<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
--------------
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED: COMMISSION FILE NUMBER
JUNE 30, 2000 333-26389
------------------
AFFINITY GROUP HOLDING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 64 INVERNESS DRIVE EAST 59-2922099
(STATE OF INCORPORATION OR ORGANIZATION) ENGLEWOOD, CO 80112 (I.R.S. EMPLOYER IDENTIFICATION NO.)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
(303) 792-7284
(REGISTRANT'S TELEPHONE
NUMBER, INCLUDING AREA CODE)
------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
11% 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 AUGUST 9, 2000
----- -----------------
Common Stock, $.01 par value 100
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
================================================================================
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999....................... 1
Consolidated Statements of Operations for the three months ended June 30, 2000 and 1999..... 2
Consolidated Statements of Operations for the six months ended June 30, 2000 and 1999....... 3
Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 1999....... 4
Notes to Consolidated Financial Statements.................................................. 5
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................................................................. 8
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS........................................................................... 15
SIGNATURES ............................................................................................ 16
</TABLE>
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
6/30/00 12/31/99
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................. $ 6,764 $ 4,211
Accounts receivable, less allowance for doubtful accounts................. 23,117 20,938
Inventories............................................................... 37,171 34,631
Prepaid expenses and other assets......................................... 14,354 9,282
------------ -------------
Total current assets.................................................. 81,406 69,062
PROPERTY AND EQUIPMENT........................................................ 75,514 73,693
NOTES FROM AFFILIATES......................................................... 23,548 22,443
INTANGIBLE ASSETS............................................................. 187,406 188,745
DEFERRED TAX ASSET............................................................ 6,215 7,861
OTHER ASSETS.................................................................. 5,030 5,137
------------ -------------
$ 379,119 $ 366,941
============ =============
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Accounts payable.......................................................... $ 29,179 $ 19,185
Accrued interest.......................................................... 4,423 4,936
Accrued income taxes...................................................... 950 1,631
Accrued liabilities....................................................... 20,299 23,638
Deferred revenues......................................................... 61,597 56,846
Deferred tax liability.................................................... 3,389 3,381
Current portion of long-term debt......................................... 10,198 8,885
------------ -------------
Total current liabilities............................................. 130,035 118,502
DEFERRED REVENUES............................................................. 33,694 33,764
LONG-TERM DEBT................................................................ 289,000 284,673
OTHER LONG-TERM LIABILITIES................................................... 4,983 4,470
COMMITMENTS AND CONTINGENCIES................................................. -- --
------------ -------------
457,712 441,409
------------ -------------
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....................................................... (90,615) (86,490)
------------ -------------
Total stockholder's deficit........................................... (78,593) (74,468)
------------ -------------
$ 379,119 $ 366,941
============ =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
6/30/00 6/30/99
---------- ----------
<S> <C> <C>
REVENUES:
Membership services.................................................................. $ 30,773 $ 30,181
Publications......................................................................... 12,249 10,640
Merchandise.......................................................................... 64,947 61,237
---------- ----------
107,969 102,058
COSTS APPLICABLE TO REVENUES:
Membership services.................................................................. 20,168 18,047
Publications......................................................................... 8,551 7,302
Merchandise.......................................................................... 42,322 39,876
---------- ----------
71,041 65,225
GROSS PROFIT............................................................................ 36,928 36,833
OPERATING EXPENSES:
Selling, general and administrative.................................................. 21,674 20,948
Depreciation and amortization........................................................ 4,214 4,059
---------- ----------
25,888 25,007
---------- ----------
INCOME FROM OPERATIONS.................................................................. 11,040 11,826
NON-OPERATING ITEMS:
Interest expense, net................................................................ (7,162) (7,180)
Other non-operating income, net...................................................... 10 56
---------- ----------
(7,152) (7,124)
---------- ----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES................................................................................ 3,888 4,702
INCOME TAX EXPENSE...................................................................... (1,963) (2,672)
---------- ----------
INCOME FROM CONTINUING OPERATIONS....................................................... 1,925 2,030
DISCONTINUED OPERATIONS:
Gain from discontinued operations, net of applicable
income tax expense of $129 in 1999................................................. -- 681
---------- ----------
NET INCOME.............................................................................. $ 1,925 $ 2,711
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
6/30/00 6/30/99
---------- ----------
<S> <C> <C>
REVENUES:
Membership services.................................................................. $ 59,741 $ 58,807
Publications......................................................................... 28,367 23,631
Merchandise.......................................................................... 110,885 104,336
---------- ----------
198,993 186,774
COSTS APPLICABLE TO REVENUES:
Membership services.................................................................. 38,388 35,473
Publications......................................................................... 19,953 17,165
Merchandise.......................................................................... 72,573 68,578
---------- ----------
130,914 121,216
GROSS PROFIT............................................................................ 68,079 65,558
OPERATING EXPENSES:
Selling, general and administrative.................................................. 42,393 39,825
Depreciation and amortization........................................................ 8,513 7,999
---------- ----------
50,906 47,824
---------- ----------
INCOME FROM OPERATIONS.................................................................. 17,173 17,734
NON-OPERATING ITEMS:
Interest expense, net................................................................ (14,010) (14,480)
Other non-operating income, net...................................................... 134 107
---------- ----------
(13,876) (14,373)
---------- ----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES................................................................................ 3,297 3,361
INCOME TAX EXPENSE...................................................................... (1,672) (1,739)
---------- ----------
INCOME FROM CONTINUING OPERATIONS....................................................... 1,625 1,622
DISCONTINUED OPERATIONS:
Gain from discontinued operations, net of applicable income tax
expense of $369 in 1999........................................................... -- 603
---------- ----------
NET INCOME.............................................................................. $ 1,625 $ 2,225
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
6/30/00 6/30/99
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................................ $ 1,625 $ 2,225
Adjustments to reconcile net income to net cash provided by operating activities:
Discontinued operations............................................................. -- (603)
Deferred tax provision.............................................................. 1,672 1,739
Depreciation and amortization....................................................... 8,513 7,999
Provision for losses on accounts receivable......................................... 1,280 229
Deferred compensation............................................................... 550 500
Loss on disposal of property and equipment.......................................... 53 (4)
Changes in operating assets and liabilities (net of purchased businesses):
Accounts receivable............................................................... (3,300) 1,510
Inventories....................................................................... (2,540) (7,601)
Prepaid expenses and other assets................................................. (4,962) (3,534)
Accounts payable.................................................................. 9,871 9,159
Accrued and other liabilities..................................................... (4,643) (1,731)
Deferred revenues................................................................. 4,610 4,985
---------- ----------
Net cash provided by operating activities....................................... 12,729 14,873
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................................. (6,084) (4,602)
Proceeds from sale of property and equipment.......................................... 27 95
Net changes in intangible assets...................................................... 116 (336)
Loans receivable...................................................................... (1,105) (120)
Acquisitions.......................................................................... (2,220) --
---------- ----------
Net cash used in investing activities........................................... (9,266) (4,963)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid........................................................................ (5,750) --
Borrowings on long-term debt.......................................................... 64,163 40,475
Principal payments of long-term debt.................................................. (59,323) (47,177)
---------- ----------
Net cash used in financing activities........................................... (910) (6,702)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................................ 2,553 3,208
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........................................... 4,211 2,863
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................................... $ 6,764 $ 6,071
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.............................................................................. $ 15,691 $ 15,244
Income taxes.......................................................................... 2,381 451
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The financial statements included herein include the accounts of Affinity
Group Holding, Inc. ("AGHI"), its wholly-owned subsidiary, Affinity Group, Inc.
("AGI"), and AGI's subsidiaries (collectively the "Company") without audit, in
accordance with generally accepted accounting principles, and pursuant to the
rules and regulations of the Securities and Exchange Commission. These interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes in the Company's 10-K report for the
year ended December 31, 1999 as filed with the Securities and Exchange
Commission. In the opinion of management of the Company, these consolidated
financial statements contain all adjustments of a normal recurring nature
necessary to present fairly the financial position, results of operations and
cash flows of the Company for the interim periods presented.
(2) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. The Company currently has only one item
related to SFAS 133, the income/loss from the interest floor and cap transaction
agreement. This SFAS will be implemented by January 1, 2001. 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.
(3) DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED 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 products and
services for RV enthusiasts primarily through retail supercenters, mail order
catalogs, and websites. The Company evaluates performance based on profit or
loss from operations before interest, income taxes, depreciation and
amortization.
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.
5
<PAGE>
(3) DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
(CONTINUED)
The Company does not allocate depreciation, amortization, interest,
income taxes or unusual items to segments. Financial information by reportable
business segment is summarized as follows (in thousands):
<TABLE>
<CAPTION>
MEMBERSHIP
SERVICES PUBLICATIONS RETAIL CONSOLIDATED
-------------- ------------- ---------- --------------
<S> <C> <C> <C> <C>
QUARTER ENDED JUNE 30, 2000
Revenues from external customers................... $ 30,773 $ 12,249 $ 64,947 $ 107,969
Segment operating profit........................... 8,765 3,042 7,995 19,802
QUARTER ENDED JUNE 30, 1999
Revenues from external customers................... $ 30,181 $ 10,640 $ 61,237 $ 102,058
Segment operating profit........................... 10,080 2,754 7,590 20,424
MEMBERSHIP
SERVICES PUBLICATIONS RETAIL CONSOLIDATED
-------------- ------------- ---------- --------------
SIX MONTHS ENDED JUNE 30, 2000
Revenues from external customers................... $ 59,741 $ 28,367 $ 110,885 $ 198,993
Segment operating profit........................... 17,789 7,144 10,056 34,989
SIX MONTHS ENDED JUNE 30, 1999
Revenues from external customers................... $ 58,807 $ 23,631 $ 104,336 $ 186,774
Segment operating profit........................... 19,557 5,005 9,881 34,443
</TABLE>
The following is a summary of the reportable segment reconciliations to
the Company's consolidated financial statements for the three and six months
ended June 30, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- --------------------
6/30/00 6/30/99 6/30/00 6/30/99
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
INCOME FROM OPERATIONS BEFORE DEPRECIATION AND
AMORTIZATION
Total profit for reportable segments............................... $ 19,802 $ 20,424 $ 34,989 $ 34,443
Unallocated G & A expense.......................................... (4,548) (4,539) (9,303) (8,710)
---------- ---------- --------- ---------
Income from operations before depreciation and amortization..... $ 15,254 $ 15,885 $ 25,686 $ 25,733
========== ========== ========= =========
</TABLE>
(4) DISCONTINUED OPERATIONS
During the fourth quarter of 1998, the Company's Board of Directors
adopted a plan to sell the stock of Affinity Bank ("AB"), subject to regulatory
approval, to Affinity Bank Holdings LLC ("ABH") an affiliate of the Company at
its net book value, which in the opinion of management approximated market
value. As a result, the operations of AB are classified as a discontinued
operation in the accompanying financial statements. The Company received
regulatory approval to sell AB and subsequently closed the transaction on
September 30, 1999.
6
<PAGE>
(4) DISCONTINUED OPERATIONS (CONTINUED)
Information relating to the operations of AB for the six months ended
June 30, 1999 is as follows (in thousands):
6/30/99
---------
Revenues.......................................... $ 8,083
Costs applicable to revenues...................... 7,003
---------
Gross profit...................................... 1,080
Operating expenses................................ 108
---------
Income from operations............................ 972
Income tax expense................................ (369)
---------
Income from discontinued operations............... $ 603
=========
The tax expense for the period ended June 30, 1999 differs from the
statutory rate due primarily to non-deductible reserves and valuation
allowances.
(5) NOTES FROM AFFILIATES
In consideration for the stock of AB, Affinity Group Thrift Holding
Corporation ("AGTHC") received a Capital Note, valued at $18,631,000. The
Capital Note accrues interest at the rate of 11% per annum and is payable at
such times as declared by the board of directors of ABH. All interest accrued
shall be paid in full before any distributions are paid or declared to any
member of ABH. If not earlier paid, all accrued interest and principal
outstanding shall be paid at maturity on October 1, 2014. In addition, AGTHC,
although required to be consolidated with the Company, is recognized as an
"unrestricted" or non-guarantying subsidiary under the terms of the AGHI Senior
Notes.
The second note included is the consideration received upon the sale of
Affinity Insurance Group, Inc. to Adams Insurance Holding LLC, a company
wholly-owned by the Company's Chairman. This $3.1 million promissory note
accrues interest at a per annum rate equal to the interest rate on the senior
secured borrowings of AGI. The principal and accrued interest is payable upon
the consummation of a sale transaction as defined in the promissory note.
7
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table is derived from the Company's Consolidated Statements
of Operations and expresses the results from operations as a percentage of
revenues and reflects the net increase (decrease) between periods:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
6/30/00 6/30/99 INC/(DEC)
-------- -------- ---------
<S> <C> <C> <C>
REVENUES:
Membership services................................................... 28.5% 29.6% 2.0%
Publications.......................................................... 11.3% 10.4% 15.1%
Merchandise........................................................... 60.2% 60.0% 6.1%
-------- -------- ---------
100.0% 100.0% 5.8%
COSTS APPLICABLE TO REVENUES:
Membership services................................................... 18.7% 17.7% 11.8%
Publications.......................................................... 7.9% 7.2% 17.1%
Merchandise........................................................... 39.2% 39.0% 6.1%
-------- -------- ---------
65.8% 63.9% 8.9%
-------- -------- ---------
GROSS PROFIT............................................................... 34.2% 36.1% 0.3%
OPERATING EXPENSES:
Selling, general and administrative................................... 20.1% 20.5% 3.5%
Depreciation and amortization......................................... 3.9% 4.0% 3.8%
-------- -------- ---------
24.0% 24.5% 3.5%
-------- -------- ---------
INCOME FROM OPERATIONS..................................................... 10.2% 11.6% (6.6%)
NON-OPERATING ITEMS:
Interest expense, net................................................. (6.6%) (7.1%) (0.3%)
Other non-operating income, net....................................... -- 0.1% (82.1%)
-------- -------- ---------
(6.6%) (7.0%) 0.4%
-------- -------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES............................................................ 3.6% 4.6% (17.3%)
INCOME TAX EXPENSE......................................................... (1.8%) (2.6%) (26.5%)
-------- -------- ---------
INCOME FROM CONTINUING OPERATIONS.......................................... 1.8% 2.0% (5.2%)
DISCONTINUED OPERATIONS:
Gain from discontinued operations, net of
applicable income taxes............................................. -- 0.7% (100.0%)
-------- -------- ---------
NET INCOME................................................................. 1.8% 2.7% (29.0%)
======== ======== =========
</TABLE>
8
<PAGE>
The following table is derived from the Company's Consolidated Statements
of Operations and expresses the results from operations as a percentage of
revenues and reflects the net increase (decrease) between periods:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------------
6/30/00 6/30/99 INC/(DEC)
-------- --------- ----------
<S> <C> <C> <C>
REVENUES:
Membership services..................................................... 30.0% 31.5% 1.6%
Publications............................................................ 14.3% 12.7% 20.0%
Merchandise............................................................. 55.7% 55.8% 6.3%
-------- --------- ----------
100.0% 100.0% 6.5%
COSTS APPLICABLE TO REVENUES:
Membership services..................................................... 19.3% 19.0% 8.2%
Publications............................................................ 10.0% 9.2% 16.2%
Merchandise............................................................. 36.5% 36.7% 5.8%
-------- --------- ----------
65.8% 64.9% 8.0%
-------- --------- ----------
GROSS PROFIT............................................................... 34.2% 35.1% 3.8%
OPERATING EXPENSES:
Selling, general and administrative..................................... 21.3% 21.3% 6.4%
Depreciation and amortization........................................... 4.3% 4.3% 6.4%
-------- --------- ----------
25.6% 25.6% 6.4%
-------- --------- ----------
INCOME FROM OPERATIONS..................................................... 8.6% 9.5% (3.2%)
NON-OPERATING ITEMS:
Interest expense, net................................................... (7.0%) (7.8%) (3.2%)
Other non-operating income, net......................................... 0.1% 0.1% 25.2%
-------- --------- ----------
(6.9%) (7.7%) (3.5%)
-------- --------- ----------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES............................................................ 1.7% 1.8% (1.9%)
INCOME TAX EXPENSE......................................................... (0.9%) (0.9%) (3.9%)
-------- --------- ----------
INCOME FROM CONTINUING OPERATIONS.......................................... 0.8% 0.9% 0.2%
DISCONTINUED OPERATIONS:
Gain from discontinued operations, net of
applicable income taxes............................................... -- 0.3% (100.0%)
-------- --------- ----------
NET INCOME................................................................. 0.8% 1.2% (27.0%)
======== ========= ==========
</TABLE>
9
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000
COMPARED WITH THREE MONTHS ENDED JUNE 30, 1999
REVENUES
Revenues of $108.0 million for the second quarter of 2000 increased by
approximately $5.9 million or 5.8% from the comparable period in 1999.
Membership services revenues of $30.8 million for the second quarter of
2000 increased by approximately $0.6 million or 2.0% from the comparable period
in 1999. This revenue increase was largely attributable to a $0.7 million
increase in extended vehicle warranty program sales, and a $0.4 million increase
in marketing fee income generated on sales of various ancillary insurance
products, partially offset by a revenue decrease of $0.5 million for the Coast
to Coast Club as a result of a decline in membership.
Publication revenue of $12.2 million for the second quarter of 2000
increased by $1.6 million or 15.1% from the comparable period in 1999 largely
due to a $0.5 million increase in sales related to the new cd-rom version of the
TRAILER LIFE CAMPGROUND/RV PARK AND SERVICES DIRECTORY and the new customized
road atlas, a $0.9 million increase in Ehlert publications revenue which is
primarily attributable to the acquisition of Thunder Press, Inc. ("TPI"), in
January 2000, and a net $0.2 million increase in advertising revenue throughout
the other publication titles.
Merchandise revenue of $64.9 million increased $3.7 million or 6.1% over
the second quarter of 1999. This increase consisted of $2.3 million in revenue
related to the March 2000 asset acquisition of a recreational vehicle dealership
in San Antonio, Texas ("CWRV Sales, Inc.") and a $1.4 million increase in
Camping World merchandise revenue. The increased merchandise revenue is due to a
$0.7 million increase in retail showroom sales, consisting of a $1.3 million
increase related to the addition of one new store net of a $0.6 million or 1.7%
decrease in same store sales over the second quarter of 1999. In addition, mail
order sales increased $0.4 million, and installation fees and other supplies and
services increased $0.3 million over 1999.
COSTS APPLICABLE TO REVENUES
Costs applicable to revenues totaled $71.0 million for the second quarter
of 2000, an increase of $5.8 million or 8.9% over the comparable period in 1999.
Membership services costs and expenses increased by approximately $2.1
million or 11.8% to $20.2 million in the second quarter of 2000 compared to
$18.0 million in 1999. This increase was due to a $1.1 million increase in
membership services expenses, primarily associated with Coast to Coast Club
legal defense costs in the Travel America, Inc. et. al. lawsuit, as disclosed in
Item 3 of the December 31, 1999 Form 10-K, (see Item 1 of Part II for recent
favorable developments in the case), and increased President's Club marketing
costs, a $0.5 million increase in extended vehicle warranty expenses associated
with increased sales, and $0.5 million in marketing and program enhancements to
various dealer marketing programs, including RVSEARCH.
Publication costs and expenses of $8.6 million for the second quarter of
2000 increased approximately $1.2 million or 17.1% compared to the second
quarter of 1999. This increase was primarily due to increased campground
directory expenses as a result of increased sales, and the newly acquired
operations of TPI.
Merchandise costs applicable to revenues of $42.3 million increased $2.4
million or 6.1% from the second quarter of 1999 primarily attributable to a $1.8
million revenue increase associated with the newly acquired CWRV Sales, Inc.,
and $0.6 million attributable to the 2.2% increase in merchandise sales. The
gross profit margin of merchandise sales increased by $0.7 million from 34.9% in
the second quarter of 1999 to 35.2% for the same period in 2000. This margin
increase was due to changes in product mix and improved product costs.
OPERATING EXPENSES
Selling, general and administrative expenses of $21.7 million for the
second quarter of 2000 were $0.7 million over the second quarter of 1999. This
increase is primarily attributed to the addition of one new Camping World store,
variable labor increases associated with increased retail sales, and the
acquisition of CWRV, Inc. Depreciation
10
<PAGE>
and amortization expenses of $4.2 million were $0.2 million over the second
quarter of 1999. This variance is primarily associated with an increase in
depreciation expense attributable to increased capital expenditures, including
the expenditures associated with the new retail store.
INCOME FROM OPERATIONS
Income from operations for the second quarter of 2000 decreased by $0.8
million, or 6.6%, to $11.0 million compared to $11.8 million for the second
quarter of 1999. This decrease was due to a $1.5 million reduction in gross
profit from the membership services segment and increased operating expenses of
$0.9 million, partially offset by increased gross profit from the merchandise
segment and the publications segment of $1.3 million and $0.3 million,
respectively.
NON-OPERATING EXPENSES
Non-operating expenses of $7.2 million for the second quarter of 2000
remained relatively unchanged from the same period in 1999.
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
Income from continuing operations before income taxes in the second
quarter of 2000 was approximately $3.9 million compared to $4.7 million for the
second quarter of 1999. This $0.8 million reduction over the prior period was
principally due to the increase in income from operations as noted above.
INCOME TAX EXPENSE
In the second quarter of 2000, the Company recognized a $2.0 million tax
expense compared to $2.7 million in the second quarter of 1999.
DISCONTINUED OPERATIONS
As further described in Note 4 to the consolidated financial statements,
the Company adopted a plan to dispose of the assets of AB. The net income from
the discontinued operations was $0.7 million for the second quarter of 1999.
NET INCOME
The net income in the second quarter of 2000 was $1.9 million compared to
$2.7 million for the same period in 1999.
SIX MONTHS ENDED JUNE 30, 2000
COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
REVENUES
Revenues of $199.0 million for the first six months of 2000 increased by
approximately $12.2 million or 6.5% from the comparable period in 1999.
Membership services revenues of $59.7 million for the first six months of
2000 increased by approximately $0.9 million or 1.6% from the comparable period
in 1999. This revenue increase was largely attributable to a $1.0 million
increase in marketing fee income recognized on sales of vehicle insurance
products, and $0.7 million in additional Good Sam emergency road service revenue
as a result of increased enrollment, partially offset by a $0.3 million revenue
decrease from the extended vehicle warranty program, a $0.3 million decline in
marketing fee income from the sale of RV financing products due to the rise in
interest rates and thus few new contracts, and a $0.2 million decrease in
membership services revenue, composed of membership decreases in the Coast to
Coast and Golf Card Clubs partially offset by membership increases in the Good
Sam and Camping World President's Clubs.
Publication revenue of $28.4 million for the first six months of 2000
increased by $4.7 million or 20.0% from the comparable period in 1999 largely
due to a $2.1 million increase related to the new cd-rom version of the TRAILER
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LIFE CAMPGROUND/RV PARK AND SERVICES DIRECTORY and the new customized road
atlas, a $1.6 million increase in Ehlert publications primarily due to the
acquisition of TPI, and a $1.0 million increase in advertising revenue
throughout the other publication titles, primarily RV-related titles.
Merchandise revenue of $110.9 million increased $6.5 million or 6.3% over
the first six months of 1999. This increase consisted of $2.7 million in revenue
related to the March 2000 asset acquisition of CWRV Sales, Inc. and $3.8 million
or 3.7% increase in Camping World merchandise revenue. The increased Camping
World merchandise revenue is due to a $2.4 million increase in retail showroom
sales, which includes a $2.5 million revenue increase related to the addition of
one new store net of a $0.1 million or 0.1% decrease in same store sales over
the first six months of 1999. In addition, mail order sales increased $0.9
million, and installation fees and other supplies and services increased $0.5
million over 1999.
COSTS APPLICABLE TO REVENUES
Costs applicable to revenues totaled $130.9 million for the first six
months of 2000, an increase of $9.7 million or 8.0% over the comparable period
in 1999.
Membership services costs and expenses increased by approximately $2.9
million or 8.2% to $38.4 million in the first six months of 2000 compared to
$35.5 million in 1999. Membership services expenses increased $2.4 million due
to $1.4 million of increased Coast to Coast Club expenses, primarily legal
defense costs, a $0.7 million increase of President's Club promotional expenses,
and $0.3 million of other membership club promotional expenses. An additional
$0.5 million of increased expense related to RVSEARCH and Online program
enhancements.
Publication costs and expenses of $20.0 million for the first six months
of 2000 increased approximately $2.8 million or 16.2% compared to the first six
months of 1999. This increase was primarily due to increased directory expenses
related to the new products sold, and the newly acquired operations of TPI.
Merchandise costs applicable to revenues of $72.6 million increased $4.0
million or 5.8% from the first six months of 1999 due to a $2.1 million increase
associated with the CWRV Sales, Inc. acquisition and $1.9 million attributable
to the 3.7% increase in merchandise sales. The gross profit margin of
merchandise sales increased by $1.9 million from 34.3% in the first six months
of 1999 to 34.8% for the same period in 2000. This margin increase was due to
changes in product mix and improved product costs.
OPERATING EXPENSES
Selling, general and administrative expenses of $42.4 million for the
first six months of 2000 were $2.6 million over the first six months of 1999 due
to variable labor increases associated with increased retail sales, labor
expenses associated with the addition of one new Camping World store, the
purchase of CWRV Sales, Inc. and other wage and related benefits. Depreciation
and amortization expenses of $8.5 million were $0.5 million over the first six
months of 1999. This variance is primarily associated with an increase in
depreciation expense attributable to increased capital expenditures, including
the expenditures associated with the new retail store.
INCOME FROM OPERATIONS
Income from operations for the first six months of 2000 decreased by $0.6
million or 3.2% to $17.2 million compared to the first six months of 1999. This
decrease was due to increased operating expenses of $3.1 million and reduced
gross profit from the membership services segment of $2.0 million, partially
offset by increased gross profit from the merchandise segment and the
publications segment of $2.6 million and $1.9 million, respectively.
NON-OPERATING EXPENSES
Non-operating expenses were $13.9 million for the first six months of
2000, compared to $14.4 million for the same period in 1999. This decrease is
primarily due to accrued interest income recognized on the $18.6 million note
receivable from Affinity Bank Holdings LLC ("ABH"), an affiliate, partially
offset by higher interest rates on the Company's revolving credit and term loan
facilities.
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INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
Income from continuing operations before income taxes in the first six
months of 2000 was approximately $3.3 million compared to $3.4 million for the
first quarter of 1999. This $0.1 million decrease over the prior period was
principally due to the decrease in income from operations combined with a higher
interest income as noted above.
INCOME TAX EXPENSE
The Company recognized a $1.7 million tax expense in the first six months
of both 2000 and 1999.
DISCONTINUED OPERATIONS
As further described in Note 4 to the consolidated financial statements,
the Company adopted a plan to dispose of the assets of AB. The net income from
the discontinued operations was $0.6 million for the first six months of 1999.
NET INCOME
The net income in the first six months of 2000 was $1.6 million compared to $2.2
million for the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
AGHI is a holding company whose primary asset is the capital stock of
AGI. AGI and its subsidiaries provide the operating cash flow necessary to
service its debt as well as that of AGHI.
The Company has two primary debt obligations. On April 2, 1997, AGHI
issued a total of $130.0 million of 11.0% senior notes maturing on April 1, 2007
("AGHI Senior Notes"). 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 ("Term A" and "Term B") aggregating
$130.0 million and a revolving credit facility of $70.0 million. 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 June 30, 2000, the average interest rates on the term loans
and revolving credit facility were 9.784% and 9.287%, respectively, and
permitted borrowings under the undrawn revolving line were $21.8 million. AGI
also pays a commitment fee of 0.5% per annum on the unused amount of the
revolving credit line. The term loans have quarterly scheduled payments of $2.15
million in 2000. The revolving credit facility matures on December 31, 2004, and
the Term A and Term B loans mature on December 31, 2004 and June 30, 2006,
respectively. 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 6.391% at June 30, 2000. This facility has a
maturity date of November 1, 2001. The AGI Interest Rate Collar protects the
Company against a rise in the LIBOR base rate over 6% on $75.0 million of the
AGI Revolving Credit and Term Loan Facility.
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. For
the year ended December 31, 1999, AGI generated $17.4 million of Excess Cash
Flow, as defined which, in accordance with the terms of the AGI Revolving Credit
and Term Loan Facility, sixty-five percent of which was used to prepay the term
loans and the balance was distributed to AGHI as a restricted junior payment.
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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 charges, levels of consolidated cash flow and cash flow
leverage ratio. Under the terms of the indenture, AGHI is permitted to make
dividend payments subject to certain limitations. In compliance therewith, AGHI
declared and paid a dividend to its sole shareholder, AGI Holding Corp., in the
first six months of 2000 equal to $5.75 million. The Company was in compliance
with all debt covenants at June 30, 2000.
During the first six months of 2000, payments under the terms of several
phantom stock agreements totaled $1.4 million. Additional phantom stock payments
of $0.2 million are scheduled to be made over the remainder of 2000.
Capital expenditures for the first six months of 2000 totaled $6.1
million compared to capital expenditures of $4.6 million for the first six
months of 1999. Additional capital expenditures of $3.4 million are anticipated
during the balance of 2000, primarily for Camping World supercenter equipment
and property improvements, continued enhancements to membership marketing
databases, computer hardware upgrades and replacements, and computer software
upgrades and enhancements.
During the first quarter of 2000, the Company made two acquisitions. The
first was the acquisition of motorcycle publication titles through the capital
stock purchase of Thunder Press, Inc. for $1.0 million in cash and $0.8 of
assumed debt. In the second acquisition, the Company acquired the assets of a
recreational vehicle (RV) dealership in San Antonio, Texas for $1.2 million in
cash, and began selling RV's at its Camping World location in New Braunfels,
Texas.
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
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PART II: OTHER INFORMATION
ITEM 1:
Reference is made to the information set forth in Item 3 of the Company's
Form 10-K Annual Report for the year ended December 31, 1999 regarding the
lawsuit against Camp Coast to Coast. In July 2000, the state court judge
presiding over the case granted the following motions by AGI and Camp Coast to
Coast after the plaintiffs had presented their case: (1) a motion for non-suit
directed to the lack of proof of causation, (2) a motion for judgement directed
to plaintiff's claims of alter ego liability on the part of AGI, and (3) a
motion for judgement directed to AGI's and Camp Coast to Coast's affirmative
defense that plaintiff had unclean hands. As a result of granting these motions,
the judge terminated the trial. As permitted by California law, plaintiff
requested a statement of decision and the parties are currently awaiting a
statement of decision from the judge. After the statement of decision is issued,
the plaintiff has a prescribed period of time to appeal the decisions. If no
appeal is timely filed, judgement will be entered and the case will be concluded
without any liability to the Company and its subsidiaries except for the cost of
defending the action.
ITEMS 2-6: NOT APPLICABLE
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SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AFFINITY GROUP HOLDING, INC.
/s/ MARK J. BOGGESS
--------------------------
Date: August 9, 2000 Mark J. Boggess
Senior Vice President
Chief Financial Officer
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