Revolving Credit and Term Loan Facility is at variable rates based on
the ratio of total cash flow to outstanding indebtedness (as defined).
Interest rates float with prime and the London Interbank Offered Rates
("LIBOR"), plus an applicable margin ranging from 1.625% to 3.625% over the
stated rates. The average interest rates on the term loans and the
revolving credit facility as of December 31, 1998 were 8.29% and 8.54%,
respectively. AGI also pays a commitment fee of 0.5% per annum on the
unused amount of the revolving credit line. The funds were used to redeem
the $120.0 million, 11.5%, AGI Senior Subordinated Notes issued in 1993 at
104.313% of par, retire the AGI Senior Credit Facility established April 2,
1997 and to fund the acquisition of AGI Real Estate Holding, Inc., the
Company's corporate facilities in Ventura, California. The AGI Revolving
Credit and Term Loan Facility is secured by a security
43
6. LONG-TERM DEBT (continued)
interest in virtually all the assets of AGI and its subsidiaries and a
pledge of the stock of AGI and its subsidiaries.
Effective November 1, 1998, AGI entered into an interest rate floor and cap
transaction agreement ("AGI Interest Rate Collar") at no cost. The
notional amount of the AGI Interest Rate Collar is $75.0 million with a cap
rate of 6.0% and a floor rate of 5.585% over the three month LIBOR index.
The floating rate is adjusted quarterly and was 5.22% at December 31, 1998.
This facility has a maturity date of November 1, 2001. The AGI Interest
Rate Collar protects the Company against a rise in the base rate over 6% on
$75.0 million of the floating rate term loans noted above.
The AGI Revolving Credit and Term Loan contains certain restrictive
covenants relating to, but not limited to, mergers, changes in the nature
of the business, acquisitions, additional indebtedness, sale of assets,
investments, payment of dividends, and minimum coverage ratios pertaining
to interest expense, fixed charges, levels of consolidated cash flow and
cash flow leverage ratio.
The AGHI indenture pursuant to which the AGHI Senior Notes were issued
("AGHI Indenture") and the AGI Revolving Credit and Term Loan Facility
individually 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, payment of dividends,
and minimum coverage ratios pertaining to interest expense, fixed charges,
levels of consolidated cash flow and cash flow leverage ratio. The Company
was in compliance with all debt covenants at December 31, 1998.
The aggregate future maturities of long-term debt at December 31, 1998 are
as follows (in thousands):
1999 $ 7,804
2000 8,900
2001 10,927
2002 23,702
2003 15,642
Thereafter 238,492
-----------
Total $ 305,467
-----------
-----------
7. INCOME TAXES
The components of the Company's income tax expense from continuing
operations for the year ended December 31, consisted of (in thousands):
1998 1997 1996
------------------------------
Current:
Federal $ 6,233 $ 2,931 $ 2,967
State 675 360 383
Deferred (2,486) 3,823 3,340
-----------------------------
Income tax expense $ 4,422 $ 7,114 $ 6,690
-----------------------------
-----------------------------
44
7. INCOME TAXES (continued)
A reconciliation of income tax expense from continuing operations to the
federal statutory rate for the year ended December 31, is as follows (in
thousands):
1998 1997 1996
----------------------------------------------------
Income taxes computed at federal statutory rate $ 2,353 $ 4,408 $ 4,437
State income taxes - net of federal benefit 202 561 679
Permanent difference -
Amortization of goodwill 1,529 1,959 1,518
Change in valuation allowance - - 495
Other 338 186 (439)
----------------------------------------------------
Income tax expense $ 4,422 $ 7,114 $ 6,690
----------------------------------------------------
----------------------------------------------------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes and
operating loss and tax credit carryforwards. Significant items comprising
the net deferred tax asset at December 31 are (in thousands):
1998 1997
-------------------------------
DEFERRED TAX LIABILITIES:
Accelerated depreciation $ (1,317) $ (1,462)
Prepaid expenses (2,782) (2,777)
Directory revenue (218) (306)
Intangible assets (1,067) (1,066)
Basis difference on building and land acquired (7,395) (7,429)
Other (388) (13)
-------------------------------
(13,167) (13,053)
DEFERRED TAX ASSETS:
Intangible assets 596 163
Deferred revenues 12,445 8,756
Accrual for employee benefits and severance 1,109 1,922
Accrual for deferred phantom stock compensation 1,351 2,255
Organizational and start-up costs - 72
Net operating loss carryforward 3,473 5,972
Tax credits 1,822 1,681
Claims reserves 718 727
Accounts receivable reserve 351 232
Building lease abandonment reserve 164 261
Sales returns 62 103
Reserve for resort cards 1,608 1,427
Unicap adjustment 305 287
Other reserves 204 389
-------------------------------
24,208 24,247
Valuation allowance (5,163) (5,163)
-------------------------------
Net deferred tax asset $ 5,878 $ 6,031
-------------------------------
-------------------------------
45
7. INCOME TAXES (continued)
The Company and its subsidiaries are parties to a tax-sharing agreement
with the Company's parent; however, taxes are determined on a separate
company basis. As part of this tax-sharing agreement, AGHC is compensated
for its share of separate company federal tax losses. As such, accrued
income taxes on the balance sheet are due to AGHC. At December 31, 1998,
the Company has unused net operating loss carryforwards for federal income
tax purposes of approximately $9.1 million which expire through 2009. The
Company also has alternative minimum tax credit (AMT) carryforwards
remaining of approximately $1.6 million and general business credit
carryforwards attributable to a subsidiary of approximately $256,000.
8. COMMITMENTS AND CONTINGENCIES
LEASES - The Company holds certain property and equipment under rental
agreements and operating leases which have varying expiration dates.
Future minimum annual fixed rentals under operating leases having an
original term of more than one year as of December 31, 1998 are as follows
(in thousands):
1999 $ 6,591
2000 6,345
2001 5,947
2002 5,355
2003 5,201
Thereafter 23,539
------------
Total $ 52,978
------------
------------
During 1998, 1997, and 1996, respectively, approximately $7,737,000,
$6,614,000, and $1,534,000 of rent expense was charged to costs and
expenses.
LITIGATION - From time to time, the Company is involved in litigation
arising in the normal course of business operations.
On January 28, 1998, Travel America, Inc., First Nationwide Resort
Management, Inc., Revcon Motorcoach, Inc., Adventure Resorts of America,
Inc., Thousand Adventures, Inc., and other related entities filed a
complaint in the Superior Court of California in Orange County, California,
against Camp Coast to Coast, Inc., Affinity Group, Inc., certain employees
and former employees of Camp Coast to Coast, Inc. and Affinity Group, Inc.
and certain membership campground resorts within the Coast to Coast system.
The complaint relates to the termination by the plaintiffs of their
affiliation contracts with Camp Coast to Coast, Inc. The suit alleges
causes of action for breach of contract, unfair competition, interference
with contracts, interference with prospective economic advantage,
misappropriation of trade secrets, fraud, defamation, accounting,
conspiracy and injunctive relief. The suit seeks compensatory damages,
injunctive relief, general and special damages, punitive damages and an
accounting. The Company and all other defendants believe the complaint to
be without merit and intend to vigorously defend the action and assert all
available rights and seek all appropriate remedies. The Company and all
other defendants believe that such litigation will not have a material
adverse effect on its results of operations or on its financial position.
EMPLOYMENT AGREEMENTS - The Company has employment agreements with certain
officers. The agreements include, among other things, one year's severance
pay beyond the termination date.
46
9. RELATED-PARTY TRANSACTIONS
Effective June 1995, the Company entered into a lease agreement for its
corporate facilities in Ventura, California (the Lease Agreement) with AGI
Real Estate Holding, Inc. ("AGIRE"). The owners of AGIRE are minority
shareholders of AGHC and are also related to the Company's Chairman.
On November 13, 1998, AGI purchased AGIRE for $9,247,000 in cash plus
assumption of debt in the amount of $2,413,000 which approximated the
fair market value.
In January 1997, the Company funded a $1.0 million loan to its
President. The loan is due on demand and is secured by an assignment and
pledge of his vested phantom stock interest in the Company. In
addition, in September 1997, the Company paid a $0.5 million finders fee
to a company owned by the President of the Company.
Certain directors of the Company are partners in partnerships that lease
facilities to the Company under long-term leases. For year ended December
31, 1998, payments under these leases were approximately $2.8 million.
Future commitments under these leases total approximately $23.5 million.
The leases expire at various dates from October 1999 through September
2011, subject to the right of the Company to exercise renewal options.
10. STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information for December 31 (in
thousands) :
1998 1997 1996
----------- ----------- ------------
Cash paid during the year for:
Interest $ 34,794 $ 23,657 $ 16,795
Income taxes 5,128 813 568
The Company entered into the following non-cash investing transactions:
1998:
The Company assumed $2,413,000 of liabilities in the acquisition
of AGIRE. Further, the Company received a note receivable of
$3,100,000 in the sale of AINS.
1997:
The Company assumed $52,057,000 and $5,531,000 of liabilities in
the acquisitions of CWI and EPG, respectively.
1996:
The Company received a note receivable of $1,000,000 in the sale
of the Benbow Golf Course.
11. BENEFIT PLAN
The Company has a 401(k) deferred savings and profit sharing plan.
Employees must have attained age 21 and completed 1 year of service with a
minimum of 1,000 hours to participate in the plan. Employees may
contribute up to 15% of their salaries, and the Company matches these
employee contributions at the rate of 75%, up to 6% of the employee's
salary. Vesting of the Company's contribution occurs ratably over 5 years
at which time the participants are 100% vested. Contributions are limited
to the maximum amount deductible for federal income tax purposes during the
year. The Company's contributions to the plan totaled approximately
$1,204,000, $953,000, and $410,000 for 1998, 1997, and 1996, respectively.
47
12. DEFERRED PHANTOM STOCK COMPENSATION
The Company has deferred compensation agreements with certain officers.
The agreements provide for payment to the officers upon their termination,
death, disability, or sale of the Company. Deferred compensation is
included in other long-term liabilities as if fully vested. Deferred
compensation to be paid in 1999 has been classified in current liabilities.
This deferred compensation is subject to vesting under the terms of the
individual agreements. Vesting periods range from 20% per year over a five
year period to immediate vesting upon entering an agreement.
13. SEGMENT INFORMATION
The Company's three principal lines of business are Membership Services,
Publications, and Retail. The Membership Services segment operates the
Good Sam Club, Coast to Coast Club, and Camping World's President's Club
for RV owners, campers and outdoor vacationers, and the Golf Card Club for
golf enthusiasts. These membership clubs form a receptive audience to
which the Company markets its products and services. The Publications
segment publishes a variety of publications for selected markets in the
recreation and leisure industry, including general circulation periodicals,
club magazines, directories and RV industry trade magazines. 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.
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. Most of the businesses were acquired as a unit, and the
management at the time of acquisition was retained.
The Company does not allocate income taxes or unusual items to segments.
Financial information by reportable business segment is summarized as
follows (in thousands):
Membership
Services Publications Retail Consolidated
--------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
Revenues from external customers $ 116,325 $ 60,354 $ 182,367 $ 359,046
Interest revenue - 25 374 399
Interest expense - 2,932 12,426 15,358
Depreciation and amortization 4,085 1,233 5,975 11,293
Segment profit (loss) 35,768 10,125 (730) 45,163
Segment assets 83,049 74,066 150,938 308,053
Expenditures for segment assets 1,927 417 6,929 9,273
YEAR ENDED DECEMBER 31, 1997
Revenues from external customers $ 114,175 $ 53,891 $ 132,953 $ 301,019
Interest revenue 31 31 74 136
Interest expense - 2,686 7,693 10,379
Depreciation and amortization 5,372 2,000 4,259 11,631
Segment profit (loss) 38,648 9,908 (1,205) 47,351
Segment assets 82,444 75,172 147,832 305,448
Expenditures for segment assets 1,093 290 2,126 3,509
48
13. SEGMENT INFORMATION (continued)
Membership
Services Publications Retail Consolidated
--------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
Revenues from external customers $ 97,821 $ 41,078 $ - $ 138,899
Interest revenue 39 17 - 56
Interest expense - 793 - 793
Depreciation and amortization 5,194 1,365 - 6,559
Segment profit 36,477 8,824 - 45,301
Segment assets 87,486 48,442 - 135,928
Expenditures for segment assets 554 54 - 608
The following is a summary of the reconciliations of reportable segments to
the Company's consolidated financial statements for the years ended
December 31, 1998, 1997 and 1996 (in thousands):
1998 1997 1996
-------- -------- --------
INTEREST INCOME
Total interest income for reportable segments $ 399 136 56
Other not allocated interest income 196 338 1,509
--------- -------- --------
Total interest income $ 595 $ 474 $ 1,565
--------- -------- --------
--------- -------- --------
INTEREST EXPENSE
Total interest expense for reportable segments $ 15,358 $ 10,379 $ 793
Elimination of intersegment interest expense (15,285) (10,318) (791)
Other not allocated interest expense 32,345 28,238 18,253
--------- -------- --------
Total interest expense $ 32,418 $ 28,299 $ 18,255
--------- -------- --------
--------- -------- --------
DEPRECIATION AND AMORTIZATION
Total depreciation and amortization for reportable segments $ 11,293 $ 11,631 $ 6,559
Unallocated depreciation and amortization expense 3,575 2,228 1,622
--------- -------- --------
Total consolidated depreciation and amortization 14,868 $ 13,859 $ 8,181
--------- -------- --------
--------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE
Total profit for reportable segments $ 45,163 $ 47,351 $ 45,301
Unallocated depreciation and amortization expense (3,575) (2,228) (1,622)
Unallocated G & A expense (18,088) (14,948) (15,049)
Unallocated interest expense, net (32,149) (27,900) (16,744)
Elimination of intersegment interest expense 15,285 10,318 791
--------- -------- --------
Income From Continuing Operations Before Income Taxes,
Extraordinary Item and Cumulative Effect of
Accounting Change $ 6,636 $ 12,583 $ 12,677
--------- --------- --------
--------- --------- --------
ASSETS
Total assets for reportable segments $ 308,053 $ 305,448 $135,928
Capitalized finance costs not allocated to segments 8,764 10,072 3,646
Corporate unallocated assets 32,736 25,074 26,158
Net long-term assets of discontinued operations 146,616 47,671 13,441
--------- --------- --------
Consolidated total $ 496,169 $ 388,265 $179,173
--------- --------- --------
--------- --------- --------
49
1998 1997
--------- ---------
OTHER SIGNIFICANT ITEMS
Total expenditures for assets for reportable segments $ 9,273 $ 3,509
Other asset expenditures 1,030 1,104
--------- ---------
Total capital expenditures $ 10,303 $ 4,813
--------- ---------
--------- ---------
MAJOR CUSTOMERS- Included in revenues in 1998, 1997 and 1996 are $14.0
million, $20.7 million, and $17.2 million, respectively, received under
contracts from one customer of the Company. These revenues have been
reported in the Membership Services segment.
14. SELECTED UNAUDITED QUARTERLY INFORMATION
The following is a summary of selected quarterly information for the years
ended December 31, 1998 and 1997 (in thousands):
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
-------------------------------------------------------------
Total revenue $ 77,923 $ 98,177 $ 94,503 $ 88,443
Gross profit 26,013 34,475 31,281 31,794
Income (loss) from continuing operations (1,204) 2,272 888 258
Net income (loss) (1,838) 1,791 343 (5,330)
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
-------------------------------------------------------------
Total revenue $ 33,553 $ 91,331 $ 89,476 $ 86,659
Gross profit 12,215 33,493 31,161 34,611
Income from continuing operations 1,154 2,555 1,058 712
Net income 596 1,862 334 730
15. DISCONTINUED OPERATIONS
During the fourth quarter of 1996, the Company adopted a plan to dispose
of the assets related to the National Association for Female Executives,
Inc. ("NAFE"). In connection with the plan, the Company recorded a loss
of $5.9 million net of related income taxes of $1,060,000 in the fourth
quarter of 1996 based on the anticipated proceeds upon sale. On July
31, 1997, the Company entered into a definitive agreement to sell the
assets of NAFE for $200,000, plus assumption by the buyer of the
deferred membership liability. In 1997, the Company incurred an
additional loss of $294,000 net of related income taxes of $176,000 to
complete the sale.
During the fourth quarter of 1998, the Company's Board of Directors adopted
a plan to sell the stock of AB, subject to regulatory approval. The sales
value is expected to approximate net book value with no earnings or losses
during the holding period.
On December 31, 1998, the Company sold AINS to a related party in exchange
for a promissory note in the amount of $3.1 million. In connection with
the sale, the Company recorded a loss of $87,000 net of a related income
tax benefit of $33,000.
50
15. DISCONTINUED OPERATIONS (continued)
The results of operations of NAFE, AINS and AB have been classified as
discontinued operations in the accompanying financial statements.
Information relating to the operations of NAFE, AINS and AB for the years
ended December 31, 1998, 1997 and 1996 are as follows (in thousands):
1998 1997 1996
------------- ------------ ------------
Revenues $ 11,989 $ 3,664 $ 6,142
Costs applicable to revenues 13,903 5,810 7,635
------------- ------------ ------------
Gross profit (loss) (1,914) (2,146) (1,493)
Operating expenses 222 152 1,029
------------- ------------ ------------
Loss from operations (2,136) (2,298) (2,522)
Income tax benefit 201 874 930
Loss on disposal, net of taxes (54) (294) (5,866)
------------- ------------ ------------
Loss from discontinued operations $ (1,989) $(1,718) $(7,458)
------------- ------------ ------------
------------- ------------ ------------
The assets and liabilities of AINS and AB are included in the accompanying
consolidated balance sheets as of December 31, 1998 and 1997 as follows (in
thousands):
1998 1997
------------- ------------
Current assets:
Cash $ 23,027 $ 39,952
Investments 1,992 2,590
Accounts receivable - 858
Prepaid expenses and other assets 255 205
------------- ------------
Total current assets 25,274 43,605
Current liabilities:
Accounts payable - 27
Accrued liabilities 707 1,287
Customer deposits 154,163 74,528
------------- ------------
Total current liabilities 154,870 75,842
------------- ------------
Net current liabilities $(129,596) $(32,237)
------------- ------------
------------- ------------
Long-term assets:
Property and equipment $ 2,420 $ 239
Loans receivable 143,443 44,973
Intangible assets (74) 238
Restricted investments - 2,096
Other assets 827 641
------------- ------------
Total long-term assets 146,616 48,187
Long-term liabilities:
Deferred revenues - 515
Other long-term liabilities - 1
------------- ------------
Net long-term assets $146,616 $ 47,671
------------- ------------
------------- ------------
51
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
Additions
Balance at Charged to Balance at
Beginning Costs and End
of Period Expenses Deductions of Period
------------ ------------- -------------- ------------
Description:
Year ended December 31, 1998:
Allowance for doubtful accounts receivable $ 731 $ 1,053 $ 713 (a) $ 1,071
Year ended December 31, 1997:
Allowance for doubtful accounts receivable $ 1,081 $ 90 $ 440 (a) $ 731
Year ended December 31, 1996:
Allowance for doubtful accounts receivable $ 926 $ 802 $ 647 (a) $ 1,081
(a) Accounts determined to be uncollectible and charged against allowance
account, net of collection on accounts previously charged against
allowance account.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
52
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS FOR THE REGISTRANT
The executive officers and directors of the Company are as follows:
NAME AGE POSITION
---- --- --------
Stephen Adams 61 Chairman of the Board of the Company and AGI
Joe McAdams 55 President, Chief Executive Officer of the Company and
AGI, and Director
Wayne Boysen 68 Director
David Frith-Smith 53 Director
Michael Schneider 44 Chief Operating Officer of AGI
Mark J. Boggess 43 Vice President and Chief Financial Officer of the
Company and Senior Vice President and Chief Financial
Officer of AGI
David Block 50 Senior Vice President of AGI
Michael Blumer 53 Senior Vice President of AGI
Mark Dowis 41 Senior Vice President of AGI
Murray S. Coker 58 Senior Vice President of AGI
Thomas A. Donnelly 42 President of Camping World, Inc. and Director
John Ehlert 53 Director
David B. Garvin 55 Director
Stephen Adams has been Chairman of the Company since December, 1988. Since
the 1970's, Mr. Adams has served as Chairman of privately-owned banking,
bottling, publishing, outdoor advertising, television and radio companies in
which he holds a controlling ownership interest. Mr. Adams is also Chairman
and the controlling shareholder of Adams Outdoor Advertising, Inc., the
managing general partner of Adams Outdoor Advertising Limited Partnership.
Joe McAdams has been President and Chief Executive Officer of the Company
since July 1991. Prior thereto and since December of 1988, Mr. McAdams was
President of Adams Publishing Corporation, a newspaper and magazine
publishing company controlled by Mr. Adams. From October 1987 through
November 1988, Mr. McAdams was President and Publisher of Southern California
Publishing Co. Prior to October 1987 and since 1961, Mr. McAdams has held
various management positions with publishing and direct marketing companies,
including Senior Vice President and Chief Operating Officer of ADVO Systems,
Inc. from August 1981 to April 1983.
Wayne Boysen was Senior Vice President of the Company since June 1991 until
his retirement on January 1, 1996 and has supervised the staff of the risk
management divisions of businesses owned by Stephen Adams, including the
Company, since July 1988. In addition, since their acquisition by the
Company in 1995, Mr. Boysen has served as Chairman of AB and Chairman of AINS
until it was sold in December 1998. From 1966 through July 1988, Mr. Boysen
owned or managed insurance agencies and provided consulting services to
property and casualty insurance agencies. Mr. Boysen has been a director of
the Company since 1993.
53
David Frith-Smith has served as managing partner of Biller, Frith-Smith &
Archibald, Certified Public Accountants since 1988. Mr. Frith-Smith was a
principal in Maidy and Lederman, Certified Public Accountants from 1980 to
1984, and with Maidy Biller Frith-Smith & Brenner, Certified Public
Accountants from 1984 to 1988. Mr. Frith-Smith has been a director of the
Company since November 1996. Mr. Frith-Smith is a director of Adams Outdoor
Advertising Inc., the managing general partner of Adams Outdoor Advertising
Limited Partnership which is controlled by Stephen Adams, and various private
and non-profit corporations.
Michael Schneider has been Chief Operating Officer of AGI since 1996. Prior
thereto, Mr. Schneider served as Senior Vice President and General Counsel of
the Company since January 1993 and was responsible for administrative areas,
development of new corporate ventures and portions of the RV publication
business and the advertising and sales departments. Prior to January 1993
and since 1977, Mr. Schneider has held a variety of senior management
positions in the AGI's publication business.
Mark J. Boggess has been Vice President and Chief Financial Officer of the
Company since June 1993. From June 1992 through May 1993, Mr. Boggess was
Vice President and Chief Financial Officer of Hypro Corporation, a privately
owned manufacturer of fluid transfer pumps. From June 1989 through June
1992, Mr. Boggess was Treasurer of Adams Communications Corporation, a
holding company controlled by Stephen Adams which owned television and radio
station operations throughout the United States. From April 1988 through May
1989, Mr. Boggess was Vice President and Chief Financial Officer of Econocom
U.S.A., Inc., a privately owned computer leasing company.
David Block has been Senior Vice President of AGI since January 1993. Prior
thereto and since 1988, Mr. Block held various senior management positions
with the Company or its predecessor in the areas of management information
systems and administration.
Michael Blumer has been Senior Vice President of AGI since January 1998.
Prior to 1998 and since 1996, Mr. Blumer served as CIO at Primedia, Inc. and
prior to that post he served as Senior Vice President of Information
Technology at The Hamilton Group from 1992 to 1996. Prior to 1992, he also
occupied a number of information technology management positions at The
Franklin Mint, American Express and the Federal Reserve Bank of New York.
Mark Dowis has been Senior Vice President of AGI since January 1, 1995.
Prior to 1995 and since 1992, Mr. Dowis was General Manager, Business Markets
Division of the American Automobile Association ("AAA") and prior to that
post, he was the Managing Director of Marketing and Research of the AAA.
From 1989 to 1992, Mr. Dowis was an Associate Administrator with the U.S.
Department of Transportation in Washington, DC.
Murray S. Coker is currently Senior Vice President-Marketing of AGI and
oversees the marketing of all products, services and clubs for AGI. He
joined Camping World in 1978 and has served in various management positions
including Vice President-Mail Order, Vice President-Direct Marketing and
Senior Vice President-Marketing. Prior to joining Camping World, Mr. Coker
was a consultant specializing in retail systems for Management Design
Associates and Deloitte & Touche. He was the Data Systems Product Line
Manager for Pitney Bowes' Monarch Marketing Systems Division and a Systems
Engineer for IBM Corporation.
Thomas A. Donnelly has served as President of Camping World since 1986 and
served as its Chief Executive Officer from 1988 until its acquisition by AGI.
Mr. Donnelly joined Camping World in 1971 and served in various management
positions until 1984, at which time he was promoted to Senior Vice President,
Operations. Mr. Donnelly and Mr. Garvin are first cousins.
John Ehlert is the founder of Ehlert and has served as its President and
Chief Executive Officer since 1976 until its acquisition by AGI. Mr. Ehlert
serves on the board of directors of various trade, private and charitable
organizations.
54
David B. Garvin founded Camping World in 1966 and served as President of
Camping World from 1966 to 1986 and as its Chairman of the Board of Directors
since 1986. Mr. Garvin is also a director of Trans Financial Bancorp, Inc..
Mr. Garvin and Mr. Donnelly are first cousins.
Directors are elected for terms of one year or until their successors have
been duly elected.
ITEM 11: EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning the
compensation paid by the Company to the Company's Chief Executive Officer and
each of the four other highest compensated executive officers (determined as
of the end of the Company's year ended December 31, 1998) and for the
previous three years or since acquisition where applicable.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
---------------------------- OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) COMPENSATION(2)
--------------------------- ---- -------- ---------- -------------- ---------------
Stephen Adams . . . . . . . . . . . . . 1998 $699,992 $1,473,090 $79,796
Chairman of the Board 1997 699,992 1,539,030 78,924
1996 699,992 1,199,999 53,953
Joe McAdams, President . . . . . . . . 1998 99,999 491,030 6,891
Chief Executive Officer 1997 99,998 513,010 7,557
1996 99,996 400,000 $1,226,933(3) 6,334
Michael Schneider . . . . . . . . . . . 1998 210,000 245,515 56,333(3) 8,364
Chief Operating Officer 1997 206,423 318,980 56,333(3) 8,117
1996 182,145 107,157 7,482
Thomas A. Donnelly. . . . . . . . . . . 1998 214,904 245,515 7,991
President of Camping World 1997 168,750 235,980 4,160
Murray S. Coker . . . . . . . . . . . . 1998 180,256 156,838 9,715
Senior Vice President of AGI 1997 119,250 - 6,902
______________
(1) Personal benefits are the lesser of (i) 10% of total annual salary and
bonus (ii) $50,000, except as described in Note (3) below.
(2) Represents company contributions to 401(k) and split dollar life
insurance economic benefit.
(3) Under the terms of the phantom stock agreements, Mr. Schneider received
$56,333 in 1998 and 1997 and Mr. McAdams received $1,226,933 in 1996.
The Company does not have any outstanding stock options or restricted stock
grants. The Company has phantom stock agreements for certain of its
officers. See "Management Agreements with Executive Officers".
55
AGREEMENTS WITH EXECUTIVE OFFICERS
Mr. Adams and the Company are parties to an amended employment agreement
providing for his employment as the Chairman of the Company through September
1, 1999. The base salary for Mr. Adams is $700,000 and his incentive
compensation is 3% of operating profits (as defined in the agreement).
In January 1997, the Company funded a $1.0 million loan to Mr. McAdams. The
loan is due on demand and is secured by an assignment and pledge of his
vested phantom stock interest in the Company. In addition, in September
1997, the Company paid a $0.5 million finders fee to a company owned by Mr.
McAdams.
In January 1992, the Company introduced a phantom stock incentive program for
key employees. Since that time, certain employees have been granted awards
at various interest levels and over varying vesting periods. The value of
the phantom stock interest is based on the increase in the value of the
Company over the base value at the award date. In accordance with the
formula set forth in the agreements, which formula approximates a multiple of
operating profits and is intended to approximate the fair market value of the
Company, earned incentives are paid in three annual installments following
the earlier of (a) termination of employment, (b) sale of the Company, or (c)
five years after the initial grant of the phantom stock interest. The
phantom stock agreements also set forth the terms of employment for the
executive.
The following table sets forth the current awards outstanding under the
program as of December 31, 1998. As of December 31, 1998, the aggregate
accrued liability under the Company's phantom stock incentive program was
approximately $3.6 million, of which $1.7 million has been reflected as
current in the financial statements.
FULL VESTED
OFFICER/DIRECTOR INTEREST AMOUNT
---------------- -------- ------
Joe McAdams.................................... 2.50% 2.50%
Mike Schneider................................. 1.80% 1.80%
Thomas A. Donnelly............................. 1.80% 0.64%
Mark Boggess................................... 0.75% 0.75%
David Block(1)................................. 0.10% 0.10%
Mark Dowis(1).................................. 0.10% 0.08%
Murray S. Coker................................ 0.25% 0.09%
All Other Employees............................ 0.20% 0.05%
______________
(1) In addition, Mr. Block and Mr. Dowis entered into phantom stock
agreements with subsidiaries of AGI. Under the terms of such agreements, Mr.
Block and Mr. Dowis were granted 5% phantom interests in such subsidiaries
vesting 1% annually beginning January 1997 and January 1998, respectively.
The value of such phantom interests are based on the increase in the value of
such subsidiaries and are based on formulas that are intended to approximate
the fair market value of the subsidiaries.
The executive's base salary and annual bonus are determined from time to time
by the Board of Directors. In the event the executive's employment is
terminated without cause, the phantom stock agreements provide for severance
benefits of up to one year's base salary plus the accrued bonus for the year
in which such termination occurs.
56
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
The Company's Board of Directors determines the compensation of the executive
officers. The executive officers of the Company that serve on the Board of
Directors are Stephen Adams, Joe McAdams and Thomas A. Donnelly. In
addition, until his retirement on January 1, 1996, Wayne Boysen was an
executive officer of the Company.
Stephen Adams, the Chairman and a director of the Company, has an amended
employment agreement with AGI through September 1, 1999 under which Mr. Adams
receives a base salary of $700,000 plus incentive compensation of 3% of
operating profits (as defined).
Joe McAdams, the President and Chief Executive Officer and a director of the
Company, has phantom stock agreements with AGI pursuant to which Mr. McAdams
receives $3.6 million in three annual installments which began in January
1996 and holds a 2.5% phantom stock interest which is fully vested.
Wayne Boysen, a director of the Company and former executive officer of the
Company, has phantom stock agreements with AGI pursuant to which Mr. Boysen
will receive $400,000 in three equal annual installments, which began in
January 1996 and concluded January 1998.
In connection with the Company's acquisition of Camping World, the Company
entered into consulting and non-competition agreements with David B. Garvin,
a director of the Company and formerly the Chairman of Camping World, and
Thomas A. Donnelly, a director of the Company and the President of Camping
World. Pursuant to the consulting and non-competition agreements, the
Company paid, at closing of the Camping World acquisition, $9.5 million to
Mr. Garvin and $3.4 million to Mr. Donnelly. In addition, pursuant to the
management incentive agreement which the Company entered into with Mr.
Donnelly and Mr. Coker at the time of the acquisition of Camping World, the
Company agreed, subject to Camping World achieving certain operating goals,
to pay up to $6.6 million and $1.2 million to Mr. Donnelly and Mr. Coker,
respectively, over the subsequent five years. Mr. Donnelly and Mr. Coker
received $440,000 and $80,000, respectively, of this amount in 1998.
Messrs. Garvin and Donnelly are partners in partnerships that lease seven
facilities under long-term leases to Camping World. Additionally, Mr. Coker
is also a partner in two of these partnerships. For the year ended December
31, 1998 and 1997, payments under these leases were approximately $2.5
million and $2.4 million, respectively. The leases expire during the period
April 2000 and September 2011, subject to the right of Camping World to
exercise renewal options. The Company believes that such leases contain
lease terms as favorable as lease terms that would be obtained from
independent third parties.
John Ehlert, a director of the Company, is a partner in a partnership that
leases to Ehlert its research facility under a long-term lease. For the year
ended December 31, 1998 and 1997, the rental payments for such facility were
$45,600 and $35,500, respectively. The lease expires in October 1999, subject
to the right of Ehlert to exercise renewal options. The Company believes
that such lease contains lease terms as favorable as lease terms that would
be obtained from independent third parties.
BONUS PLAN
The Company annually adopts bonus programs for employees, including executive
officers other than Mr. Adams. Bonus payments are made based on achievement
of specified operating results and/or objectives.
401 (k) SAVINGS AND PROFIT PLAN
The Company sponsors a deferred savings and profit sharing plan (the "401(k)
Plan") qualified under Sections 401(a) and 401(k) of the Internal Revenue
Code of 1986, as amended (the "Code"). All
57
employees over age 21 who have completed one year of service are eligible to
participate in the 401(k) Plan. Eligible employees may contribute to the
401(k) Plan up to 15% of their salary subject to an annual maximum established
under the Code and the Company matches these employee contributions at the
rate of 75% up to the first 6% of the employee's salary. Employees may also
make additional voluntary contributions.
OTHER BENEFIT PLAN
Company employees receive certain medical and dental benefits during their
employment. A predecessor to the Company also provided eligible employees
with medical, dental and life insurance coverage after retirement. The
estimated future costs associated with such coverage to retirees are reserved
as a liability in the Company's consolidated financial statements. Current
employees are not provided medical and dental benefits upon retirement.
DIRECTOR COMPENSATION
The Company pays directors who are not employees (Messrs. Boysen, Ehlert,
Frith-Smith and Garvin) director fees of $1,500 per month. In addition, Mr.
Boysen, as Chairman of the operating subsidiaries Affinity Bank and Affinity
Insurance Group, Inc., received $1,500 per month from each of these
subsidiaries.
REPORT ON EXECUTIVE COMPENSATION
The Company's Board of Directors determines the compensation of the executive
officers. The base salary and bonus for Stephen Adams is established
pursuant to the employment agreement described under the caption entitled
"Agreements with Executive Officers." The agreement was approved when Mr.
Adams was the sole director of the Company because it was determined to be in
the best interests of the Company to assure continuity of management. For
the other executive officers, base salaries are set at levels which are
believed to be reasonably competitive with the salary level of executives in
comparable companies, including membership services companies and other
highly leveraged companies with comparable operating income, except that the
base salary for Joe McAdams, the President and Chief Executive Officer, is
lower than the comparable companies because the primary source of his
compensation is through the bonus program. The executive officers, including
Mr. McAdams, receive bonuses based on their respective assigned percentage of
operating income of the Company or the operations in which the executive is
employed. The percentage assigned to each executive officer depends upon the
level of his responsibilities or, in the case of Mr. Adams, as prescribed in
their respective employment agreement.
In addition, the executive officers other than Mr. Adams who owns over 95% of
the stock of the parent corporation have received phantom stock grants under
the agreements described above under the caption "Agreements with Executive
Officers." The purpose of the phantom stock agreements is to provide the
executive officers with an incentive to enhance the long term value of the
Company with payments of the amounts earned by the executive officers
provided as deferred compensation over several years.
BOARD OF DIRECTORS
Stephen Adams Joe McAdams Wayne Boysen David Frith-Smith
Thomas A. Donnelly David B. Garvin John Ehlert
58
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is a wholly-owned subsidiary of AGI Holding Corporation ("AGHC"),
a privately-owned corporation. The following table sets forth, as of
December 31, 1998, certain information with respect to the beneficial
ownership of the Common Stock of AGHC by each shareholder who is known to the
Company to beneficially own more than 5% of the outstanding shares, each
executive officer and the current sole director of AGHC, and all executive
officers and directors of the Company.
Number of Shares Percent of
Name and Address of Beneficial Owner of Stock Owned(1) Common Stock
------------------------------------ ---------------- ------------
Stephen Adams 1,404.7(2) 95.75%
2575 Vista Del Mar Drive
Ventura, CA 93001
Joe McAdams 3.0 0.20%
Mark Boggess 0.2 0.01%
All executive officers and directors 1,407.9 95.96%
as a group (10 persons)
______________
(1) Except as otherwise indicated, the beneficial owners have sole voting
and investment power with respect to the shares in the table.
(2) Does not include 50 shares owned by members of the Adams' family who do
not reside with him.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective June 1995, the Company entered into a lease agreement for its
corporate facilities in Ventura, California with AGI Real Estate Holding,
Inc. ("AGIRE"). The owners of AGIRE are minority shareholders of AGHC, the
Company's parent company, and are also related to Stephen Adams, the
Company's Chairman. On November 13, 1998, the Company purchased AGIRE for
$9,247,000 in cash plus assumption of debt in the amount of $2,413,000, which
approximated the fair market value.
On December 31, 1998, the Company sold Affinity Insurance Group, Inc. to
Adams Insurance Holding LLC, a Minnesota limited liability company
wholly-owned be Stephen Adams, the Company's Chairman, in exchange for a
promissory note in the amount of $3.1 million, which approximated the fair
market value.
For a description of the employment, consulting, non-competition, management
incentive and phantom stock agreements with the Company and persons serving
as an executive officer or director of the Company see "Management -
Agreements with Executive Officers" and "Management - Compensation Committee
Interlock and Insider Participation."
For a description of leases which subsidiaries of the Company have with
partnerships in which a director of the Company has a partnership interest, see
"Management - Compensation Committee Interlock and Insider Participation."
59
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Consolidated financial statements are included in Item 8 hereto.
(a) (2) Consolidated financial statement schedules are included in Item 8
hereto.
(a) (3) Listing of Exhibits:
The exhibits required to be a part of this report are listed in the
Index to Exhibits which follows the signature page.
(b) Reports on Form 8-K:
The reports on Form 8-K required to be a part of this report are
listed in the Index to Exhibits which follows the signature
page.
(c) Exhibits:
Included in Item 14 (a) (3) above.
(d) Financial Statement Schedules
Included in Item 14 (a) (2) above.
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Company has duly caused this Report to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of Denver, State of
Colorado on March 26, 1999.
AFFINITY GROUP HOLDING, INC.
By /s/ Joe B. McAdams
--------------------------
Joe B. McAdams
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed below by the following persons on behalf of the Company in the
capacities and on the dates indicated.
/s/ Joe B. McAdams Chief Executive Officer and Director March 26, 1999
- ------------------- (Principal Executive Officer)
Joe B. McAdams
/s/ Mark J. Boggess Senior Vice President and Chief March 26, 1999
- ------------------- Financial Officer
Mark J. Boggess (Principal Financial and Accounting Officer)
* Director March 26, 1999
- -------------------
Stephen Adams
* Director March 26, 1999
- -------------------
David Frith-Smith
* Director March 26, 1999
- -------------------
Wayne Boysen
61
* Director March 26, 1999
- -------------------
Thomas A. Donnelly
* Director March 26, 1999
- -------------------
David B. Garvin
* Director March 26, 1999
- -------------------
John Elhert
*By: /s/ Mark J. Boggess March 26, 1999
--------------------
(Mark J. Boggess
Attorney-in-Fact)
Mark J. Boggess, pursuant to Powers of Attorney executed by each of the
officers and directors listed above whose name is marked by an "*" and filed
as an exhibit hereto, by signing his name hereto does hereby sign and execute
this Report of Affinity Group Holding, Inc. on behalf of each of such
officers and directors in the capacities in which the names of each appear
above.
62
AFFINITY GROUP HOLDING, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1998
Regulation
S-K Exhibit
Table Sequential
Item Reference Page No.
---- ----------- ----------
Certificate of Incorporation of Affinity Group, Inc. (1) 3.1
Bylaws of Affinity Group, Inc. (1) 3.2
Indenture dated as of October 29, 1993 by and between the 4.1
Company and United States Trust Company of New York. (2)
First Supplemental Indenture dated as of May 17, 1994, by and 4.2
between Company and United States Trust Company of New York.(6)
Second Supplemental Indenture dated as of October 11, 1994, by 4.3
and between Company and United States Trust Company of
New York.(6)
Third Supplemental Indenture dated as of December 21, 1995 by 4.3a
and between Company and United States Trust Company of
New York.(9)
Fourth Supplemental Indenture dated as of February 1, 1996 by 4.3b
and between Company and United States Trust Company of
New York.(9)
Form of 11 1/2% Senior Subordinated Notes due 2003. (2) 4.4
Credit Agreement dated October 11, 1994 among Affinity Group, 4.5
Inc. and First Bank National Association, as Agent, and First
National Association and GIRO Credit Bank, as Banks. (3)
First Amendment to Credit Agreement as of November 10, 1994, 4.6
between Affinity Group, Inc. and First National Bank National
Association, as Agent. (6)
Credit Agreement dated as of April 2, 1997 among Affinity Group, 4.7
Inc., Fleet National Bank, as agent, and the banks named
therein. (11)
Change in Registrant's Accountants (14) 4.8
Credit Agreement dated as of November 13, 1998 among Affinity 4.9
Group, Inc., Fleet National Bank, as agent, and the banks
named therein. (15)
63
Regulation
S-K Exhibit
Table Sequential
Item Reference Page No.
---- ----------- ----------
Tax Sharing Agreement among Affinity Group Holding, Inc., Affinity 10.1
Group, Inc. and its subsidiaries. (2)
Lease for office facilities in Camarillo, California. (2) 10.2
Lease for office facilities in Denver, Colorado. (2) 10.3
Lease Agreement for office facilities in Ventura, California (7) 10.3a
Investment in unrestricted subsidiary, assignment and assumption 10.4
agreement and fourth amendment to office facility lease in
Denver, Colorado. (4)
Employment Agreement dated August 1, 1993 between Stephen 10.5
Adams and the Company, as amended. (2)
Phantom Stock Agreement dated January 2, 1992 between Joe 10.6
McAdams and the Company. (2)
Phantom Stock Agreement dated January 2, 1992 between David 10.7
Block and the Company. (2)
Phantom Stock Agreement dated January 2, 1992 between Michael 10.8
Schneider and the Company. (2)
Phantom Stock Agreement dated January 2, 1992 between Roger 10.9
Ryman and the Company. (2)
Phantom Stock Agreement dated January 2, 1992 between Mark J. 10.10
Boggess and the Company. (2)
Phantom Stock Agreement dated January 2, 1992 between K. 10.11
Dillon Schickli and the Company. (2)
Employment Agreement dated as of January 1, 1991 between 10.12
Keith Urry and Golf Card International Corp. as amended. (2)
Phantom Stock Agreement dated January 2, 1992 between Wayne 10.13
Boysen and the Company, as amended. (2)
Second Phantom Stock Agreement dated April 2, 1994 between 10.14
Wayne Boysen and the Company. (4)
Executive split-dollar life insurance agreements (4) 10.15
Indemnity Agreement dated October 29, 1994, by and between 10.16
Affinity Group, Inc. and AGI Services, Inc.(6)
Agreement with Cross Country Motor Club, Inc. as amended. (2) 10.17
Working Agreement and Service Agreement with National General 10.18
Insurance dated October 23, 1987, as amended (2)
Amendment to National General Insurance Contract Dated January 10.19
13, 1994. (1)
64
Regulation
S-K Exhibit
Table Sequential
Item Reference Page No.
---- ----------- ----------
Amendment to Service Agreement dated March 22, 1994 by and 10.20
between Affinity Group, Inc. and National General Insurance
Company. (5)
401 (k) Savings and Investment Plan. (2) 10.21
Form of Indemnification Agreement for persons consenting to serve 10.22
as directors upon completion of the offering and amendment
thereto. (1)
Purchase Agreement for Affinity Thrift and Loan. (8) 10.23
Phantom Stock Amendment dated October 10, 1995 between Joe 10.24
McAdams and the Company.(9)
Phantom Stock Agreement dated December 19, 1995 between 10.25
David Block and Affinity Road and Travel Club, Inc., a wholly
owned subsidiary of the Company.(9)
Agreement between Ganis Credit Corporation and the Company 10.26
dated September, 1995.(9)
Stock Purchase Agreement for Ehlert Publishing Group, Inc. (10) 10.27
First Amendment dated January 7, 1997 to Ehlert Stock Purchase 10.28
Agreement. (11)
Addendum to National General Insurance Contract Dated January 10.29
13, 1994. (13)
Agreement with Cross Country Motor Club, Inc. dated October 10, 10.30
1997,as amended. (13)
Stock Purchase Agreement dated as of February 25, 1997, by and 10.31
among the Shareholders of Camping World, Inc. and Affinity
Group, Inc. (12)
Engagement Agreement between JBMC, Inc. and the Company 10.32
dated September 8, 1996. (13)
Note Receivable dated December 30, 1996 between Joe McAdams 10.33
and the Company. (13)
Amendment to Employment Agreement dated August 1, 1993 10.34
between Stephen Adams and the Company (13)
Form of Phantom Stock Agreements, between certain executives 10.35
and the Company (13)
Amendment to Employment Agreement dated August 1, 1993 10.36 67
between Stephen Adams and the Company
Purchase Agreement for AGI Real Estate Holdings, Inc. 10.37 68
Sales Agreement for Affinity Insurance Group, Inc. 10.38 70
Subsidiaries of the Registrant 21 85
65
Regulation
S-K Exhibit
Table Sequential
Item Reference Page No.
---- ----------- ----------
Power of Attorney 24 86
______________
(1) Filed with the Company's Annual Report on Form 10-K for the year ended
December 31, 1993 and incorporated by reference herein.
(2) Filed with the Company's Registration Statement No. 33-67272 and
incorporated by reference herein.
(3) Filed with the Company's Report on Form 10-Q for the quarter ended
September 30, 1994 and incorporated by reference herein.
(4) Filed with the Company's Report on Form 10-Q for the quarter ended June 30,
1994 and incorporated by reference herein.
(5) Filed with the Company's Report on Form 10-Q for the quarter ended March
31, 1994 and incorporated by reference herein.
(6) Filed with the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated by reference herein.
(7) Filed with the Company's Report on Form 10-Q for the quarter ended June 30,
1995 and incorporated by reference herein.
(8) Filed with the Company's Report on Form 10-Q for the quarter ended
September 30, 1995 and incorporated by reference herein.
(9) Filed with the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated by reference herein.
(10) Filed with the Company's Report on Form 10-Q for the quarter ended
September 30, 1996 and incorporated by reference herein.
(11) Filed with the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated by reference herein.
(12) Filed with the Company's Report on Form 8-K dated April 2, 1997 and
incorporated by reference herein.
A copy of any of these exhibits will be furnished at a reasonable cost
to any person upon receipt from such person of a written request for such
exhibit. Such request should be sent to Affinity Group, Inc., 64 Inverness
Drive East, Englewood, Colorado 80112, Attention: Chief Financial
Officer
(13) Filed with the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated by reference herein.
(14) Filed with the Company's Report on Form 8-K dated August 19, 1998 and
incorporated by reference herein.
(15) Filed with the Company's Report on Form 8-K dated November 13, 1998 and
incorporated by reference herein.
66