SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d) of
The Securities Exchange Act of 1934
For Quarter Ended: Commission File Number
March 31, 1996 0-22852
_______________________________________________________________
AFFINITY GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3377709
(State of incorporation or organization) (I.R.S. Employer
Identification No.)
64 Inverness Drive East (303) 792-7284
Englewood, CO 80112 (Registrant's
telephone (Address of principal executive offices)
number, including area
code.)
_________________________________________________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
11 1/2% senior Subordinated Notes Due 2003
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES __X__ NO __
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding as of
Class May 11,1996
Preferred stock, $.001 par value none
Common Stock, $.001 par value 2,000
DOCUMENTS INCORPORATED BY REFERENCE: None
AFFINITY GROUP, INC. and SUBSIDIARIES
INDEX
Page
Part I. Financial Information
Item 1: Financial Statements
Consolidated Balance Sheets 1
As of March 31, 1996 and December 31, 1995
Consolidated Statements of Operations 2
For the three months ended March 31, 1996 and 1995
Consolidated Statements of Cash Flows 3
For the three months ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements 4
Item 2: Management's Discussion and Analysis of Financial 5
Condition and Results of Operations
Part II. Other Information 8
Signatures 9
ITEM:1
AFFINITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(In Thousands)
(Unaudited)
CURRENT ASSETS: 3/31/96 12/31/95
------- --------
Cash and cash equivalents $ 3,677 $ 3,746
Investments 1,345 1,514
Accounts receivable 11,185 15,624
Notes receivable from affiliate -- 3,113
Inventories 3,405 4,046
Prepaid expenses and other assets 5,832 5,794
Deferred tax asset-current 2,083 1,907
------ ------
Total current assets 27,527 35,744
PROPERTY AND EQUIPMENT 10,770 10,876
LOANS RECEIVABLE 7,929 8,474
INTANGIBLE ASSETS 121,178 122,579
DEFERRED TAX ASSET 16,248 16,503
RESTRICTED INVESTMENTS 2,015 2,015
OTHER ASSETS 4,547 4,556
------- -------
$190,214 $200,747
======= =======
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 1,775 $ 4,730
Accrued interest 6,433 3,058
Accrued liabilities 12,024 16,582
Customer deposits 11,591 10,974
Current portion of long-term debt 4,644 4,665
------ ------
Total current liabilities 35,467 40,009
DEFERRED REVENUES 72,815 71,133
LONG-TERM DEBT 151,479 159,831
OTHER LONG-TERM LIABILITIES 7,324 7,737
------- -------
268,085 278,710
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDER'S DEFICIT:
Preferred stock, $.001 par value,
1,000 shares authorized, none
issued or outstanding -- --
Common stock $.001 par value,
2,000 shares authorized, 2,000
shares issued and outstanding 1 1
Additional paid-in capital, net 12,021 12,021
Accumulated deficit (89,893) (89,985)
-------- --------
Total stockholder's deficit (77,871) (77,963)
-------- --------
Total liabilities and
stockholder's deficit $190,214 $200,747
======== ========
See Notes to Consolidated Financial Statements.
1
AFFINITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
(Unaudited)
QUARTER ENDED
3/31/96 3/31/95
REVENUES: ------- -------
Membership services $ 24,779 $ 25,074
Publications 8,194 8,167
------ ------
32,973 33,241
------ ------
COSTS AND EXPENSES:
Membership services 14,819 14,503
Publications 7,548 6,653
General and administrative 4,123 4,570
Depreciation and amortization 2,127 2,462
------ ------
28,617 28,188
------ ------
INCOME FROM OPERATIONS 4,356 5,053
NON-OPERATING EXPENSES:
Interest expense, net (4,176) (4,174)
Other non-operating, net -- 76
----- -----
(4,176) (4,098)
----- -----
NET INCOME BEFORE INCOME TAXES 180 955
INCOME TAX (PROVISION) (88) (497)
----- -----
NET INCOME $ 92 $ 458
===== ======
See Notes to Consolidated Financial Statements.
2
AFFINITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
QUARTER ENDED
3/31/96 3/31/95
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 92 $ 458
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 2,127 2,462
Deferred tax expense 88 497
Provision for losses on accounts receivable 9 128
Deferred phantom stock compensation -- 500
Gain on disposal of property and equipment -- (76)
Changes in assets and liabilities:
Accounts receivable 4,430 1,016
Inventories 641 875
Prepaids and other assets (29) (699)
Loans receivable 545 --
Accounts payable (2,955) (28)
Accrued and other liabilities (1,603) (75)
Customer deposits 617 --
Deferred revenues 1,682 1,337
----- -----
Net cash provided by operating activities
5,644 6,395
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (370) (469)
Proceeds from sale of property and equipment -- 282
Sale of investments 169 --
Changes in intangible assets (252) 37
Notes receivable from affiliate 3,113 --
----- -----
Net cash provided by (used in)
investing activities 2,660 (150)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid -- (3,000)
Borrowings on long-term debt 8,050 32,856
Principal payments of long-term debt (16,423) (36,447)
-------- --------
Net cash used in financing activities (8,373) (6,591)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (69) (346)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE PERIOD 3,746 346
----- -----
CASH AND CASH EQUIVALENTS AT
END OF THE PERIOD $ 3,677 $ --
===== =====
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 893 $ 805
Income taxes -- 49
See Notes to Consolidated Financial Statements.
3
AFFINITY GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
The financial statements included herein include the results of
Affinity Group, Inc. and subsidiaries (the Company) without audit, in
accordance with generally accepted accounting principles, and pursuant
to the rules and regulations of the Securities and Exchange
Commission. These interim consolidated financial statements should be
read in conjunction with the consolidated financial statements and
notes in the Company's 10-K report for the year ended December 31,
1995 as filed with the Securities and Exchange Commission. In the
opinion of management of the Company, these consolidated financial
statements contain all adjustments of a normal recurring nature
necessary to present fairly the financial position, results of
operations and cash flows of the Company for the interim periods
presented.
4
AFFINITY GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM: 2
The following table is derived from the Company's Consolidated
Statements of Operations and expresses the results from operations as
a percentage of revenues and reflects the net increase/(decrease)
between periods:
QUARTER ENDED
3/31/96 3/31/95 Inc/(Dec)
------- ------- ---------
REVENUES:
Membership services 75.15% 75.43% (1.18%)
Publications 24.85% 24.57% --
100.00% 100.00% (.8%)
COSTS AND EXPENSES:
Membership services 44.94% 43.63% 2.18%
Publications 22.89% 20.01% 13.45%
General and administrative 12.50% 13.75% (9.78%)
Depreciation and amortization 6.45% 7.41% (13.61%)
----- ----- -----
86.79% 84.80% 1.52%
----- ----- -----
INCOME FROM OPERATIONS 13.21% 15.20% (13.79%)
NON-OPERATING EXPENSES:
Interest expense, net (12.66%) (12.56%) --
Other non-operating, net -- .23% (100.00%)
------ ------ -----
(12.66%) (12.33%) 1.90%
----- ----- -----
NET INCOME BEFORE INCOME TAXES .55% 2.87% (81.15%)
INCOME TAX (PROVISION) (.27%) (1.49%) (82.29%)
----- ----- -----
NET INCOME .28% 1.38% (79.91%)
===== ==== =====
5
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared With Three Months Ended
March 31, 1995
Revenues for the first quarter of 1996 of $33.0 million declined by
$200,000 from the first quarter of 1995. Affinity Thrift and Loan and
Affinity Insurance Group operations, acquired in the second half of
1995, contributed revenue of $239,000 in the first quarter of 1996.
Membership services revenue for the first quarter of 1996 of $24.8
million declined by $300,000 from the comparable period in 1995.
Excluding operations acquired in 1995, membership services revenue for
the 1996 period was $24.6 million, a $500,000 decline from the 1995
period. Declines in membership services revenue for Camp Coast to
Coast, National Association for Female Executives (NAFE), Samboree
activities, emergency road service (ERS), and Highways magazine of
$1.3 million for the 1996 period were partially offset by aggregate
increases of $850,000 in marketing fees from VIP Insurance, health and
life insurance, RV financing and new product introductions,
specifically Direct TV and RV Search.
Publication revenue for the first quarter of 1996 of $8.2 million was
unchanged from 1995. Modest gains in Trailer Life, MotorHome, and
Rider revenue were offset by declines in RV Business, RV Shopper,
American Rider and book revenues.
Cost and expenses of $28.6 million in the first quarter of 1996
increased by $400,000 over the first quarter of 1995. Cost and
expenses of the newly acquired thrift and insurance operations
represent $637,000 of the increase. Excluding these costs, membership
services expenses of $14.2 million in 1996 compare to $14.5 million in
1995. Increases in expenses associated with the introduction of new
products, Direct TV and RV Search, totaling $274,000, were more than
offset by declines in expenses associated with Samborees, RV
Financing, Camp Coast to Coast and other general membership services.
Publication expenses of $7.5 million for the first quarter of 1996
were $895,000, or 13% over the publication expenses for the first
quarter of 1995. This increase is primarily due to higher paper costs
of approximately $530,000 in the 1996 period, combined with the costs
of $365,000 pertaining to the introduction of two new publications,
Roads to Adventure and Touring Rider. General and administrative costs
and expenses for the first quarter of 1996 were $4.1 million, compared
to $4.6 million in the first quarter of 1995. This decrease is
attributed to phantom stock expense of $500,000 recognized in the
first quarter of 1995, compared to zero in the first quarter of 1996.
Depreciation and amortization expense of $2.1 million decreased
$335,000 or 13.6% primarily due to customer list and other intangibles
having been fully amortized.
Income from operations for the first quarter of 1996 of $4.4 million
6
declined from the first quarter of 1995 by $697,000 or 13.8%. Flat
revenues coupled with increased operating expenses associated with the
new business operations and the increase in publishing costs, account
largely for the decline in income from operations.
Non-operating expenses of $4.2 million for the first quarter of 1996
compared to $4.1 million for the same period in 1995. Interest
expenses, constituting the majority of this expense, was relatively
unchanged. Higher overall borrowings in the 1996 period were offset
by lower interest rates.
Net income before taxes in the first quarter of 1996 of $180,000
compared to $955,000 for the first quarter of 1995. The decreases in
income from operations identified above account for the decline.
Net income for the first quarter of 1996 was $92,000, compared to
$455,000 for the same period a year ago.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had an undrawn revolving credit
facility of $11.7 million compared to $3.5 million at December 31,
1995. The decline in the outstanding revolver borrowings in the first
quarter of 1996 is primarily attributable to receipt in the first
quarter of 1996 of the annual VIP Insurance bonus for 1995 and the
repayment of an affiliate note receivable, which in the aggregate,
totaled $5.8 million.
Cash on hand and investments of $5.0 million are primarily restricted
for use within the thrift and insurance subsidiaries and are
unavailable for revolver paydown.
In the first quarter of 1996, the Company made payments under the
terms of several phantom stock agreements totaling $2.2 million.
Additional phantom stock payments of $1.4 million are currently
required to be made over the next twelve months.
Capital expenditures in the first quarter of 1996 totaled $370,000,
compared to capital expenditures of $469,000 during the same period in
1995. It is anticipated the Company will incur an additional $2.5 to
$3.5 million in capital expenditures during the remainder of calendar
year 1996 to further develop its membership data base systems.
Management believes that funds generated by operations will be
sufficient to satisfy its debt obligations and capital requirements.
7
PART II: OTHER INFORMATION
Items 1-5: Not Applicable
Item 6: Exhibits and Reports on Form 8-K: None
8
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrants have duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
AFFINITY GROUP, INC.
Date: May 14, 1996 Mark J. Boggess
Senior Vice President
Chief Financial Officer
9