Business Context and Reporting Period
Company: Camping World Holdings, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: March 10, 2018
Subject: Non-reliance on previously issued financial statements and identification of material weaknesses in internal controls.
Key Financial Metrics and Adjustments
This filing does not report current period revenue, profit, or cash flow. Instead, it details a significant accounting correction regarding deferred tax assets:
- Valuation Allowance Adjustment: The Company determined it should have established a valuation allowance against a portion of its deferred tax asset related to its investment in CWGS Enterprises, LLC.
- Impact Amounts:
- As of December 31, 2016: $102.7 million
- As of March 31, 2017: $102.6 million
- As of June 30, 2017: $138.6 million
- As of September 30, 2017: $140.8 million
- Balance Sheet Impact: The correction decreases Deferred Tax Assets, Net and Additional Paid In Capital.
Material Changes and Restatements
The Audit Committee determined that previously issued consolidated financial statements for the following periods should no longer be relied upon:
- Year ended December 31, 2016.
- Three months ended March 31, 2017.
- Three and six months ended June 30, 2017.
- Three and nine months ended September 30, 2017.
The Company will file amended Form 10-Q/A reports for the 2017 interim periods and include restated financial statements for the 2016 fiscal year in its upcoming Form 10-K. Additionally, adjustments for certain immaterial items will be made for the years ended December 31, 2016 and 2015, and all quarterly periods within 2015, 2016, and 2017.
Management Commentary, Risks, and Contingencies
Internal Control Weaknesses: Management identified material weaknesses in internal control over financial reporting existing from December 31, 2016, through December 31, 2017. Specific weaknesses include:
- Ineffective tax controls regarding the realization of deferred tax assets.
- Insufficient documentation and execution of accounting policies within FreedomRoads (RV dealerships).
- Ineffective transaction-level and management review controls over the valuation of trade-in unit inventory.
Effectiveness of Controls: The CEO and CFO concluded that disclosure controls and procedures were not effective as of December 31, 2016, and all 2017 quarter-ends. Internal control over financial reporting was concluded to be ineffective as of December 31, 2017.
Risk Factors: The filing lists numerous risks, including the impact of the identified material weaknesses, financing availability, fuel prices, economic conditions, inventory management, and reliance on third-party providers. It also notes that Marcus Lemonis holds substantial control over the Company.
Investor Verification Checklist
- Verify the filing of amended Form 10-Q/A reports for Q1, Q2, and Q3 2017.
- Review the upcoming Form 10-K for the fiscal year ended December 31, 2017, for restated 2016 financials and the remediation plan for internal control weaknesses.
- Assess the impact of the $102.7 million to $140.8 million valuation allowance on the Company's equity and deferred tax asset balances.
- Monitor the Company's progress in addressing the ineffective tax controls and inventory valuation procedures.