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CWH Camping World

Filed: 12 Nov 19, 4:04pm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

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: 001-37908

CAMPING WORLD HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

81-1737145

(State or other jurisdiction of incorporation or organization)

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

250 Parkway Drive, Suite 270

Lincolnshire, IL 60069

(Address of registrant’s principal executive offices) (Zip Code)

Telephone: (847) 808-3000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock,

$0.01 par value per share

CWH

New York Stock Exchange

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    No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  

Accelerated filer                   

Non-accelerated filer    

Smaller reporting company  

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes    No  

As of November 8, 2019, the registrant had 37,396,578 shares of Class A common stock, 50,706,629 shares of Class B common stock and 1 share of Class C common stock outstanding.

BASIS OF PRESENTATION

As used in this Quarterly Report on Form 10-Q (this “Form 10-Q”), unless the context otherwise requires, references to:

“we,” “us,” “our,” the “Company,” “Camping World” and similar references refer to Camping World Holdings, Inc., and, unless otherwise stated, all of its subsidiaries, including CWGS Enterprises, LLC, which we refer to as “CWGS, LLC” and, unless otherwise stated, all of its subsidiaries.
“Annual Report” refers to our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (“SEC”) on March 15, 2019.
“Continuing Equity Owners” refers collectively to ML Acquisition, funds controlled by Crestview Partners II GP, L.P. and the Former Profit Unit Holders and each of their permitted transferees that continue to own common units in CWGS, LLC after the initial public offering (“IPO”) of our stock and the Reorganization Transactions (each as defined in Note 1 – Summary of Significant Accounting Policies to our consolidated financial statements included in Part I, Item 1 of this Form 10-Q) and who may redeem at each of their options their common units for, at our election (determined solely by our independent directors within the meaning of the rules of the New York Stock Exchange who are disinterested), cash or newly issued shares of our Class A common stock.
“Crestview” refers to Crestview Advisors, L.L.C., a registered investment adviser to private equity funds, including funds affiliated with Crestview Partners II GP, L.P.
“CWGS LLC Agreement” refers to CWGS, LLC’s amended and restated limited liability company agreement, as amended to date.
“Former Profit Unit Holders” refers collectively to our named executive officers (excluding Marcus A. Lemonis and Melvin Flanigan), Andris A. Baltins and K. Dillon Schickli, who are members of our board of directors, and certain other current and former non-executive employees and former directors, in each case, who held existing common units in CWGS, LLC pursuant to CWGS, LLC’s equity incentive plan that was in existence prior to our IPO and who received common units of CWGS, LLC in exchange for their profit units in connection with our IPO.
“ML Acquisition” refers to ML Acquisition Company, LLC, a Delaware limited liability company, indirectly owned by each of Stephen Adams and our Chairman and Chief Executive Officer, Marcus A. Lemonis.
“ML RV Group” refers to ML RV Group, LLC, a Delaware limited liability company, wholly owned by our Chairman and Chief Executive Officer, Marcus A. Lemonis.
“Tax Receivable Agreement” refers to the tax receivable agreement that the Company entered into with CWGS, LLC, each of the Continuing Equity Owners and Crestview Partners II GP, L.P. in connection with the Company’s IPO.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts contained in this Form 10-Q may be forward-looking statements. Statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, including, among others, statements regarding the timeline for and benefits of our 2019 Strategic Shift (as defined below); expected new retail location openings and closures, including greenfield locations and acquired locations; sufficiency of our sources of liquidity and capital and

1

potential need for additional financing; future capital expenditures and debt service obligations; refinancing, retirement or exchange of outstanding debt; expectations regarding industry trend and consumer behavior and growth; our ability to capture positive industry trends and pursue growth; our plans to increase new products offered to our customers and grow our businesses to enhance our visibility with respect to revenue and cash flow, and to increase our overall profitability; volatility in sales and potential impact of miscalculating the demand for our products or our product mix; remediation of material weaknesses; expectations regarding increase of certain expenses in connection with our growth; expectations regarding our pending litigation, and our plans related to dividend payments, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘anticipates,’’ ‘‘could,’’ ‘‘intends,’’ ‘‘targets,’’ ‘‘projects,’’ ‘‘contemplates,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential’’ or ‘‘continue’’ or the negative of these terms or other similar expressions.

Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We believe that these important factors include, but are not limited to, the following:

the availability of financing to us and our customers;
fuel shortages, or high prices for fuel;
the well-being, as well as the continued popularity and reputation for quality, of our manufacturers;
current softness in the RV industry, which has increased our costs and reduced our margins;
uncertainty regarding how long the ongoing softness in the RV industry will last;
general economic conditions in our markets, and ongoing economic and financial uncertainties;
changes in consumer preferences or our failure to gauge those preferences;
our ability to attract and retain customers;
competition in the market for services, protection plans, products and resources targeting the RV lifestyle or RV enthusiast;
our ability to execute and achieve the expected benefits of our 2019 Strategic Shift;
costs incurred with the 2019 Strategic Shift being materially higher than expected or anticipated;
the possibility of future asset impairments related to the 2019 Strategic Shift;
our expansion into new, unfamiliar markets, businesses, or product lines or categories, as well as delays in opening or acquiring new retail locations;
unforeseen expenses, difficulties, and delays frequently encountered in connection with expansion through acquisitions;
our failure to maintain the strength and value of our brands;
our ability to successfully order and manage our inventory to reflect consumer demand in a volatile market and anticipate changing consumer preferences and buying trends;
fluctuations in our same store revenue and whether they will be a meaningful indicator of future performance;
the cyclical and seasonal nature of our business;

2

our ability to operate and expand our business and to respond to changing business and economic conditions, which depends on the availability of adequate capital;
the restrictive covenants imposed by our Senior Secured Credit Facilities and Floor Plan Facility;
our reliance on six fulfillment and distribution centers for our retail, e-commerce and catalog businesses;
the impact of ongoing class action lawsuits against us and certain of our officers and directors, as well as any potential future class action litigation;
natural disasters, whether or not caused by climate change, unusual weather conditions, epidemic outbreaks, terrorist acts and political events;
our dependence on our relationships with third party providers of services, protection plans, products and resources and a disruption of these relationships or of these providers’ operations;
any delays, new or increased tariffs, increased cost or quality control deficiencies in the importation of our products manufactured abroad;
whether third party lending institutions and insurance companies will continue to provide financing for RV purchases;
our ability to retain senior executives and attract and retain other qualified employees;
our ability to meet our labor needs;
risks associated with leasing substantial amounts of space, including our inability to maintain the leases for our retail locations or locate alternative sites for our stores in our target markets and on terms that are acceptable to us;
our business being subject to numerous federal, state and local regulations;
regulations applicable to the sale of firearms, extended service contracts; emergency roadside assistance contracts and insurance products;
our dealerships’ susceptibility to termination, non-renewal or renegotiation of dealer agreements if state dealer laws are repealed or weakened;
changes in government policies and firearms legislation;
our ability to remediate the impact of material weaknesses in our internal control over financial reporting;
our failure to comply with certain environmental regulations;
climate change legislation or regulations restricting emission of ‘‘greenhouse gases’’;
a failure in our e-commerce operations, security breaches and cybersecurity risks;
our inability to enforce our intellectual property rights and accusations of our infringement on the intellectual property rights of third parties;
our inability to maintain or upgrade our information technology systems or our inability to convert to alternate systems in an efficient and timely manner;
disruptions to our information technology systems or breaches of our network security;
increases in the minimum wage;

3

increases in paper costs, postage costs and shipping costs;
risk of product liability claims if people or property are harmed by the products we sell and other litigation risks;
risks associated with our private brand offerings;
the effectiveness of our risk management policies and procedures;
possibility of future asset impairment charges for goodwill, intangible assets or other long-lived assets;
risks associated with operating the Gander Outdoors and Overton’s retail brands;
benefits and cost savings related to integration of Gander Outdoors and Overton’s brands;
potential litigation relating to products we sell as a result of recent acquisitions, including firearms and ammunitions;
Marcus Lemonis, through his beneficial ownership of our shares directly or indirectly held by ML Acquisition Company, LLC and ML RV Group, LLC, has substantial control over us including matters requiring approval by our stockholders;
the exemptions from certain corporate governance requirements that we qualify for, and rely on, due to the fact that we are a ‘‘controlled company’’ within the meaning of the New York Stock Exchange, or NYSE, listing requirements;
whether we are able to realize any tax benefits that may arise from our organizational structure and any redemptions or exchanges of CWGS Enterprises, LLC common units for cash or stock;
other risks relating to our organizational structure and to ownership of shares of our Class A common stock; and
the other factors set forth under ‘‘Risk Factors’’ in Item 1A of Part I of our Annual Report and in Item 1A of Part II of this Form 10-Q.

We qualify all of our forward-looking statements by these cautionary statements. The forward-looking statements in this Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. For a further discussion of the risks relating to our business, see “Risk Factors” in Item 1A of Part I of our Annual Report, and in Item 1A of Part II of this Form 10-Q.

4

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

Camping World Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(In Thousands Except Share and Per Share Amounts)

September 30, 

December 31, 

  

2019

    

2018

Assets

Current assets:

Cash and cash equivalents

$

130,234

$

138,557

Contracts in transit

88,762

53,214

Accounts receivable, net

86,788

85,711

Inventories

1,380,214

1,558,970

Prepaid expenses and other assets

37,759

51,710

Total current assets

1,723,757

1,888,162

Property and equipment, net

330,182

359,855

Operating lease assets

823,475

Deferred tax assets, net

126,487

145,943

Intangible assets, net

31,386

35,284

Goodwill

386,915

359,117

Other assets

18,825

18,326

Total assets

$

3,441,027

$

2,806,687

Liabilities and stockholders' equity (deficit)

Current liabilities:

Accounts payable

$

177,336

$

144,808

Accrued liabilities

156,393

124,619

Deferred revenues and gains

93,609

88,054

Current portion of finance lease liabilities

23

Current portion of operating lease liabilities

58,211

Current portion of Tax Receivable Agreement liability

6,815

9,446

Current portion of long-term debt

14,143

12,977

Notes payable – floor plan, net

693,889

885,980

Other current liabilities

52,609

39,211

Total current liabilities

1,253,005

1,305,118

Right to use liability

5,147

Operating lease liabilities, net of current portion

850,948

Tax Receivable Agreement liability, net of current portion

109,504

124,763

Revolving line of credit

46,340

38,739

Long-term debt, net of current portion

1,156,071

1,152,888

Deferred revenues and gains

60,112

67,157

Other long-term liabilities

30,652

79,958

Total liabilities

3,506,632

2,773,770

Commitments and contingencies

Stockholders' equity (deficit):

Preferred stock, par value $0.01 per share – 20,000,000 shares authorized; none issued and outstanding as of September 30, 2019 and December 31, 2018

Class A common stock, par value $0.01 per share – 250,000,000 shares authorized; 37,533,958 issued and 37,377,004 outstanding as of September 30, 2019 and 37,278,690 issued and 37,192,364 outstanding as of December 31, 2018

374

372

Class B common stock, par value $0.0001 per share – 75,000,000 shares authorized; 69,066,445 issued; and 50,706,629 outstanding as of September 30, 2019 and December 31, 2018

5

5

Class C common stock, par value $0.0001 per share – 1 share authorized, issued and outstanding as of September 30, 2019 and December 31, 2018

Additional paid-in capital

51,625

47,531

Retained deficit

(48,872)

(3,370)

Total stockholders' equity attributable to Camping World Holdings, Inc.

3,132

44,538

Non-controlling interests

(68,737)

(11,621)

Total stockholders' equity (deficit)

(65,605)

32,917

Total liabilities and stockholders' equity (deficit)

$

3,441,027

$

2,806,687

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

5

Camping World Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(In Thousands Except Per Share Amounts)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

2019

    

2018

    

2019

    

2018

Revenue:

Good Sam Services and Plans

$

42,235

$

41,311

$

133,895

$

128,474

RV and Outdoor Retail

New vehicles

680,716

697,317

1,989,163

2,084,346

Used vehicles

247,151

197,757

672,908

580,494

Products, service and other

290,771

256,150

760,073

670,661

Finance and insurance, net

114,466

106,218

334,582

315,523

Good Sam Club

12,633

10,733

36,467

30,126

Subtotal

1,345,737

1,268,175

3,793,193

3,681,150

Total revenue

1,387,972

1,309,486

3,927,088

3,809,624

Costs applicable to revenue (exclusive of depreciation and amortization shown separately below):

Good Sam Services and Plans

19,401

18,529

58,878

56,650

RV and Outdoor Retail

New vehicles

598,718

609,244

1,743,161

1,810,822

Used vehicles

194,947

152,562

530,474

449,361

Products, service and other

233,174

153,167

537,885

397,035

Good Sam Club

3,259

2,970

9,900

8,406

Subtotal

1,030,098

917,943

2,821,420

2,665,624

Total costs applicable to revenue

1,049,499

936,472

2,880,298

2,722,274

Operating expenses:

Selling, general, and administrative

299,564

278,330

870,995

807,738

Debt restructure expense

380

Depreciation and amortization

14,104

13,179

41,644

34,207

Long-lived asset impairment

50,025

50,025

Loss on disposal of assets

7,087

843

9,247

987

Total operating expenses

370,780

292,352

971,911

843,312

Income from operations

(32,307)

80,662

74,879

244,038

Other income (expense):

Floor plan interest expense

(9,005)

(7,815)

(31,884)

(28,760)

Other interest expense, net

(17,568)

(16,794)

(53,422)

(45,740)

Loss on debt restructure

(1,676)

Tax Receivable Agreement liability adjustment

8,477

Other expense, net

2

Total other income (expense)

(26,573)

(24,607)

(76,829)

(76,176)

(Loss) income before income taxes

(58,880)

56,055

(1,950)

167,862

Income tax expense

(6,383)

(9,900)

(37,497)

(31,027)

Net (loss) income

(65,263)

46,155

(39,447)

136,835

Less: net loss (income) attributable to non-controlling interests

34,571

(32,032)

7,377

(96,109)

Net (loss) income attributable to Camping World Holdings, Inc.

$

(30,692)

$

14,123

$

(32,070)

$

40,726

Income (loss) earnings per share of Class A common stock:

Basic

$

(0.82)

$

0.38

$

(0.86)

$

1.10

Diluted

$

(0.82)

$

0.38

$

(0.86)

$

1.10

Weighted average shares of Class A common stock outstanding:

Basic

37,361

37,018

37,266

36,933

Diluted

37,361

37,055

37,266

37,140

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

6

Camping World Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Stockholders' Equity (Deficit)

(In Thousands)

Additional

Retained

Non-

Class A Common Stock

Class B Common Stock

Class C Common Stock

Paid-In

Earnings

Controlling

  

Shares

  

Amounts

  

Shares

  

Amounts

  

Shares

  

Amounts

  

Capital

  

(Deficit)

  

Interest

  

Total

Balance at December 31, 2018

37,192

$

372

50,707

$

5

$

$

47,531

$

(3,370)

$

(11,621)

$

32,917

Adoption of accounting standard (see Note 1 Summary of Significant Accounting Policies)

3,705

6,332

10,037

Equity-based compensation

2,716

2,716

Vesting of restricted stock units

1

Redemption of LLC common units for Class A common stock

6

12

12

Distributions to holders of LLC common units

(5,534)

(5,534)

Dividends(1)

(5,699)

(5,699)

Establishment of liabilities under the Tax Receivable Agreement and related changes to deferred tax assets associated with that liability

(8)

(8)

Non-controlling interest adjustment

(1,678)

1,678

Net loss

(19,395)

(7,412)

(26,807)

Balance at March 31, 2019

37,199

372

50,707

5

48,573

(24,759)

(16,557)

7,634

Equity-based compensation

3,863

3,863

Vesting of restricted stock units

96

1

143

(144)

Repurchases of Class A common stock for withholding taxes on vested RSUs

(22)

(273)

(273)

Distributions to holders of LLC common units

(32,523)

(32,523)

Dividends(1)

(5,711)

(5,711)

Non-controlling interest adjustment

(1,702)

1,702

Net income

18,017

34,606

52,623

Balance at June 30, 2019

37,273

373

50,707

5

50,604

(12,453)

(12,916)

25,613

Equity-based compensation

2,934

2,934

Vesting of restricted stock units

152

1

300

(301)

Repurchases of Class A common stock for withholding taxes on vested RSUs

(48)

(547)

(547)

Distributions to holders of LLC common units

(22,615)

(22,615)

Dividends(1)

(5,727)

(5,727)

Non-controlling interest adjustment

(1,666)

1,666

Net loss

(30,692)

(34,571)

(65,263)

Balance at September 30, 2019

37,377

$

374

50,707

$

5

$

$

51,625

$

(48,872)

$

(68,737)

$

(65,605)

(1)The Company declared dividends per share of Class A common stock of $0.15 for each of the three months ended March 31, June 30, and September 30, 2019.

7

Camping World Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Stockholders' Equity

(In Thousands)

Additional

Retained

Non-

Class A Common Stock

Class B Common Stock

Class C Common Stock

Paid-In

Earnings

Controlling

  

Shares

  

Amounts

  

Shares

  

Amounts

  

Shares

  

Amounts

  

Capital

  

(Deficit)

  

Interest

  

Total

Balance at December 31, 2017

36,749

$

367

50,837

$

5

$

42,520

$

7,619

$

21,252

$

71,763

Adoption of accounting standard (ASC No. 606, Revenue from Contracts with Customers)

1,310

2,476

3,786

Equity-based compensation

3,218

3,218

Exercise of stock options

6

137

137

Non-controlling interest adjustment for capital contribution of proceeds from the exercise of stock options

(77)

77

Vesting of restricted stock units

2

Redemption of LLC common units for Class A common stock

173

2

(130)

1,848

(115)

1,735

Distributions to holders of LLC common units

(19,938)

(19,938)

Dividends(2)

(5,662)

(5,662)

Establishment of liabilities under the Tax Receivable Agreement and related changes to deferred tax assets associated with that liability

(1,414)

(1,414)

Non-controlling interest adjustment

(1,592)

1,592

Net income

1,821

11,727

13,548

Balance at March 31, 2018

36,930

369

50,707

5

44,640

5,088

17,071

67,173

Equity-based compensation

3,129

3,129

Exercise of stock options

5

5

Non-controlling interest adjustment for capital contribution of proceeds from the exercise of stock options

(5)

5

Vesting of restricted stock units

77

1

29

(30)

Disgorgement of short-swing profits by Section 16 officer

557

557

Distributions to holders of LLC common units

(41,573)

(41,573)

Dividends(2)

(5,664)

(5,664)

Non-controlling interest adjustment

(2,521)

2,521

Net income

24,782

52,350

77,132

Balance at June 30, 2018

37,007

370

50,707

5

45,834

24,206

30,344

100,759

Equity-based compensation

4,188

4,188

Exercise of stock options

1

7

7

Non-controlling interest adjustment for capital contribution of proceeds from the exercise of stock options

(4)

4

Vesting of restricted stock units

10

44

(44)

Repurchases of Class A common stock for withholding taxes on vested RSUs

(3)

(62)

(62)

Redemption of LLC common units for Class A common stock

42

1

223

(38)

186

Distributions to holders of LLC common units

(36,838)

(36,838)

Dividends(2)

(5,673)

(5,673)

Establishment of liabilities under the Tax Receivable Agreement and related changes to deferred tax assets associated with that liability

(147)

(147)

Non-controlling interest adjustment

(6,686)

6,686

Net income

14,123

32,032

46,155

Balance at September 30, 2018

37,057

$

371

50,707

$

5

$

$

43,397

$

32,656

$

32,146

$

108,575

(2)The Company declared dividends per share of Class A common stock of $0.15 for each of the three months ended March 31, June 30, and September 30, 2018.

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

8

Camping World Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(In Thousands)

Nine Months Ended September 30, 

    

2019

    

2018

Operating activities

Net (loss) income

$

(39,447)

$

136,835

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

Depreciation and amortization

41,644

34,207

Equity-based compensation

9,513

10,535

Loss on debt restructure

1,676

Long-lived asset impairment

50,025

Loss on disposal of assets

9,247

987

Provision for losses on accounts receivable

562

1,957

Non-cash lease expense

40,739

Accretion of original debt issuance discount

776

764

Non-cash interest

3,362

4,655

Deferred income taxes

18,620

7,621

Tax Receivable Agreement liability adjustment

(8,477)

Change in assets and liabilities, net of acquisitions:

Receivables and contracts in transit

(37,121)

(56,118)

Inventories

195,137

(42,630)

Prepaid expenses and other assets

12,634

5,496

Accounts payable and other accrued expenses

59,220

124,442

Payment pursuant to Tax Receivable Agreement

(9,425)

(8,100)

Accrued rent for cease-use locations

(622)

Deferred revenue and gains

9,060

19,328

Operating lease liabilities

(40,405)

Other, net

7,477

13,040

Net cash provided by operating activities

323,141

254,073

Investing activities

Purchases of property and equipment

(45,039)

(108,422)

Purchase of real property

(27,821)

(100,073)

Proceeds from the sale of real property

24,622

Purchases of businesses, net of cash acquired

(48,408)

(82,195)

Proceeds from sale of property and equipment

4,955

892

Net cash used in investing activities

$

(91,691)

$

(289,798)

9

Camping World Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(In Thousands)

Nine Months Ended September 30, 

    

2019

    

2018

Financing activities

Proceeds from long-term debt

$

11,663

$

319,913

Payments on long-term debt

(10,122)

(76,709)

Net payments on notes payable – floor plan, net

(170,215)

(212,080)

Borrowings on revolving line of credit

14,029

24,403

Payments on revolving line of credit

(6,428)

Payments of principal on finance lease obligations

(23)

(660)

Payments of principal on right to use liability

(119)

Payment of debt issuance costs

(47)

(3,120)

Dividends on Class A common stock

(17,137)

(16,999)

Proceeds from exercise of stock options

153

RSU shares withheld for tax

(821)

(62)

Disgorgement of short-swing profits by Section 16 officer

557

Members' distributions

(60,672)

(98,349)

Net cash used in financing activities

(239,773)

(63,072)

Decrease in cash and cash equivalents

(8,323)

(98,797)

Cash and cash equivalents at beginning of the period

138,557

224,163

Cash and cash equivalents at end of the period

$

130,234

$

125,366

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

10

Camping World Holdings, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2019

1. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

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

The condensed consolidated financial statements as of and for the three and nine months ended September 30, 2019 are unaudited. The condensed consolidated balance sheet as of December 31, 2018 has been derived from the audited financial statements at that date but does not include all of the disclosures required by GAAP. These interim condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (the “Annual Report”) filed with the SEC on March 15, 2019. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.

CWH was formed on March 8, 2016 as a Delaware corporation for the purpose of facilitating an initial public offering (the “IPO”) and other related transactions in order to carry on the business of CWGS Enterprises, LLC (“CWGS, LLC”). CWGS, LLC was formed in March 2011 when it received, through contribution from its then parent company, all of the membership interests of Affinity Group Holding, LLC and FreedomRoads Holding Company, LLC (“FreedomRoads”). The IPO and related reorganization transactions (the “Reorganization Transactions”) that occurred on October 6, 2016 resulted in CWH as the sole managing member of CWGS, LLC, with CWH having sole voting power in and control of the management of CWGS, LLC. Despite its position as sole managing member of CWGS, LLC, CWH has a minority economic interest in CWGS, LLC. As of September 30, 2019, CWH owned 42.0% of CWGS, LLC. Accordingly, the Company consolidates the financial results of CWGS, LLC and reports a non-controlling interest in its condensed consolidated financial statements.

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

Description of the Business

CWGS, LLC is a holding company and operates through its subsidiaries. The Company realigned the structure of its internal organization during the three months ended March 31, 2019. The Company previously had 3 reportable segments: (i) Consumer Services and Plans; (ii) Dealership, and (iii) Retail. Following the realignment, the Company now has the following 2 reportable segments: (i) Good Sam Services and Plans and (ii) RV and Outdoor Retail. In conjunction with the first quarter 2019 realignment of our reporting structure, the Company combined our prior Dealership and Retail segments into the RV and Outdoor Retail segment and reclassified the Good Sam Club and co-branded credit card operations to the RV and Outdoor Retail segment from the Consumer Services and Plans segment to reflect the alignment and synergies of these businesses. The remaining portion of the former Consumer Services and Plans segment is now called the Good Sam Services and Plans segment. The Company’s reportable segment financial information has been recast to reflect the updated reportable segment structure for all periods presented. See Note 18 – Segments Information to the Condensed Consolidated Financial Statements for further information about the

11

Company’s segments. The Company primarily provides Good Sam Services and Plans offerings under its Good Sam brand and provides RV and Outdoor Retail offerings primarily under its Camping World and Gander Outdoors brands. Within the Good Sam Services and Plans segment, the Company primarily derives revenue from the sale of the following offerings: emergency roadside assistance; property and casualty insurance programs; travel assist programs; extended vehicle service contracts; vehicle financing and refinancing; shows and events; and publications and directories. Within the RV and Outdoor Retail segment, the Company primarily derives revenue from the sale of new and used recreational vehicles (“RVs”); the sale of RV products and services, including the sale of parts, accessories, supplies and services for RVs; equipment, gear and supplies for camping, hunting, fishing, skiing, snowboarding, bicycling, skateboarding, marine and watersport and other outdoor activities; commissions on the finance and insurance contracts related to the sale of RVs; and Good Sam Club memberships and co-branded credit cards. The Company primarily operates in various regions throughout the United States and markets its products and services to RV owners and outdoor enthusiasts.

In connection with the Company’s previously announced plan to strategically shift its business away from locations where the Company does not have the ability or where it is not feasible to sell and/or service RVs (see Note 4 – Restructuring and Long-lived Asset Impairment), the Company has reduced its number of retail locations to 209 as of September 30, 2019 from 227 as of September 30, 2018. From September 30, 2018 to September 30, 2019, the Company opened 18 locations, closed 23 locations, divested 13 specialty outdoor retail locations, and converted 10 stand-alone stores to co-habited locations. The table below summarizes the Company’s store locations from September 30, 2018 to September 30, 2019:

Co-habited

Stand-alone

Stand-alone

Stand-alone

RV and Outdoor

RV Retail

Outdoor

Specialty

Retail locations

locations

Retail locations

Retail locations

Total

Store locations as of September 30, 2018

120

15

70

22

227

Opened

11

5

2

18

Closed / divested

(3)

(5)

(11)

(17)

(36)

Converted

10

(10)

Store locations as of September 30, 2019

138

15

49

7

209

Reclassifications of Prior Period Amounts

Certain prior-period amounts have been reclassified to conform to the current period presentation. Specifically, as discussed in Note 18 — Segment Information, the Company has made changes to its operating segments and transferred certain assets relating to the Good Sam Club and co-branded credit card from its Good Sam Services and Plans segment to its RV and Outdoor Retail segment. Additionally, as a result of these changes, the Company has updated its disaggregated revenue categories to the following:

Good Sam services and plans – includes extended vehicle service contracts, emergency roadside assistance, property and casualty insurance programs, vehicle financing and refinancing, travel protection, consumer shows, directories, consumer magazines, and the Coast to Coast Club;
New vehicles – represents the sale of new RVs;
Used vehicles – represents the sale of used RVs;
Products, service and other – includes repair and maintenance, installation of parts and accessories, collision repair, sales of RV equipment and accessories, sales of outdoor lifestyle products and apparel, and other;
Finance and insurance, net – includes vehicle financing and protection plans typically sold in conjunction with the sale of new and used vehicles; and
Good Sam Club – includes the Good Sam Club and co-branded credit card.

12

Revisions for Correction of Immaterial Errors

In connection with the preparation of the financial statements for the year ended December 31, 2018, the Company identified errors in its Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2018 that related primarily to i) the cancellation reserve for certain of its finance and insurance offerings within the former Dealership segment in other current liabilities and other long-term liabilities, ii) the calculation of the Tax Receivable Agreement liability that arose from transactions in 2017, iii) the classification in the condensed consolidated statement of cash flows of non-cash capital expenditures included in accounts payable and non-cash leasehold improvements paid by lessor in other, net, and iv) the adoption of Accounting Standards Codification (“ASC”) No. 606, Revenue from Contracts with Customers (“ASC 606”) on January 1, 2018. The Company corrected the errors in the accompanying Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2018. The Company believes the correction of the errors is immaterial to the previously issued Condensed Consolidated Financial Statements.

The Company revised stockholders’ equity as of January 1, 2018 to correct these errors as of the beginning of the earliest year presented in these Condensed Consolidated Financial Statements, resulting in a decrease of $19.1 million from the previously reported amount of $90.8 million to the correct amount of $71.8 million. The condensed consolidated statement of stockholders’ equity has been revised to reflect the correction of the distributions to holders of LLC common units and non-controlling interest adjustments of $10.2 million and $8.7 million for the three months ended June 30, 2018 and September 30, 2018, respectively, related to the errors described above.

The following table presents the effect of the error corrections on the condensed consolidated statement of operations for the period indicated:

Three Months Ended September 30, 2018

Nine Months Ended September 30, 2018

($ in thousands except per share amounts)

    

As Reported

    

Adjustment

    

As Corrected

    

As Reported

    

Adjustment

    

As Corrected

Revenue - Finance and insurance, net

109,459

(3,241)

106,218

325,368

(9,845)

315,523

Total revenue

1,312,727

(3,241)

1,309,486

3,819,469

(9,845)

3,809,624

Costs applicable to revenue - Good Sam services and plans(1)

18,586

(57)

18,529

56,650

56,650

Costs applicable to revenue - Good Sam Club(1)

2,913

57

2,970

8,406

8,406

Income from operations

83,903

(3,241)

80,662

253,882

(9,844)

244,038

Other income (expense)

2

2

Income before income taxes

59,294

(3,239)

56,055

177,706

(9,844)

167,862

Income tax expense

(11,385)

1,485

(9,900)

(30,706)

(321)

(31,027)

Net income

47,909

(1,754)

46,155

147,000

(10,165)

136,835

Net income attributable to non-controlling interests

(33,893)

1,861

(32,032)

(101,772)

5,663

(96,109)

Net income attributable to Camping World Holdings, Inc.

14,016

107

14,123

45,228

(4,502)

40,726

Earnings per share of Class A common stock:

Basic

$

0.38

$

$

0.38

$

1.22

$

(0.12)

$

1.10

Diluted

$

0.38

$

$

0.38

$

1.20

$

(0.10)

$

1.10

(1)Amounts were combined and previously reported as costs applicable to revenue - consumer services and plans prior to reclassifications made for changes in segment reporting as disclosed in Note 18 – Segments Information.

13

The following table presents the effect of the error corrections on the condensed consolidated statement of cash flows for the period indicated:

Nine Months Ended September 30, 2018

($ in thousands except per share amounts)

    

As Reported

    

Adjustment

    

As Corrected

Net income

$

147,000

$

(10,165)

$

136,835

Deferred income taxes

7,300

321

7,621

Receivables and contracts in transit

(56,321)

203

(56,118)

Inventories

(37,364)

(5,266)

(42,630)

Prepaid expenses and other assets

230

5,266

5,496

Accounts payable and other accrued expenses

122,483

1,959

124,442

Deferred revenue and gains

17,288

2,040

19,328

Other

4,383

8,657

13,040

Net cash provided by operating activities

251,058

3,015

254,073

Purchases of property and equipment

(105,408)

(3,014)

(108,422)

Net cash used in investing activities

(286,784)

(3,014)

(289,798)

Use of Estimates

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

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02” or “ASC 842”). The FASB had subsequently issued several related ASUs that clarified the implementation guidance for certain aspects of ASU 2016-02, which were effective upon the adoption of ASU 2016-02. The amendments in this ASU related to the accounting for leasing transactions. ASC 842 requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases (with the exception of short-term leases) at the lease commencement date and recognize expenses on the income statement in a similar manner to the previous guidance in Accounting Standards Codification (“ASC”) 840, Leases ("ASC 840"). The lease liability is measured as the present value of the unpaid lease payments and the right-of-use asset is derived from the calculation of the lease liability adjusted for initial direct costs, prepaid lease payments, and lease incentives. Lease payments include fixed and in-substance fixed payments, variable payments based on an index or rate, reasonably certain purchase options, termination penalties where the lease term reflects the election of a termination option, fees paid by the lessee to the owners of a special-purpose entity for restructuring the transaction, and probable amounts the lessee will owe under a residual value guarantee. Lease payments do not include variable lease payments other than those that depend on an index or rate, any guarantee by the lessee of the lessor’s debt, or any amount allocated to non-lease components. The discount rate used to derive the present value of unpaid lease payments is based on the rates implicit in the lease, or if not available, the incremental borrowing rate.

The most significant impact of ASC 842 on the Company’s accounting was the balance sheet impact of its real estate operating leases, which significantly increased assets and liabilities. In addition, ASC 842 eliminated the previous build-to-suit lease accounting guidance and resulted in derecognition of build-to-suit assets and liabilities that remained on the balance sheet after the end of the construction period, including

14

any related deferred taxes. Also, ASC 842 made changes to sale-leaseback accounting to result in the recognition of the gain on the transaction at the time of the sale instead of recognizing over the leaseback period, when the transaction is deemed to be a sale instead of a financing arrangement. ASC 842 further changes the assessment of sale accounting from a transfer of risk and rewards assessment to a transfer of control assessment.

The Company elected the package of practical expedients available under the transition provisions of ASC 842, including (i) not reassessing whether expired or existing contracts contain leases, (ii) lease classification, and (iii) not revaluing initial direct costs for existing leases. Also, the Company elected the practical expedient which allows aggregation of non-lease components with the related lease components when evaluating accounting treatment for equipment and billboard leases. Lastly, the Company applied the modified retrospective adoption method, utilizing the simplified transition option available in ASC 842, which allows entities to continue to apply the legacy guidance in ASC 840, including its disclosure requirements, in the comparative periods presented in the year of adoption. The Company adopted ASC 842 on January 1, 2019.

The impact of applying ASC 842 effective as of January 1, 2019, to the Company’s condensed consolidated statements of operations and cash flows was not significant. The major impacts to the balance sheet were 1) the addition of $809.7 million in operating lease assets, 2) the addition of $867.5 million of operating lease liabilities, 3) the removal of approximately $4.9 million, $10.6 million, $7.6 million, and $54.5 million of property and equipment, net; deferred revenues and gains; accrued liabilities; and other liabilities, respectively, and 4) a cumulative-effect adjustment for the adoption of ASC 842 of $3.7 million and $6.3 million was recorded to retained earnings and non-controlling interests, respectively. The adoption of ASC 842 did not impact any of its existing debt covenants.

In June 2018, the FASB issued ASU No. 2018-07, Compensation–Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). This standard simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The Company adopted the amendments of this ASU on January 1, 2019 and the adoption did not materially impact its consolidated financial statements, results of operations, or statements of cash flows.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”). This standard requires the use of a forward-looking expected loss impairment model for trade and other receivables, held-to-maturity debt securities, loans and other instruments. This standard also requires impairments and recoveries for available-for-sale debt securities to be recorded through an allowance account and revises certain disclosure requirements. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company will adopt ASU 2016-13 on January 1, 2020. The Company is currently evaluating the impact that the adoption of the provisions of the ASU will have on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). This standard aligns the accounting for implementation costs incurred in a cloud computing arrangement that is a service arrangement (i.e., hosting arrangement) with the guidance on capitalizing costs in ASC 350-40, Internal-Use Software. The ASU permits either a prospective or retrospective transition approach. The standard will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company will adopt ASU 2018-15 on January 1, 2020. The Company is currently evaluating the impact that the adoption of the provisions of the ASU will have on its consolidated financial statements.

15

2. Revenue

Contract Assets

As of September 30, 2019 and December 31, 2018, a contract asset of $6.7 million and $6.3 million, respectively, relating to RV service revenues was included in accounts receivable in the accompanying unaudited condensed consolidated balance sheet.

Deferred Revenues

As of September 30, 2019, the Company has unsatisfied performance obligations relating to multi-year plans for its Good Sam Club, roadside assistance, Coast to Coast memberships, and magazine publication revenue streams. The total unsatisfied performance obligation for these revenue streams at September 30, 2019 for the periods during which the Company expects to recognize the amounts as revenue are presented as follows (in thousands):

    

As of

    

September 30, 2019

2019

    

$

39,703

2020

61,080

2021

23,528

2022

12,013

2023

6,331

Thereafter

11,066

Total

$

153,721

3. Inventories and Floor Plan Payable

Inventories consisted of the following (in thousands):

September 30, 

December 31, 

    

2019

    

2018

Good Sam services and plans

$

$

459

New RVs

874,168

1,017,910

Used RVs

163,348

124,527

Products, parts, accessories and miscellaneous

342,698

416,074

$

1,380,214

$

1,558,970

New and used RV inventory, included in the RV and Outdoor Retail segment, are primarily financed by floor plan arrangements through a syndication of banks. The arrangements are collateralized by substantially all of the assets of FreedomRoads, LLC (“FR”), a wholly owned subsidiary of FreedomRoads, which operates the RV dealerships, and bear interest at one-month London Interbank Offered Rate (“LIBOR”) plus 2.15% as of September 30, 2019 and as of December 31, 2018. LIBOR was 2.10% at September 30, 2019 and 2.35% as of December 31, 2018. Borrowings are tied to specific vehicles and principal is due upon the sale of the related vehicle.

As of September 30, 2019 and December 31, 2018, FR maintained floor plan financing through the Seventh Amended and Restated Credit Agreement (“Floor Plan Facility”). On October 8, 2019, FR entered into a Second Amendment to the Seventh Amended and Restated Credit Agreement (the “Amendment”). The Amendment reduces the total commitment under the Floor Plan Facility to $1.38 billion and extends the maturity date of the Floor Plan Facility from December 12, 2020 to March 15, 2023, among other immaterial changes. The applicable borrowing rate margin on LIBOR and base rate loans ranges from 2.05% to 2.50% and 0.55% and 1.00%, respectively, based on the consolidated current ratio at FR. The Floor Plan Facility at September 30, 2019 allowed FR to borrow (a) up to $1.415 billion under a floor plan facility, (b) up to $15.0 million under a letter of credit facility and (c) up to a maximum amount outstanding of $60.0 million under the revolving line of credit, which maximum amount outstanding will decrease by $3.0 million on the last day of each fiscal quarter, commencing with the fiscal quarter ending March 31, 2020.

16

The Floor Plan Facility includes a flooring line aggregate interest reduction (“Flair”) offset account that allows the Company to transfer cash as an offset to the payable under the Floor Plan Facility. These transfers reduce the amount of liability outstanding under the floor plan notes payable that would otherwise accrue interest, while retaining the ability to transfer amounts from the Flair offset account into the Company’s operating cash accounts. As a result of using the Flair offset account, the Company experiences a reduction in floor plan interest expense in its consolidated statements of income.

The credit agreement governing the Floor Plan Facility contains certain financial covenants. FR was in compliance with all debt covenants at September 30, 2019 and December 31, 2018.

The following table details the outstanding amounts and available borrowings under the Floor Plan Facility as of September 30, 2019 and December 31, 2018 (in thousands):

September 30, 

December 31, 

    

2019

    

2018

Floor Plan Facility

Notes payable - floor plan:

Total commitment

$

1,415,000

$

1,415,000

Less: borrowings, net

(693,889)

(885,980)

Less: flooring line aggregate interest reduction account

(156,751)

(97,757)

Additional borrowing capacity

564,360

431,263

Less: accounts payable for sold inventory

(55,804)

(33,928)

Less: purchase commitments

(33,962)

(22,530)

Unencumbered borrowing capacity

$

474,594

$

374,805

Revolving line of credit:

$

60,000

$

60,000

Less borrowings

(46,340)

(38,739)

Additional borrowing capacity

$

13,660

$

21,261

Letters of credit:

Total commitment

$

15,000

$

15,000

Less: outstanding letters of credit

(10,280)

(10,380)

Additional letters of credit capacity

$

4,720

$

4,620

4. Restructuring and Long-lived Asset Impairment

Restructuring

On September 3, 2019, the Board of Directors of CWH approved a plan to strategically shift its business away from locations where the Company does not have the ability or where it is not feasible to sell and/or service RVs (the “2019 Strategic Shift”). As of September 3, 2019, the Company operated 37 locations that do not sell and/or service RVs but sell an assortment of outdoor lifestyle products (the “Outdoor Lifestyle Locations”), and had an additional 5 Outdoor Lifestyle Locations that were previously closed or had not opened as of that date. In addition, the Company operated 7 specialty retail locations operated by TheHouse.com, an indirect wholly-owned subsidiary of the Company.

Of the Outdoor Lifestyle Locations operating at September 3, 2019, the Company closed 3 locations during September 2019 and currently expects to either sell, divest, repurpose, relocate or close 28 of the remaining Outdoor Lifestyle Locations, at which sales and/or service of RVs cannot be performed, and 2 of the 7 specialty retail locations operated by TheHouse.com. The Company was able to, or is in the process of, acquiring and/or obtaining the developmental consents, approvals and permits necessary for the sale and/or service of RVs at 6 of the Outdoor Lifestyle Locations. As part of the 2019 Strategic Shift, the Company has evaluated the impact on the Company’s supporting infrastructure and operations, which included rationalizing inventory levels and composition, closing 1 of its distribution centers, and realigning other resources. The Company expects the majority of the store closures and/or divestitures related to the

17

2019 Strategic Shift to be completed by January 31, 2020.The Company will have a reduction of headcount and labor costs for those locations that are sold, divested or closed and the Company expects to incur material charges associated with the activities contemplated under the 2019 Strategic Shift. In connection with the 2019 Strategic Shift, the Company expects to incur costs relating to one-time employee termination benefits of $1.0 million, contract termination costs of between $10.0 million and $15.0 million, incremental inventory reserve charges of $27.3 million, and other associated costs of between $4.0 million and $6.0 million.

The following table details the costs incurred associated with the 2019 Strategic Shift (in thousands):

Three Months Ended

Nine Months Ended

September 30, 2019

    

September 30, 2019

Restructuring costs:

One-time termination benefits(1)

$

182

$

182

Incremental inventory reserve charges(2)

27,306

27,306

Other associated costs(3)

236

236

Total restructuring costs

$

27,724

$

27,724

(1)These costs were included in selling, general, and administrative expenses in the condensed consolidated statements of operations.
(2)These costs were included in costs applicable to revenue – products, services and other in the condensed consolidated statements of operations.
(3)For the three and nine months ended September 30, 2019, costs of approximately $170,000 were included in costs applicable to revenue – products, services and other, and $66,000 were included in selling, general, and administrative expenses in the condensed consolidated statements of operations.

The following table details changes in the restructuring accrual associated with the 2019 Strategic Shift (in thousands):

    

One-time

    

Contract

    

Other

    

    

Termination

    

Termination

    

Associated

    

    

Benefits

    

Costs

    

Costs

    

Total

Balance at June 30, 2019

$

$

$

$

Charged to expense

182

236

418

Balance at September 30, 2019

$

182

$

$

236

$

418

The Company evaluated the requirements of ASC No. 205-20, Presentation of Financial Statements – Discontinued Operations relative to the 2019 Strategic Shift and determined that discontinued operations treatment is not applicable. Accordingly, the results of operations of the locations impacted by the 2019 Strategic Shift are reported as part of continuing operations in the accompanying unaudited condensed consolidated financial statements.

Long-lived Asset Impairment

During the three months ended September 30, 2019, the Company had indicators of impairment of the long-lived assets for certain of its locations, primarily those locations discussed above related to the 2019 Strategic Shift. For locations that failed the recoverability test based on an analysis of undiscounted cash flows, the Company estimated the fair value of the locations based on a discounted cash flow analysis. After performing the long-lived asset impairment test for these locations, the Company determined that 38 locations within the RV and Outdoor Retail segment had long-lived assets that were impaired. Of these 38 locations with long-lived assets that were impaired, 2 locations were unrelated to the 2019 Strategic Shift, 26 locations were Outdoor Lifestyle Locations that were operating at September 30, 2019, 7 locations were Outdoor Lifestyle Locations that were closed as of September 30, 2019, and 3 locations were specialty retail locations operated by TheHouse.com. The long-lived asset impairment charge, subject to limitations described below, was calculated as the amount that the carrying value of the locations exceeded the estimated fair value. The calculated long-lived asset impairment charge was allocated to each of the

18

categories of long-lived assets at each location pro rata based on the long-lived assets’ carrying values, except that individual assets cannot be impaired below their individual fair values when that fair value can be determined without undue cost and effort. For most of these locations, the operating lease right-of-use assets and furniture and equipment were written down to their individual fair values and the remaining impairment charge was allocated to the remaining long-lived assets up to the fair value estimated on these assets based on liquidation value estimates.

During the three months ended September 30, 2019, the Company recorded long-lived asset impairment charges relating to leasehold improvements, furniture and equipment, and operating lease right-of-use assets of $16.9 million, $23.7 million, and $9.4 million, respectively. Of the $50.0 million long-lived asset impairment charge during the three months ended September 30, 2019, $48.3 million related to the 2019 Strategic Shift discussed above.

5. Goodwill and Intangible Assets

Goodwill

The following is a summary of changes in the Company’s goodwill by segment for the nine months ended September 30, 2019 (in thousands):

Good Sam

���

Services and

RV and

    

Plans

    

Outdoor Retail

    

Consolidated

Balance as of December 31, 2018

$

50,320

$

308,797

$

359,117

Acquisitions (1)

28,198

28,198

Transfers of assets between reporting units

(26,491)

26,491

Divestitures (2)

(400)

(400)

Balance as of September 30, 2019

$

23,829

$

363,086

$

386,915

(1)See Note 11 — Acquisitions.
(2)Goodwill was allocated to 13 specialty retail locations within the RV and Outdoor Retail segment based on relative fair value. These 13 specialty retail locations were divested during the three months ended September 30, 2019.

The Company evaluates goodwill for impairment on an annual basis as of the beginning of the fourth quarter, or more frequently if events or changes in circumstances indicate that the Company’s goodwill or indefinite-lived intangible assets might be impaired. The Company assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then it is required to calculate the fair value of the reporting unit and compare the fair value with the carrying amount of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then the Company records an impairment of goodwill equal to the amount that the carrying amount of a reporting unit exceeds its fair value.

During the three months ended September 30, 2019, the Company performed an interim goodwill impairment test of its RV and Outdoor Retail reporting unit. The fair value of the RV and Outdoor Retail reporting unit was substantially above its respective carrying amount, therefore, no goodwill impairment was recorded.

As of January 1, 2019, the Company transferred certain assets related to the Good Sam Club and co-branded credit card from GSS Enterprises, LLC (“GSS”) within the Good Sam Services and Plans segment to CWI, Inc. (“CWI”) within the RV and Outdoor Retail segment. This resulted in a transfer of $26.5 million of goodwill from the Good Sam Services and Plans segment to the RV and Outdoor Retail segment based on relative fair value as of January 1, 2019 of the portion of the reporting unit transferred.

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Intangible Assets

Finite–lived intangible assets and related accumulated amortization consisted of the following at September 30, 2019 and December 31, 2018 (in thousands):

September 30, 2019

Cost or

Accumulated

   

Fair Value

    

Amortization

    

Net

Good Sam Services and Plans:

Membership and customer lists

$

9,140

$

(7,773)

$

1,367

RV and Outdoor Retail:

Customer lists and domain names

3,415

(2,316)

1,099

Trademarks and trade names

28,955

(4,381)

24,574

Websites

5,990

(1,644)

4,346

$

47,500

$

(16,114)

$

31,386

December 31, 2018

Cost or

Accumulated

    

Fair Value

    

Amortization

    

Net

Good Sam Services and Plans:

Membership and customer lists

$

9,140

$

(7,174)

$

1,966

RV and Outdoor Retail:

Customer lists and domain names

3,415

(1,559)

1,856

Trademarks and trade names

29,304

(2,853)

26,451

Websites

6,074

(1,063)

5,011

$

47,933

$

(12,649)

$

35,284

   

6. Long-Term Debt

Outstanding long-term debt consisted of the following (in thousands):

September 30, 

December 31, 

    

2019

    

2018

Term Loan Facility (1)

$

1,150,170

$

1,156,345

Real Estate Facility (2)

20,044

9,520

Subtotal

1,170,214

1,165,865

Less: current portion

(14,143)

(12,977)

Total

$

1,156,071

$

1,152,888

(1)Net of $4.6 million and $5.4 million of original issue discount at September 30, 2019 and December 31, 2018, respectively, and $11.3 million and $13.4 million of finance costs at September 30, 2019 and December 31, 2018, respectively.
(2)Net of $0.2 million and $0.2 million of finance costs at September 30, 2019 and December 31, 2018, respectively.

Senior Secured Credit Facilities

As of September 30, 2019 and December 31, 2018, CWGS Group, LLC (the “Borrower”), a wholly owned subsidiary of CWGS, LLC, was party to a credit agreement (as amended from time to time, the “Credit Agreement”) for a senior secured credit facility (the “Senior Secured Credit Facilities”). The Senior Secured Credit Facilities consist of a term loan facility (the “Term Loan Facility”) and a $35.0 million revolving credit facility (the “Revolving Credit Facility”). The funds available under the Revolving Credit Facility may be utilized for borrowings or letters of credit; however, a maximum of $15.0 million may be allocated to such letters of credit. The Revolving Credit Facility matures on November 8, 2021, and the Term Loan Facility matures on November 8, 2023. The Term Loan Facility requires mandatory principal payments in equal quarterly installments of $3.0 million. Additionally, the Company is required to prepay the term loan borrowings in an

20

aggregate amount equal to 50% of excess cash flow, as defined in the Credit Agreement, for such fiscal year depending on the Total Leverage Ratio.

As of September 30, 2019, the average interest rate on the Term Loan Facility was 4.85%. As of September 30, 2019, the Company had $9.4 million available for borrowing and letters of credit in the aggregate amount of $3.7 million outstanding under the Revolving Credit Facility, as a result of the 30% threshold described below. As of September 30, 2019, a principal balance of $1.2 billion was outstanding under the Term Loan Facility and no amounts were outstanding on the Revolving Credit Facility other than the letters of credit in the aggregate amount of $3.7 million.

The Senior Secured Credit Facilities are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by each of the Company’s existing and future domestic restricted subsidiaries with the exception of FreedomRoads Intermediate Holdco, LLC, the direct parent of FR, and FR and its subsidiaries. The Credit Agreement contains certain restrictive covenants pertaining to, but not limited to, mergers, changes in the nature of the business, acquisitions, additional indebtedness, sales of assets, investments, and the prepayment of dividends subject to certain limitations and minimum operating covenants. Additionally, management has determined that the Senior Secured Credit Facilities include subjective acceleration clauses which could impact debt classification. Management has determined that no events have occurred at September 30, 2019, including the internal control material weaknesses, that would trigger a subjective acceleration clause.

The Credit Agreement requires the Borrower and its subsidiaries to comply on a quarterly basis with a maximum Total Leverage Ratio (as defined in the Credit Agreement), which covenant is in effect only if, as of the end of each calendar quarter, the aggregate amount of borrowings under the revolving credit facility (including swingline loans), letters of credit and unreimbursed letter of credit disbursements outstanding at such time (minus the lesser of (a) $5.0 million and (b) letters of credit outstanding) is greater than 30% of the aggregate amount of the Revolving Lenders’ Revolving Commitments (minus the lesser of (a) $5.0 million and (b) letters of credit outstanding), as defined in the Credit Agreement. As of September 30, 2019, the Company was not subject to this covenant as borrowings under the Revolving Credit Facility did not exceed the 30% threshold. At September 30, 2019, the Company would not have met this covenant if the Company had exceeded the 30% threshold. As such, the Company’s borrowing capacity under the Revolving Credit Facility at September 30, 2019 was limited to $9.4 million of additional borrowings. The Company was in compliance with all applicable debt covenants at September 30, 2019 and December 31, 2018.

Real Estate Facility

As of September 30, 2019 and December 31, 2018, Camping World Property, Inc. (the ‘‘Real Estate Borrower’’), an indirect wholly-owned subsidiary of CWGS, LLC, and CIBC Bank USA (“Lender”), were party to a loan and security agreement for a real estate credit facility with an aggregate maximum principal amount of $21.5 million (“Real Estate Facility”). Borrowings under the Real Estate Facility are guaranteed by CWGS Group, LLC, a wholly-owned subsidiary of CWGS, LLC. The Real Estate Facility may be used to finance the acquisition of real estate assets. The Real Estate Facility is secured by first priority security interest on the real estate assets acquired with the proceeds of the Real Estate Facility (“Real Estate Facility Properties”). The Real Estate Facility matures on October 31, 2023.

As of September 30, 2019, the average interest rate on the Real Estate Facility was 5.25% with a commitment fee of 0.50% of the aggregate unused principal amount of the Real Estate Facility. As of September 30, 2019, the Company had no available capacity under the Real Estate Facility. As of September 30, 2019, a principal balance of $20.3 million was outstanding under the Real Estate Facility.

The Real Estate Facility is subject to certain cross default provisions, a debt service coverage ratio, and other customary covenants. The Company was in compliance with all debt covenants at September 30, 2019 and December 31, 2018.

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7. Leases

The Company leases property and equipment throughout the United States primarily under operating leases. For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of lease payments over the term. Many of the Company’s leases include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate. The Company aggregates non-lease components with the related lease components when evaluating the accounting treatment for equipment and billboard leases.

Many of the Company’s lease agreements include fixed rental payments. Certain of its lease agreements include fixed rental payments that are adjusted periodically for changes in the Consumer Price Index (“CPI”). Payments based on a change in an index or a rate are not considered in the determination of lease payments for purposes of measuring the related lease liability. While lease liabilities are not remeasured as a result of changes to the CPI, changes to the CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments are incurred.

Most of the Company’s real estate leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The exercise of lease renewal options is at the Company’s sole discretion. If it is reasonably certain that the Company will exercise such options, the periods covered by such options are included in the lease term and are recognized as part of the operating lease assets and operating lease liabilities. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of its leases do not provide a readily determinable implicit rate. Therefore, the Company must estimate its incremental borrowing rate to discount the lease payments based on information available at lease commencement.

The Company leases most of the properties for its RV and outdoor retail locations through 274 operating leases. The Company also leases billboards and certain of its equipment primarily through operating leases. The related right-of-use (“ROU”) assets for these operating leases are included in operating lease assets. The Company has 1 finance lease for equipment, which is not material.

As of September 30, 2019, the weighted-average remaining lease term and weighted-average discount rate of operating leases was 13.2 years and 7.6%, respectively.

The following presents certain information related to the costs for operating leases during 2019:

Three Months Ended

Nine Months Ended

September 30, 2019

    

September 30, 2019

Operating lease cost

$

30,469

$

91,287

Short-term lease cost

851

2,437

Variable lease cost

550

1,652

Sublease income

(480)

(996)

Net lease costs

$

31,390

$

94,380

The following presents supplemental cash flow information related to leases during 2019:

Nine Months Ended

September 30, 2019

Cash paid for amounts included in the measurement of lease liability:

Operating cash flows for operating leases

$

90,835

ROU assets obtained in exchange for lease liabilities:

Operating leases

$

86,349

22

The following reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities on the balance sheet as of September 30, 2019:

    

Operating

    

Leases

2019

    

$

31,119

2020

123,467

2021

122,212

2022

117,288

2023

113,744

Thereafter

958,629

Total lease payments

1,466,459

Less: Imputed interest

(557,300)

Total lease obligations

909,159

Less: Current portion

(58,211)

Noncurrent lease obligations

$

850,948

Disclosures related to periods prior to the adoption of ASC 842

The Company leases operating facilities throughout the United States. Prior to January 1, 2019, the Company analyzed all leases in accordance with ASC 840. The Company has included the right to use assets in property and equipment, net, as follows (in thousands):

December 31, 

    

2018

Right to use assets

$

5,400

Accumulated depreciation

(540)

$

4,860

The following is a schedule by year of the future changes in the right to use liabilities as of December 31, 2018 (in thousands):

2019

    

$

486

2020

486

2021

486

2022

486

2023

486

Thereafter

7,889

Total minimum lease payments

10,319

Amounts representing interest

(5,172)

Present value of net minimum right to use liability payments

$

5,147

Future minimum annual fixed rentals under operating leases having an original term of more than one year as of December 31, 2018, were as follows (in thousands):

    

Third Party

    

Related Party

    

Total

2019

    

$

116,131

    

$

2,248

    

$

118,379

2020

111,008

2,248

113,256

2021

106,740

2,248

108,988

2022

102,496

2,145

104,641

2023

99,594

1,930

101,524

Thereafter

811,228

18,951

830,179

Total

$

1,347,197

$

29,770

$

1,376,967

23

For the three and nine months ended September 30, 2018, $28.5 million and $83.6 million of rent expense was charged to costs and expenses, respectively.

8. Fair Value Measurements

Accounting guidance for fair value measurements establishes a three tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

There have been no transfers of assets or liabilities between the fair value measurement levels and there were no material re-measurements to fair value during 2019 and 2018 of assets and liabilities that are not measured at fair value on a recurring basis.

The following table presents the reported carrying value and fair value information for the Company’s debt instruments. The fair values shown below for the Term Loan Facility, as applicable, are based on quoted prices in the inactive market for identical assets (Level 2) and the fair values shown below for the Floor Plan Facility Revolving Line of Credit and the Real Estate Facility are estimated by discounting the future contractual cash flows at the current market interest rate that is available based on similar financial instruments.

Fair Value

September 30, 2019

December 31, 2018

($ in thousands)

    

Measurement

    

Carrying Value

    

Fair Value

    

Carrying Value

    

Fair Value

Term Loan Facility

Level 2

$

1,150,170

$

994,100

$

1,156,345

$

1,116,338

Floor Plan Facility Revolving Line of Credit

Level 2

46,340

43,026

38,739

40,139

Real Estate Facility

Level 2

20,044

21,822

9,520

10,850

9. Commitments and Contingencies

Litigation

On October 19, 2018, a purported stockholder of the Company filed a putative class action lawsuit, captioned Ronge v. Camping World Holdings, Inc. et al., in the United States District Court for the Northern District of Illinois against the Company, certain of its officers and directors, and Crestview Partners II GP, L.P. and Crestview Advisors, L.L.C. (the “Ronge Complaint”). On October 25, 2018, a different purported stockholder of the Company filed a putative class action lawsuit, captioned Strougo v. Camping World Holdings, Inc. et al., in the United States District Court for the Northern District of Illinois against the Company, certain of its officers and directors, and Crestview Partners II GP, L.P. and Crestview Advisors, L.L.C. (the “Strougo Complaint”).

The Ronge and Strougo Complaints were consolidated and lead plaintiffs appointed by the court. On February 27, 2019, lead plaintiffs filed a consolidated complaint against the Company, certain of its officers, directors, Crestview Partners II GP, L.P. and Crestview Advisors, L.L.C., and the underwriters of the May and October 2017 secondary offerings of the Company’s Class A common stock (the “Consolidated Complaint”). The Consolidated Complaint alleges violations of Sections 11 and 12(a)(2) of the Securities Act of 1933, as well as Section 10(b) of the Securities Exchange Act of 1934, as amended, and rule 10b-5 thereunder, based on allegedly materially misleading statements or omissions of material facts necessary to make certain statements not misleading related to the business, operations, and management of the Company. Additionally, it alleges that certain of the Company’s officers and directors, Crestview Partners II GP, L.P., and Crestview Advisors, L.L.C. violated Section 15 of the Securities Act of 1933 and Section 20(a) of the Securities Exchange Act of 1934, as amended, by allegedly acting as controlling persons of the Company. The lawsuit brings claims on behalf of a putative class of purchasers of the Company’s Class A common stock between March 8, 2017 and August 7, 2018, and seeks compensatory damages, rescission, attorneys’

24

fees and costs, and any equitable or injunctive relief the court deems just and proper. On May 17, 2019, the Company, along with the other defendants, moved to dismiss the Consolidated Complaint.

While the Company believes it has meritorious defenses to the claims of the plaintiffs and members of the putative class, the Company has been engaged in a mediation session with the plaintiffs in the Consolidated Complaint in an effort to avoid the uncertainty and expense of litigation. Any losses that the Company believes are probable are expected to be covered directly by the Company’s applicable insurance policies. The Company is not currently able to estimate a range of reasonably possible loss in excess of any amount that would be paid directly by the Company’s insurance carriers. Moreover, no assurance can be made that this matter either individually or together with the potential for similar suits, will not result in a material financial exposure in excess of insurance coverage, which could have a material adverse effect upon the Company's financial condition and results of operations.

On December 12, 2018, a putative class action complaint styled International Union of Operating Engineers Benefit Funds of Eastern Pennsylvania and Delaware v. Camping World Holdings Inc., et al. was filed in the Supreme Court of the State of New York, New York County, on behalf of all purchasers of Camping World Class A common stock issued pursuant and/or traceable to a secondary offering of such securities in October 2017 (“IUOE Complaint”). The IUOE Complaint names as defendants the Company, and certain of its officers and directors, among others, and alleges violations of Sections 11, 12(a), and 15 of the Securities Act of 1933 based on allegedly materially misleading statements or omissions of material facts necessary to make certain statements not misleading and seeks compensatory damages, including prejudgment and post-judgement interest, attorneys’ fees and costs, and any equitable or injunctive relief the court deems just and proper, including rescission. On February 28, 2019, the Company, along with the other defendants, moved to dismiss this action. The parties argued the merits of defendants’ motion to dismiss before the Supreme Court of the State of New York, Commercial Division, on September 6, 2019. The Company believes it has meritorious defenses to the claims of the plaintiffs and members of the putative class, and any liability for the alleged claims is not currently probable or reasonably estimable.

On February 22, 2019, a putative class action complaint styled Daniel Geis v. Camping World Holdings, Inc., et al. was filed in the Circuit Court of Cook County, Illinois, Chancery Division, on behalf of all purchasers of Camping World Class A common stock in and/or traceable to the Company’s initial public offering on October 6, 2016 (“Geis Complaint”). The Geis Complaint names as defendants the Company, certain of its officers and directors, and the underwriters of the offering, and alleges violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 based on allegedly materially misleading statements or omissions of material facts necessary to make certain statements not misleading. The Geis Complaint seeks compensatory damages, prejudgment and post-judgment interest, attorneys’ fees and costs, and any other and further relief the court deems just and proper. On April 19, 2019, the Company, along with the other defendants, moved to dismiss this action. The parties argued the merits of defendants’ motion to dismiss before the Circuit Court of Cook County, Illinois, Chancery Division on August 20, 2019. On August 26, 2019, the Court stayed the Geis Complaint pending resolution of the motion to dismiss the Consolidated Complaint that is pending in the United States District Court for the Northern District of Illinois. The Company believes it has meritorious defenses to the claims of the plaintiff and members of the putative class, and any liability for the alleged claims is not currently probable or reasonably estimable.

On March 5, 2019, a shareholder derivative suit styled Hunnewell v. Camping World Holdings, Inc., et al., was filed in the Court of Chancery of the State of Delaware, alleging breaches of fiduciary duty for alleged failure to implement effective disclosure controls and internal controls over financial reporting and to properly oversee certain acquisitions and for alleged insider trading (the “Hunnewell Complaint”). The Hunnewell Complaint names the Company as nominal defendant, and names certain of the Company’s officers and directors, among others, as defendants and seeks restitutionary and/or compensatory damages, disgorgement of all management fees, advisory fees, expenses and other fees paid by Camping World during the period in question, disgorgement of profits pursuant to the alleged insider trading, attorneys’ fees and costs, and any other and further relief the court deems just and proper.

On April 17, 2019, a shareholder derivative suit styled Lincolnshire Police Pension Fund v. Camping World Holdings, Inc., et al., was filed in the Court of Chancery of the State of Delaware, alleging breaches of fiduciary duty for alleged failure to implement effective disclosure controls and internal controls over financial

25

reporting and to properly oversee certain acquisitions and for alleged insider trading and unjust enrichment for compensation received during that time (the “LPPF Complaint”). The LPPF Complaint names the Company as nominal defendant, and names certain of the Company’s officers and directors, among others, as defendants and seeks compensatory damages, extraordinary equitable and/or injunctive relief, restitution and disgorgement, attorneys’ fees and costs, and any other and further relief the court deems just and proper. On May 30, 2019, the Court granted the parties’ joint motion to consolidate the Hunnewell and LPPF Complaints (as well as any future filed actions relating to the subject matter) and stay the newly consolidated action pending the resolution of defendants’ motion to dismiss the Consolidated Complaint pending in the United States District Court for the Northern District of Illinois. The Company believes it has meritorious defenses to the claims of the plaintiffs, and any liability for the alleged claims is not currently probable or reasonably estimable.

On August 6, 2019, 2 shareholder derivative suits, styled Janssen v. Camping World Holdings, Inc., et al., and Sandler v. Camping World Holdings, Inc. et al., were filed in the U.S. District Court of Delaware. Both actions name the Company as a nominal defendant, and name certain of the Company’s officers and directors, Crestview Partners II GP, L.P. and Crestview Advisors, L.L.C. as defendants, and allege: (i) violations of Section 14(a) of the Securities Exchange Act for issuing proxy statements that allegedly omitted material information and allegedly included materially false and misleading financial statements; (ii) violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934, seeking contribution for causing the Company to issue allegedly false and misleading statements and/or allegedly omit material information in public statements and/or Company filings concerning the Company’s financial performance, the effectiveness of internal controls to ensure accurate financial reporting, and the success and profitability of the integration and rollout of Gander Outdoors stores; (iii) breaches of fiduciary duty, unjust enrichment, abuse of control, and gross mismanagement for allegedly causing or allowing the Company to disseminate to Camping World shareholders materially misleading and inaccurate information through the Company’s SEC filings; and (iv) breach of fiduciary duties for alleged insider selling and misappropriation of information (together, the “Janssen and Sandler Complaints”). The Janssen and Sandler Complaints seek restitutionary and/or compensatory damages, injunctive relief, disgorgement of all profits, benefits, and other compensation obtained by the certain of the Company’s officers and directors, attorneys’ fees and costs, and any other and further relief the court deems just and proper. On September 25, 2019, the Court granted the parties’ joint motion to consolidate the action and stay the action pending resolution of the motion to dismiss the Consolidated Complaint that is pending in the United States District Court for the Northern District of Illinois. The Company is only a nominal defendant in the Janssen and Sandler Complaints, and any liability for the alleged claims is not currently probable or reasonably estimable.

The Company is also engaged in various other legal actions, claims and proceedings arising in the ordinary course of business, including claims related to employment-related matters, breach of contracts, products liabilities, consumer protection and intellectual property matters resulting from the Company’s business activities. The Company does not believe that the ultimate resolution of such matters will have a material adverse effect on its business, financial condition or results of operations. However, litigation is subject to many uncertainties, and the outcome of certain of such individual litigated matters may not be reasonably predictable and any related damages may not be estimable. Certain of these litigation matters could result in an adverse outcome to the Company, and any such adverse outcome could have a material adverse effect on the Company’s business, financial condition and results of operations.

26

10. Statement of Cash Flows

Supplemental disclosures of cash flow information for the following periods (in thousands) were as follows:

Nine Months Ended

September 30, 

September 30, 

    

2019

    

2018

Cash paid during the period for:

Interest

$

81,647

$

70,326

Income taxes

6,046

17,408

Non-cash investing activities:

Leasehold improvements paid by lessor

20,121

28,431

Vehicles transferred to property and equipment from inventory

575

780

Derecognition of non-tenant improvements

7,018

Capital expenditures in accounts payable and accrued liabilities

4,530

6,051

Non-cash financing activities:

Par value of Class A common stock issued in exchange for common units in CWGS, LLC

3

Par value of Class A common stock issued for vested restricted stock units

2

1

11. Acquisitions

During the nine months ended September 30, 2019 and 2018, subsidiaries of the Company acquired the assets or stock of multiple RV dealerships that constituted businesses under accounting rules. The Company used a combination of cash and floor plan financing to complete the acquisitions. The Company considers acquisitions of independent dealerships to be a fast and capital efficient alternative to opening new RV and Outdoor Retail locations to expand its business and grow its customer base. Additionally, the Company believes that its experience and scale allow it to operate these acquired dealerships more efficiently. The acquired businesses were recorded at their estimated fair values under the acquisition method of accounting. The balance of the purchase prices in excess of the fair values of net assets acquired were recorded as goodwill.

For the nine months ended September 30, 2019 and 2018, the Company purchased real property of $27.8 million and $100.1 million, respectively, of which $2.9 million and $23.6 million, respectively, was from parties related to the sellers of the businesses.

27

The estimated fair values of the assets acquired and liabilities assumed for the acquisitions consist of the following:

Nine Months Ended September 30, 

Estimated

($ in thousands)

    

2019

    

2018

    

Life

Tangible assets (liabilities) acquired (assumed):

Cash and cash equivalents

$

$

2,648

Contracts in transit

103

Accounts receivable, net

103

Inventory, net

19,871

40,856

Prepaid expenses and other assets

95

155

Property and equipment, net

360

818

Other assets

48

Accounts payable

(2)

(64)

Accounts payable and accrued liabilities

(113)

(1,440)

Other liabilities

(168)

Total tangible net assets acquired

20,211

43,059

Intangible assets acquired:

   Trademarks and trade names

318

15 years

Membership and customer lists

766

4-7 years

Total intangible assets acquired

1,084

Goodwill

28,198

40,725

Purchase price

48,409

84,868

Cash and cash equivalents acquired

(2,648)

Cash paid for acquisitions, net of cash acquired

48,409

82,220

Inventory purchases financed via floor plan

(13,854)

(29,365)

Cash payment net of floor plan financing

$

34,555

$

52,855

The fair values above are preliminary relating to the nine months ended September 30, 2019 as they are subject to measurement period adjustments for up to one year from the date of acquisition as new information is obtained about facts and circumstances that existed as of the acquisition date relating to the valuation of the acquired assets. The primary items that generated the goodwill are the value of the expected synergies between the acquired businesses and the Company and the acquired assembled workforce, neither of which qualify for recognition as a separately identified intangible asset. For the nine months ended September 30, 2019 and 2018, $28.2 million and $24.3 million, respectively, of the acquired goodwill is expected to be deductible for tax purposes. Included in the nine months ended September 30, 2019 and 2018 consolidated financial results were $34.2 million and $65.5 million of revenue, respectively, and $1.3 million and $3.9 million of pre-tax loss, respectively, of the acquired dealerships from the applicable acquisition dates. Pro forma information on these acquisitions has not been included, because the Company has deemed them to not be individually or cumulatively material.

12. Income Taxes

CWH is organized as a Subchapter C corporation and, as of September 30, 2019, is a 42.0% owner of CWGS, LLC (see Note 14 — Stockholders’ Equity and Note 15 — Non-Controlling Interests). CWGS, LLC is organized as a limited liability company and treated as a partnership for federal tax purposes. On January 1, 2019, the Company transferred certain assets relating to its Good Sam Club and co-branded credit card from its indirect wholly-owned subsidiary, GSS, an LLC, to its indirect wholly-owned subsidiary, CWI, a corporation. As a result of this transfer, the Company recorded $14.4 million of estimated deferred income tax expense during the nine months ended September 30, 2019 due to the revaluation of certain deferred tax assets and related changes in valuation allowance. Additionally, unrelated to the transfer described above, the Company recorded $1.1 million of deferred income tax expense during the three months ended March 31, 2019 resulting from an estimated decrease in its state income tax rates.

For the three and nine months ended September 30, 2019, the Company’s effective income tax rate was negative as a result of incurring income tax expense on a loss before income taxes for both periods. For

28

the three months ended September 30, 2019, income tax expense decreased to $6.4 million from $9.9 million for the three months ended September 30, 2018 primarily as a result of lower income incurred at CWGS, LLC for which the Company is subject to U.S. federal and state taxes on its allocable share. For the nine months ended September 30, 2019, income tax expense of $37.5 million increased from $31.0 million for the nine months ended September 30, 2018 primarily due to the $14.4 million of estimated deferred income tax expense related to the transfers of assets described above, operating losses recorded by CWI for which no tax benefit can be recognized, partially offset by lower income incurred at CWGS, LLC for which the Company is subject to U.S. federal and state taxes on its allocable share. For the three and nine months ended September 30, 2018, the Company’s effective income tax rate was 17.7% and 18.5%, respectively. The Company's effective income tax rate for the three and nine months ended September 30, 2018 was lower than the federal statutory rate of 21.0% primarily due to a portion of the Company’s earnings being attributable to non-controlling interests in limited liability companies which are not subject to corporate level taxes.

The Company evaluates its deferred tax assets on a quarterly basis to determine if they can be realized and establishes valuation allowances when it is more likely than not that all or a portion of the deferred tax assets may not be realized. At September 30, 2019 and December 31, 2018, the Company determined that all of its deferred tax assets, except those pertaining to CWI and the direct investment in CWGS, LLC, are more likely than not to be realized. The Company maintains a full valuation allowance against the deferred tax assets of CWI, since it was determined that it is more likely than not, based on available objective evidence, that CWI would have insufficient taxable income in the current or carryforward periods under the tax laws to realize the future tax benefits of its deferred tax assets. The Company also maintains a valuation allowance against the portion of the deferred tax asset pertaining to its direct investment in CWGS, LLC.

On October 6, 2016, the Company entered into a tax receivable agreement (the “Tax Receivable Agreement”) that provides for the payment by the Company to the Continuing Equity Owners and Crestview Partners II GP, L.P. of 85% of the amount of tax benefits, if any, that the Company actually realizes, or in some circumstances is deemed to realize, as a result of (i) increases in the tax basis from the purchase of common units from Crestview Partners II GP, L.P. in exchange for Class A common stock in connection with the consummation of the IPO and the related transactions and any future redemptions that are funded by the Company and any future redemptions or exchanges of common units by Continuing Equity Owners as described above and (ii) certain other tax benefits attributable to payments made under the Tax Receivable Agreement. The above payments are predicated on CWGS, LLC making an election under Section 754 of the Internal Revenue Code effective for each tax year in which a redemption or exchange (including a deemed exchange) of common units for cash or stock occur. These tax benefit payments are not conditioned upon one or more of the Continuing Equity Owners or Crestview Partners II GP, L.P. maintaining a continued ownership interest in CWGS, LLC. In general, the Continuing Equity Owners’ or Crestview Partners II GP, L.P.’s rights under the Tax Receivable Agreement are assignable, including to transferees of its common units in CWGS, LLC (other than the Company as transferee pursuant to a redemption or exchange of common units in CWGS, LLC). The Company expects to benefit from the remaining 15% of the tax benefits, if any, which may be realized. During the three months ended September 30, 2019 and 2018, zero and 42,200 common units in CWGS, LLC, respectively, were exchanged for Class A common stock subject to the provisions of the Tax Receivable Agreement. During the nine months ended September 30, 2019 and 2018, 5,725 and 215,486 common units in CWGS, LLC, respectively, were exchanged for Class A common stock subject to the provisions of the Tax Receivable Agreement. The Company recognized a liability for the Tax Receivable Agreement payments due to those parties that redeemed common units, representing 85% of the aggregate tax benefits the Company expects to realize from the tax basis increases related to the exchange, after concluding it was probable that the Tax Receivable Agreement payments would be paid based on estimates of future taxable income. As of September 30, 2019 and December 31, 2018, the amount of Tax Receivable Agreement payments due under the Tax Receivable Agreement was $116.3 million and $134.2 million, respectively, of which $6.8 million and $9.4 million, respectively, was included in the current portion of the Tax Receivable Agreement liability in the Condensed Consolidated Balance Sheets.

As a result of transferring certain assets relating to its Good Sam Club and co-branded credit card from GSS to CWI, as described above, the Company re-evaluated the impact on its Tax Receivable Agreement liability related to the reduction of future expected tax amortization. The reduction in future expected tax

29

amortization reduced the Tax Receivable Agreement liability by $7.2 million during the nine months ended September 30, 2019. Unrelated to the transfer described above, the Tax Receivable Agreement liability was reduced by an additional $1.1 million during the nine months ended September 30, 2019 for changes in estimated state income tax rates applicable to CWH. As a result of these adjustments to the Tax Receivable Agreement liability, the Company recorded approximately $8.5 million of other income in the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2019.

13. Related Party Transactions

Transactions with Directors, Equity Holders and Executive Officers

FreedomRoads leases various retail locations from managers and officers. During the three months ended September 30, 2019 and 2018, the related party lease expense for these locations was $0.5 million and $0.5 million, respectively. During the nine months ended September 30, 2019 and 2018, the related party lease expense for these locations was $1.5 million and $1.5 million, respectively.

In January 2012, FreedomRoads entered into a lease (the “Original Lease”) with respect to the Company’s Lincolnshire, Illinois offices, which was amended in March 2013 in connection with the Company’s leasing of additional premises within the same office building (the “Expansion Lease”). The Original Lease is payable in 132 monthly payments of base rent equal to approximately $29,000, which commenced in April 2013, subject to annual increases. The Expansion Lease is payable in 132 monthly payments of base rent equal to approximately $2,500, which commenced in May 2013, subject to annual increases. Marcus A. Lemonis, the Company’s Chairman and Chief Executive Officer, has personally guaranteed both leases. During the three months ended September 30, 2019 and 2018, the Company made payments of approximately $0.2 million and $0.2 million, respectively, in connection with the Original Lease, which included approximately $0.1 million and $0.1 million, respectively, for common area maintenance charges on the Original Lease, and the Company made payments of approximately $9,000 and $9,000, respectively, in connection with the Expansion Lease. During the nine months ended September 30, 2019 and 2018, the Company made payments of approximately $0.5 million and $0.5 million, respectively, in connection with the Original Lease, which included approximately $0.2 million and $0.2 million, respectively, for common area maintenance charges on the Original Lease, and the Company made payments of approximately $26,000 and $26,000, respectively, in connection with the Expansion Lease.

The Company paid Kaplan, Strangis and Kaplan, P.A., of which Andris A. Baltins is a member, $0.1 million and $0.2 million during the nine months ended September 30, 2019 and 2018, respectively, for legal services.

Other Transactions

The Company does business with certain companies in which Mr. Lemonis has a direct or indirect material interest. The Company purchased fixtures for interior store sets at the Company’s retail locations from Precise Graphix, LLC (“Precise Graphix”). Mr. Lemonis has a 33% economic interest in Precise Graphix and the Company paid Precise Graphix $0.4 million and $0.8 million for the three months ended September 30, 2019 and 2018, respectively, and $1.3 million and $4.4 million for the nine months ended September 30, 2019 and 2018, respectively. The Company purchased point of purchase and visual merchandise displays from JD Custom Design (“JD Custom”) for use in Camping World’s retail store operations. Mr. Lemonis is a holder of 52% of the combined voting power in JD Custom and the Company paid JD Custom $0 and $0.1 million for the three months ended September 30, 2019 and 2018, respectively, and $0 and $0.4 million for the nine months ended September 30, 2019 and 2018, respectively.

The Company does business with certain companies in which Stephen Adams, a member of the Company’s board of directors, has a direct or indirect material interest. The Company from time to time purchases advertising services from Adams Radio of Fort Wayne LLC (“Adams Radio”), in which Mr. Adams has an indirect 90% interest. The Company paid Adams Radio $0 million for the three months ended September 30, 2019 and 2018, and $0.2 million and $0.2 million for the nine months ended September 30, 2019 and 2018, respectively.

30

14. Stockholders’ Equity

CWH has authorized preferred stock and 3 classes of common stock. The Class A common stock entitles the holders to receive dividends; distributions upon the liquidation, dissolution, or winding up of the Company; and have voting rights. The Class B common stock and Class C common stock entitles the holders to voting rights, which in certain cases are disproportionate to the voting rights of the Class A common stock; however, the holders of Class B common stock and Class C common stock are not entitled to receive dividends or distributions upon the liquidation, dissolution, or winding up of the Company.

CWH is the sole managing member of CWGS, LLC and, although CWH has a minority economic interest in CWGS, LLC, CWH has the sole voting power in, and controls the management of, CWGS, LLC. Accordingly, the Company consolidated the financial results of CWGS, LLC and reported a non-controlling interest in its consolidated financial statements.

In accordance with the amended and restated limited liability company agreement of CWGS, LLC (the “LLC Agreement”), the holders of the common units in CWGS, LLC may elect to exchange or redeem the common units for newly-issued shares of the Company’s Class A common stock or cash at the Company’s election, subject to certain restrictions. If the redeeming or exchanging party also holds Class B common stock, then simultaneously with the payment of cash or newly-issued shares of Class A common stock, as applicable, in connection with a redemption or exchange of common units, a number of shares of the Company’s Class B common stock will be cancelled for no consideration on a one-for-one basis with the number of common units so redeemed or exchanged. As required by the LLC Agreement, the Company must, at all times, maintain a one-to-one ratio between the number of outstanding shares of Class A common stock and the number of common units of CWGS, LLC owned by CWH (subject to certain exceptions for treasury shares and shares underlying certain convertible or exchangeable securities).

Short-Swing Profit Disgorgement

In May 2018, the Company received an aggregate of $557,000 from short-swing profit disgorgement remitted by ML Acquisition Company, LLC, of which Marcus A. Lemonis, Chairman and Chief Executive Officer of the Company, is the sole director, which is included as an increase to additional paid-in capital in the consolidated statement of stockholders’ equity and as a financing activity in the consolidated statement of cash flows.

15. Non-Controlling Interests

As described in Note 14 — Stockholders’ Equity, CWH is the sole managing member of CWGS, LLC and, as a result, consolidates the financial results of CWGS, LLC. The Company reports a non-controlling interest representing the common units of CWGS, LLC held by Continuing Equity Owners. Changes in CWH’s ownership interest in CWGS, LLC while CWH retains its controlling interest in CWGS, LLC will be accounted for as equity transactions. As such, future redemptions or direct exchanges of common units of CWGS, LLC by the Continuing Equity Owners will result in a change in ownership and reduce the amount recorded as non-controlling interest and increase additional paid-in capital.

As of September 30, 2019 and December 31, 2018, there were 89,046,288 and 88,867,373 common units of CWGS, LLC outstanding, respectively, of which CWH owned 37,377,004 and 37,192,364 common units of CWGS, LLC, respectively, representing 42.0% and 41.9% ownership interests in CWGS, LLC, respectively, and the Continuing Equity Owners owned 51,669,284 and 51,675,009 common units of CWGS, LLC, respectively, representing 58.0% and 58.1% ownership interests in CWGS, LLC, respectively.

31

The following table summarizes the effects of changes in ownership in CWGS, LLC on the Company’s equity:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

($ in thousands)

   

2019

   

2018

   

2019

   

2018

Net income (loss) attributable to Camping World Holdings, Inc.

$

(30,692)

$

14,123

$

(32,070)

$

40,726

Transfers to non-controlling interests:

Decrease in additional paid-in capital as a result of the purchase of common units from CWGS, LLC with proceeds from the exercise of stock options

(4)

(86)

Increase in additional paid-in capital as a result of the vesting of restricted stock units

300

44

443

73

Decrease in additional paid-in capital as a result of repurchases of Class A common stock for withholding taxes on vested RSUs

(547)

(62)

(820)

(62)

Increase in additional paid-in capital as a result of the redemption of common units of CWGS, LLC

223

12

2,071

Change from net income attributable to Camping World Holdings, Inc. and transfers to non-controlling interests

$

(30,939)

$

14,324

$

(32,435)

$

42,722

16. Equity-based Compensation Plans

The following table summarizes the equity-based compensation that has been included in the following line items within the consolidated statements of operations during:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

September 30, 

September 30, 

($ in thousands)

 

2019

    

2018

    

2019

    

2018

Equity-based compensation expense:

Costs applicable to revenue

$

231

$

223

$

646

$

570

Selling, general, and administrative

2,703

3,965

8,867

9,965

Total equity-based compensation expense

$

2,934

$

4,188

$

9,513

$

10,535

The following table summarizes stock option activity for the nine months ended September 30, 2019:

Stock Options

    

(in thousands)

Outstanding at December 31, 2018

885

Forfeited

(127)

Outstanding at September 30, 2019

758

Options exercisable at September 30, 2019

353

The following table summarizes restricted stock unit activity for the nine months ended September 30, 2019:

Restricted

Stock Units

    

(in thousands)

Outstanding at December 31, 2018

1,426

Granted

140

Vested

(249)

Forfeited

(92)

Outstanding at September 30, 2019

1,225

32

The weighted-average grant date fair value of restricted stock units granted during the nine months ended September 30, 2019 was $13.63.

On June 27, 2019, Thomas F. Wolfe, President of Good Sam Enterprises, LLC, a subsidiary of the Company, notified the Company of his plan to retire from his role, effective August 1, 2019 (“Wolfe Transition Date”). On July 2, 2019, the Company entered into a consulting agreement (the “Wolfe Consulting Agreement”) with Mr. Wolfe for him to provide consulting services for up to three years from the Wolfe Transition Date for which he is entitled to a monthly consulting fee of $10,000. On July 2, 2019, the Company also entered into a letter agreement with Mr. Wolfe pursuant to which Mr. Wolfe’s outstanding equity awards would remain in place and continue to vest in accordance with their terms as long as the Wolfe Consulting Agreement remains in effect, subject to the applicable award agreements. The restricted stock unit awards that would have been cancelled upon termination were considered modified as of July 2, 2019. Any previously recognized equity-based compensation expense on the unvested modified awards was reversed and the modification date fair value of those restricted stock units will be recognized over the vesting period, which is commensurate with the consulting services provided under the Wolfe Consulting Agreement.

17. Earnings Per Share

Basic earnings per share of Class A common stock is computed by dividing net income available to Camping World Holdings, Inc. by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted earnings per share of Class A common stock is computed by dividing net income available to Camping World Holdings, Inc. by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities.

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

(In thousands except per share amounts)

2019

    

2018

    

2019

    

2018

Numerator:

Net (loss) income

$

(65,263)

$

46,155

$

(39,447)

$

136,835

Less: net loss (income) attributable to non-controlling interests

34,571

(32,032)

7,377

(96,109)

Net income (loss) attributable to Camping World Holdings, Inc. basic

(30,692)

14,123

(32,070)

40,726

Add: reallocation of net income attributable to non-controlling interests from the assumed dilutive effect of stock options and RSUs

8

56

Net income (loss) attributable to Camping World Holdings, Inc. diluted

$

(30,692)

$

14,131

$

(32,070)

$

40,782

Denominator:

Weighted-average shares of Class A common stock outstanding — basic

37,361

37,018

37,266

36,933

Dilutive options to purchase Class A common stock

104

Dilutive restricted stock units

37

103

Weighted-average shares of Class A common stock outstanding — diluted

37,361

37,055

37,266

37,140

Earnings (loss) per share of Class A common stock — basic

$

(0.82)

$

0.38

$

(0.86)

$

1.10

Earnings (loss) per share of Class A common stock — diluted

$

(0.82)

$

0.38

$

(0.86)

$

1.10

Weighted-average anti-dilutive securities excluded from the computation of diluted earnings per share of Class A common stock:

Stock options to purchase Class A common stock

767

903

809

611

Restricted stock units

1,266

1,639

1,373

851

Common units of CWGS, LLC that are convertible into Class A common stock

51,669

51,708

51,671

51,751

Shares of the Company’s Class B common stock and Class C common stock do not share in the earnings or losses of the Company and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B common stock or Class C common stock under the two-class method has not been presented.

33

18. Segments Information

Following the resignation of Roger Nuttall from his position as President of Camping World on December 21, 2018, the Company took steps during the quarter ended March 31, 2019 to realign the reporting structure of the Company including management and internal reporting. As a result of these changes, the Company determined that its reportable segments had changed. The Company’s reportable segments have been identified based on various commonalities amongst the Company’s individual product lines, which is consistent with the Company’s operating structure and associated management structure and management evaluates the performance of and allocates resources to these segments based on segment revenues and segment profit. The segment reporting for prior comparative periods have been recast to conform to the current period presentation.

As previously discussed, the Company previously had 3 reportable segments: (i) Consumer Services and Plans; (ii) Dealership and, (iii) Retail. Following the realignment, the Company now has the following 2 reportable segments: (i) Good Sam Services and Plans, and (ii) RV and Outdoor Retail. In conjunction with the first quarter 2019 realignment of its reporting structure, the Company combined its prior Dealership and Retail segments into the RV and Outdoor Retail segment and reclassified the Good Sam Club and co-branded credit card operations to the RV and Outdoor Retail segment from the Consumer Services and Plans segment to reflect the alignment and synergies of these businesses with the RV and Outdoor Retail locations. Within the Good Sam Services and Plans segment, the Company primarily derives revenue from the sale of the following offerings: emergency roadside assistance; property and casualty insurance programs; travel assist programs; extended vehicle service contracts; vehicle financing and refinancing; shows and events; and publications and directories. Within the RV and Outdoor Retail segment, the Company primarily derives revenue from the sale of new and used RVs; the sale of RV products and services, including the sale of parts, accessories, supplies and services for RVs, and equipment, gear and supplies for camping, hunting, fishing, skiing, snowboarding, bicycling, skateboarding, marine and watersport and other outdoor activities; commissions on the finance and insurance contracts related to the sale of RVs; and Good Sam Club memberships and co-branded credit cards.

The reportable segments identified above are the business activities of the Company for which discrete financial information is available and for which operating results are regularly reviewed by the Company’s chief operating decision maker to allocate resources and assess performance. The Company’s chief operating decision maker is a group comprised of the Chief Executive Officer and the President.

Reportable segment revenue, intersegment eliminations, segment income, floor plan interest expense, depreciation and amortization, other interest expense, total assets, and capital expenditures are as follows:

Three Months Ended September 30, 2019

Three Months Ended September 30, 2018

Good Sam

RV and

Good Sam

RV and

Services

Outdoor

Intersegment

Services and

Outdoor

Intersegment

($ in thousands)

 

and Plans(1)

    

Retail(1)

    

Eliminations

    

Total

    

Plans(1)(2)

    

Retail(1)(2)

    

Eliminations

    

Total

Revenue:

Good Sam services and plans

$

42,461

$

$

(226)

$

42,235

$

41,493

$

$

(182)

$

41,311

New vehicles

682,131

(1,415)

680,716

698,710

(1,393)

697,317

Used vehicles

247,707

(556)

247,151

198,328

(571)

197,757

Products, service and other

296,906

(6,135)

290,771

264,057

(7,907)

256,150

Finance and insurance, net

117,158

(2,692)

114,466

109,236

(3,018)

106,218

Good Sam Club

12,633

12,633

10,733

10,733

Total consolidated revenue

$

42,461

$

1,356,535

$

(11,024)

$

1,387,972

$

41,493

$

1,281,064

$

(13,071)

$

1,309,486

Nine Months Ended September 30, 2019

Nine Months Ended September 30, 2018

Good Sam

RV and

Consumer

RV and

Services

Outdoor

Intersegment

Services and

Outdoor

Intersegment

($ in thousands)

 

and Plans(1)

    

Retail(1)

    

Eliminations

    

Total

    

Plans(1)(2)

    

Retail(1)(2)

    

Eliminations

    

Total

Revenue:

Good Sam services and plans

$

135,750

$

$

(1,855)

$

133,895

$

130,383

$

$

(1,909)

$

128,474

New vehicles

1,993,576

(4,413)

1,989,163

2,088,650

(4,304)

2,084,346

Used vehicles

674,843

(1,935)

672,908

582,155

(1,661)

580,494

Products, service and other

778,575

(18,502)

760,073

691,459

(20,798)

670,661

Finance and insurance, net

342,936

(8,354)

334,582

324,443

(8,920)

315,523

Good Sam Club

36,467

36,467

30,126

30,126

Total consolidated revenue

$

135,750

$

3,826,397

$

(35,059)

$

3,927,088

$

130,383

$

3,716,833

$

(37,592)

$

3,809,624

34

(1)Segment revenue includes intersegment revenue.
(2)The Company has adjusted certain prior period amounts for the immaterial correction of errors. See Note 1 – Summary of Significant Accounting Policies – Revisions for Correction of Immaterial Errors.

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

September 30, 

September 30, 

($ in thousands)

   

2019

   

2018

   

2019

   

2018

Segment income (loss):(1)

Good Sam Services and Plans(2)

$

18,247

$

18,701

$

61,869

$

61,139

RV and Outdoor Retail(2)

(42,800)

68,932

32,512

193,296

Total segment income (loss)

(24,553)

87,633

94,381

254,435

Corporate & other

(2,655)

(1,607)

(9,742)

(4,570)

Depreciation and amortization

(14,104)

(13,179)

(41,644)

(34,207)

Other interest expense, net

(17,568)

(16,794)

(53,422)

(45,740)

Tax Receivable Agreement liability adjustment

8,477

Loss and expense on debt restructure

(2,056)

Other expense, net

2

(Loss) income before income taxes

$

(58,880)

$

56,055

$

(1,950)

$

167,862

(1)Segment income is defined as income from operations before depreciation and amortization plus floor plan interest expense.
(2)The Company has adjusted certain prior period amounts for the immaterial correction of errors. See Note 1 – Summary of Significant Accounting Policies – Revisions for Correction of Immaterial Errors.

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

September 30, 

September 30, 

($ in thousands)

2019

    

2018

    

2019

    

2018

Depreciation and amortization:

Good Sam Services and Plans

$

810

$

952

$

2,498

2,457

RV and Outdoor Retail

13,294

12,032

39,146

31,555

Subtotal

14,104

12,984

41,644

34,012

Corporate & other

195

195

Total depreciation and amortization

$

14,104

$

13,179

$

41,644

$

34,207

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

September 30, 

September 30, 

($ in thousands)

2019

    

2018

    

2019

    

2018

Other interest expense, net:

Good Sam Services and Plans

$

$

1

$

(1)

$

(1)

RV and Outdoor Retail

2,450

1,361

6,863

4,184

Subtotal

2,450

1,362

6,862

4,183

Corporate & other

15,118

15,432

46,560

41,557

Total interest expense

$

17,568

$

16,794

$

53,422

$

45,740

September 30, 

December 31, 

($ in thousands)

    

2019

    

2018

Assets:

Good Sam Services and Plans

$

99,803

$

174,623

RV and Outdoor Retail

3,166,381

2,438,908

Subtotal

3,266,184

2,613,531

Corporate & other

174,843

193,156

Total assets  

$

3,441,027

$

2,806,687

35

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes included in Part I, Item 1 of this Form 10-Q, as well as our Annual Report and reflects the effects of the immaterial correction of errors discussed in Note 1 – Summary of Significant Accounting Policies – Revisions for Correction of Immaterial Errors in of this Form 10-Q. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various important factors, including those set forth under “Risk Factors” included in Part I, Item 1A of our Annual Report, the “Cautionary Note Regarding Forward-Looking Statements” in this Form 10-Q and in other parts of this Form 10-Q. Except to the extent that differences among reportable segments are material to an understanding of our business taken as a whole, we present the discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations on a consolidated basis.

For purposes of this Form 10-Q, we define an "Active Customer" as a customer who has transacted with us in any of the eight most recently completed fiscal quarters prior to the date of measurement. Unless otherwise indicated, the date of measurement is September 30, 2019, our most recently completed fiscal quarter. Additionally, references herein to the approximately 10 million U.S. households that own a recreational vehicle ("RV") are based on data from the RV Industry Association.

Overview

We are a leading outdoor and camping retailer, offering an extensive assortment of new and used recreational vehicles for sale, RV parts and accessories, RV maintenance and repair services, other outdoor recreation products, and, under the Good Sam brand, the industry’s broadest and deepest range of services, protection plans, products and resources.

To best serve the estimated 10 million U.S. households that own an RV and our base of 5.2 million Active Customers, we offer a comprehensive portfolio of services, protection plans, products and resources for RV and outdoor enthusiasts through our national network of retail locations and our direct marketing business. In connection with our previously announced plan to strategically shift our business away from locations where we do not have the ability or where it is not feasible to sell and/or service RVs (the “2019 Strategic Shift”), we have reduced our number of retail locations to 209 as of September 30, 2019 from 227 as of September 30, 2018. The table below summarizes our store location activity for the twelve months ended September 30, 2019, which includes the divestiture of 13 specialty retail locations during the three months ended September 30, 2019:

Co-habited

Stand-alone

Stand-alone

Stand-alone

RV and Outdoor

RV Retail

Outdoor

Specialty

Retail locations

locations

Retail locations

Retail locations

Total

Store locations as of September 30, 2018

120

15

70

22

227

Opened

11

5

2

18

Closed / divested

(3)

(5)

(11)

(17)

(36)

Converted

10

(10)

Store locations as of September 30, 2019

138

15

49

7

209

After several years of strong growth, the overall RV industry experienced decelerating demand for new vehicles in 2018, and the first nine months of 2019. With the decelerating demand trends, RV dealers have been lowering their new RV inventory levels, and wholesale shipments of new RV vehicles declined 4.1% in 2018 and 18.2% for the first nine months of 2019 on a comparable period basis, according to the RV Industry Association’s survey of manufacturers. In an effort to sell through existing RV units and lower new RV inventory levels, we believe many dealers have lowered the pricing of new RV units to levels at or below cost in some instances. The result has been increased competition across the industry from lower RV pricing.

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In an effort to remain competitive and maintain our market share, we have pursued pricing, marketing and other programs that have adversely impacted our gross margin, selling, general and administrative expenses and operating margin. We expect these trends to continue through at least the end of the calendar year ending December 31, 2019.

Segments

As discussed in Note 18 – Segments Information to our consolidated financial statements included in Part I, Item 1 of this Form 10-Q, our reportable segments changed during the three months ended March 31, 2019. The segment reporting for prior periods has been reclassified to conform to the current period presentation.

We identify our reporting segments based on the organizational units used by management to monitor performance and make operating decisions The Company previously had three reportable segments: (i) Consumer Services and Plans; (ii) Dealership, and (iii) Retail. Following the realignment, the Company now has the following two reportable segments: (i) Good Sam Services and Plans, and (ii) RV and Outdoor Retail. In conjunction with the first quarter 2019 realignment of our reporting structure, the Company combined our prior Dealership and Retail segments into the RV and Outdoor Retail segment and reclassified the Good Sam Club and co-branded credit card operations to the RV and Outdoor Retail segment from the Consumer Services and Plans segment to reflect the alignment and synergies of these businesses with the RV and Outdoor Retail locations. Within the Good Sam Services and Plans segment, the Company primarily derives revenue from the sale of the following offerings: emergency roadside assistance; property and casualty insurance programs; travel assist programs; extended vehicle service contracts; vehicle financing and refinancing; shows and events; and publications and directories. Within the RV and Outdoor Retail segment, the Company primarily derives revenue from the sale of new and used RVs; sale of RV products and services, including the sale of parts, accessories, supplies and service for RVs, and equipment, gear and supplies for camping, hunting, fishing, skiing, snowboarding, bicycling, skateboarding, marine and watersport and other outdoor activities; commissions on the finance and insurance contracts related to the sale of RVs; and Good Sam Club memberships and co-branded credit cards. See Note 18 — Segment Information to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

Restructuring

As discussed in Note 4 – Restructuring and Long-lived Asset Impairment to our consolidated financial statements included in Part I, Item 1 of this Form 10-Q, we are executing against our plan for the 2019 Strategic Shift. The 2019 Strategic Shift will move our business away from retail locations where we do not have the ability or where it is not feasible to sell and/or service RVs. As of September 3, 2019, the date that our board of directors approved the plan for the 2019 Strategic Shift, we operated 37 Outdoor Lifestyle Locations that do not sell and/or service RVs but sell an assortment of outdoor lifestyle products, and an additional five Outdoor Lifestyle Locations that were previously closed or had not opened as of that date. In addition, we operated seven specialty retail locations operated by TheHouse.com, an indirect wholly-owned subsidiary of ours.

Of the Outdoor Lifestyle Locations operating at September 3, 2019, we closed three locations during September 2019 and currently expect to either sell, divest, repurpose, relocate or close 28 of the remaining Outdoor Lifestyle Locations, at which sales and/or service of RVs cannot be performed, and two of the seven specialty retail locations operated by TheHouse.com. We were able to, or are in the process of, acquiring and/or obtaining the developmental consents, approvals and permits necessary for the sale and/or service of RVs at six of the Outdoor Lifestyle Locations. As part of the 2019 Strategic Shift, we have evaluated the impact on our supporting infrastructure and operations, which included rationalizing inventory levels and composition, closing one of our distribution centers, and realigning other resources. We expect the majority of the store closures and/or divestitures related to the 2019 Strategic Shift to be completed by January 31, 2020. We will have a reduction of headcount and labor costs for those locations that are sold, divested or closed and we expect to incur material charges associated with the activities contemplated under the 2019 Strategic Shift. In connection with the 2019 Strategic Shift, we also expect to pursue fewer acquisitions during the remainder of 2019 and 2020 than in historical periods. For more information on these material charges,

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please see Note 4 – Restructuring and Long-lived Asset Impairment to our consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

Balance Sheet

As discussed in Note 1 – Summary of Significant Accounting Policies – Recently Adopted Accounting Pronouncements and Note 7 – Leases to our consolidated financial statements included in Part I, Item 1 of this Form 10-Q, we have adopted Accounting Standards Update (“ASU”) No. 2016-02 Leases (Topic 842) (“ASU 2016-02” or “ASC 842”) as of January 1, 2019. As of September 30, 2019, we had $823.5 million, $58.2 million, and $850.9 million of operating lease assets, current portion of operating lease liabilities, and noncurrent portion of operating lease liabilities, respectively, as a result of the adoption of ASC 842.

Results of Operations

Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018

The following table sets forth information comparing the components of net income for the three months ended September 30, 2019 and 2018:

Three Months Ended

September 30, 2019

September 30, 2018

Percent of

Percent of

Favorable/ (Unfavorable)

($ in thousands)

    

Amount

    

Revenue

    

Amount

    

Revenue

    

$

    

%

Revenue:  

Good Sam Services and Plans

$

42,235

3.0%

$

41,311

3.2%

$

924

2.2%

RV and Outdoor Retail:

New vehicles

680,716

49.0%

697,317

53.3%

(16,601)

(2.4%)

Used vehicles

247,151

17.8%

197,757

15.1%

49,394

25.0%

Products, service and other

290,771

20.9%

256,150

19.6%

34,621

13.5%

Finance and insurance, net

114,466

8.2%

106,218

8.1%

8,248

7.8%

Good Sam Club

12,633

0.9%

10,733

0.8%

1,900

17.7%

Subtotal

1,345,737

97.0%

1,268,175

96.8%

77,562

6.1%

Total revenue

1,387,972

100.0%

1,309,486

100.0%

78,486

6.0%

Gross profit (exclusive of depreciation and amortization shown separately below):

Good Sam Services and Plans

22,834

1.6%

22,782

1.7%

52

0.2%

RV and Outdoor Retail:

New vehicles

81,998

5.9%

88,073

6.7%

(6,075)

(6.9%)

Used vehicles

52,204

3.8%

45,195

3.5%

7,009

15.5%

Products, service and other

57,597

4.1%

102,983

7.9%

(45,386)

(44.1%)

Finance and insurance, net

114,466

8.2%

106,218

8.1%

8,248

7.8%

Good Sam Club

9,374

0.7%

7,763

0.6%

1,611

20.8%

Subtotal

315,639

22.7%

350,232

26.7%

(34,593)

(9.9%)

Total gross profit

338,473

24.4%

373,014

28.5%

(34,541)

(9.3%)

Operating expenses:

Selling, general and administrative expenses

299,564

21.6%

278,330

21.3%

(21,234)

(7.6%)

Depreciation and amortization

14,104

1.0%

13,179

1.0%

(925)

(7.0%)

Long-lived asset impairment

50,025

3.6%

(50,025)

(100.0%)

Loss on disposal of assets

7,087

0.5%

843

0.1%

(6,244)

(740.7%)

Inco