**UNITEDSTATES**

##### **SECURITIES AND EXCHANGE COMMISSION**

###### **Washington,D.C.  20549**

 

**FORM 10-Q**

 

**Quarterly Report Under Section 13or 15 (d) of**

**The Securities Exchange Act of1934**

 

| **For Quarter Ended:** | ** ** | **Commission File Number** |
|------------------------|------------|----------------------------|
| **September 30, 2005** | ** ** | **333-124109**             |

 

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**AFFINITY GROUP HOLDING, INC.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                             |   | **20-2428068**                       |
|------------------------------------------|--------|--------------------------------------|
| (State of incorporation or organization) |   | (I.R.S. Employer Identification No.) |
|                                     |   |                                 |
| **2575 Vista Del Mar Drive**             |   |                                 |
| **Ventura, CA   93001**        |   | **(805) 667-4100**                   |
| (Address of principal executive offices) |   | (Registrant’s telephone         |
|                                     |   |  number, including area code)   |

 

----

 

SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:  **NONE**

SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:

**10-7/8% Senior Notes Due 2012**

 

Indicate by check mark whetherthe Registrant (1) has filed all reports required to be filed by Section 13 or15 (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 suchreports), and (2) has been subject to such filing requirements for the past 90days.

 

|   | ** ** |   |   | YES   ý |   | NO   o |
|--------|------------|--------|--------|-----------------------------|--------|-----------------------|

 

Indicate by check mark whetherthe registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)

 

|   | ** ** |   |   | YES   o |   | NO   ý |
|--------|------------|--------|--------|------------------------|--------|----------------------------|

 

Indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct).

 

|   | ** ** |   |   | YES   ý |   | NO   o |
|--------|------------|--------|--------|-----------------------------|--------|-----------------------|

 

Indicate the number of sharesoutstanding of each of the issuer’s classes of common stock, as of the latestpracticable date.

 
| ** **                    | ** ** | **Outstanding  as of** |   |
|-------------------------------|------------|------------------------|--------|
| **Class**                     | ** ** | **November  2, 2005**  |   |
| Common  Stock, $.01 par value |       | 100                    |   |

 

**DOCUMENTS INCORPORATED BY REFERENCE: None**

 

 

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**AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES**

 

**INDEX**

 
| **Part I.**Financial  Information                                                                        |                                                        |
|----------------------------------------------------------------------------------------------------------|-------------------------------------------------------------|
|                                                                                                     |                                                        |
| **Item 1: Financial Statements**                                                                         |                                                        |
|                                                                                                     |                                                        |
|                                                                                                     | Consolidated Balance Sheets                                 |   |
|                                                                                                     | As of September 30, 2005 (unaudited) and  December 31, 2004 |   |
|                                                                                                     |                                                        |   |
|                                                                                                     | Unaudited Consolidated Statements of  Operations            |   |
|                                                                                                     | For the three months ended September 30,  2005 and 2004     |   |
|                                                                                                     |                                                        |   |
|                                                                                                     | Unaudited Consolidated Statements of  Operations            |   |
|                                                                                                     | for the nine months ended September 30,  2005 and 2004      |   |
|                                                                                                     |                                                        |   |
|                                                                                                     | Unaudited Consolidated Statements of Cash  Flows            |   |
|                                                                                                     | For the nine months ended September 30,  2005 and 2004      |   |
|                                                                                                     |                                                        |   |
|                                                                                                     | Notes to Unaudited Consolidated Financial  Statements       |   |
|                                                                                                     |                                                        |   |
| **Item 2:  Management’s Discussion and Analysis of Financial Condition and Results of  Operations** |                                                        |
|                                                                                                     |                                                        |   |
| **Item 3: Quantitative and Qualitative Disclosures  about Market Risk**                                  |                                                        |
|                                                                                                     |                                                        |   |
| **Item 4: Control and Procedures**                                                                       |                                                        |
|                                                                                                     |                                                        |   |
| **Part II. Other Information**                                                                           |                                                        |
|                                                                                                     |                                                        |   |
| **Signatures**                                                                                           |                                                        |

 

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AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September30, 2005 and December 31, 2004

(InThousands)

 
| ** **                                                                                    | ** ** | **9/30/2005**   | ** ** | **12/31/2004** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|
| ** **                                                                                    | ** ** | **(Unaudited)** | ** ** | **(Note 1)**   | ** ** |
| **ASSETS**                                                                                    |       |            |       |           |       |
| CURRENT ASSETS:                                                                               |       |            |       |           |       |
| Cash and cash equivalents                                                                     |       | $               | 26,908     |           | $          | 24,564 |   |
| Accounts receivable, less allowance for  doubtful accounts of $1,085 in 2005 and $810 in 2004 |       | 20,212          |       | 24,228         |       |
| Inventories                                                                                   |       | 50,107          |       | 42,463         |       |
| Prepaid expenses and other assets                                                             |       | 16,803          |       | 11,383         |       |
| Deferred tax assets, net                                                                      |       | 6,615           |       | 6,615          |       |
| Total current assets                                                                          |       | 120,645         |       | 109,253        |       |
|                                                                                          |       |            |       |           |       |
| PROPERTY AND EQUIPMENT, net                                                                   |       | 29,408          |       | 27,642         |       |
| AFFILIATE NOTES AND INVESTMENTS                                                               |       | 85,735          |       | 4,752          |       |
| INTANGIBLE ASSETS, net                                                                        |       | 30,843          |       | 27,716         |       |
| GOODWILL                                                                                      |       | 148,773         |       | 148,773        |       |
| DEFERRED TAX ASSETS, net                                                                      |       | 3,399           |       | 323            |       |
| OTHER ASSETS                                                                                  |       | 1,632           |       | 1,763          |       |
| Total assets                                                                                  |       | $               | 420,435    |           | $          | 320,222 |   |
|                                                                                          |       |            |       |           |       |
| **LIABILITIES  AND STOCKHOLDER’S DEFICIT**                                               |       |            |       |           |       |
| CURRENT LIABILITIES:                                                                          |       |            |       |           |       |
| Accounts payable                                                                              |       | $               | 14,556     |           | $          | 16,511 |   |
| Accrued interest                                                                              |       | 2,422           |       | 6,857          |       |
| Accrued income taxes                                                                          |       | 910             |       | 3,131          |       |
| Accrued liabilities                                                                           |       | 34,728          |       | 34,230         |       |
| Deferred revenues and gains                                                                   |       | 70,187          |       | 57,661         |       |
| Current portion of long-term debt                                                             |       | 1,911           |       | 1,676          |       |
| Total current liabilities                                                                     |       | 124,714         |       | 120,066        |       |
|                                                                                          |       |            |       |           |       |
| DEFERRED REVENUES AND GAINS                                                                   |       | 38,991          |       | 41,469         |       |
| LONG-TERM DEBT, net of current portion                                                        |       | 402,936         |       | 312,660        |       |
| OTHER LONG-TERM LIABILITIES                                                                   |       | 6,569           |       | 4,135          |       |
|                                                                                          |       | 573,210         |       | 478,330        |       |
|                                                                                          |       |            |       |           |       |
| COMMITMENTS AND CONTINGENCIES                                                                 |       |            |       |           |       |
|                                                                                          |       |            |       |           |       |
| STOCKHOLDER’S DEFICIT:                                                                   |       |            |       |           |       |
| Common stock, $.01 par value, 3,000 shares  authorized, 100 shares issued and outstanding     |       | 1               |       | 1              |       |
| Accumulated deficit                                                                           |       | (152,776        | )          | (158,109       | )          |
| Total stockholder’s deficit                                                              |       | (152,775        | )          | (158,108       | )          |
| Total  liabilities and stockholder’s deficit                                             |       | $               | 420,435    |           | $          | 320,222 |   |

 

See notes to consolidated financialstatements.

 

1

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AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATEDSTATEMENTS OF OPERATIONS

(InThousands)

(Unaudited)

 
| ** **                                  | ** ** | **THREE MONTHS ENDED** | ** ** |
|---------------------------------------------|------------|------------------------|------------|
| ** **                                  | ** ** | **9/30/2005**          | ** ** | **9/30/2004** | ** ** |
| ** **                                  | ** ** | ** **             | ** ** | **(Note 1)** | ** ** |
| REVENUES:                                   |       |                   |       |   |   |
| Membership services                         |       | $                      | 35,098     |   | $ | 32,824 |   |
| Publications                                |       | 13,951                 |       | 13,367 |   |
| Retail                                      |       | 75,668                 |       | 71,422 |   |
|                                        |       | 124,717                |       | 117,613 |   |
|                                        |       |                   |       |   |   |
| COSTS  APPLICABLE TO REVENUES:              |       |                   |       |   |   |
| Membership services                         |       | 24,335                 |       | 21,546 |   |
| Publications                                |       | 10,401                 |       | 9,585 |   |
| Retail                                      |       | 45,354                 |       | 43,024 |   |
|                                        |       | 80,090                 |       | 74,155 |   |
|                                        |       |                   |       |   |   |
| GROSS PROFIT                                |       | 44,627                 |       | 43,458 |   |
|                                        |       |                   |       |   |   |
| OPERATING  EXPENSES:                        |       |                   |       |   |   |
| Selling, general and administrative         |       | 31,773                 |       | 30,557 |   |
| Depreciation and amortization               |       | 4,057                  |       | 4,153 |   |
|                                        |       | 35,830                 |       | 34,710 |   |
|                                        |       |                   |       |   |   |
| INCOME FROM  OPERATIONS                     |       | 8,797                  |       | 8,748 |   |
|                                        |       |                   |       |   |   |
| NON-OPERATING  ITEMS:                       |       |                   |       |   |   |
| Interest income                             |       | 351                    |       | 200 |   |
| Interest expense                            |       | (8,977                 | )          | (6,197 | ) |
| Other non-operating items, net              |       | 19                     |       | 438 |   |
|                                        |       | (8,607                 | )          | (5,559 | ) |
|                                        |       |                   |       |   |   |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES |       | 190                    |       | 3,189 |   |
|                                        |       |                   |       |   |   |
| INCOME TAX  EXPENSE                         |       | (68                    | )          | (1,338 | ) |
|                                        |       |                   |       |   |   |
| NET INCOME                                  |       | $                      | 122        |   | $ | 1,851 |   |

 

See notes to consolidated financialstatements.

 

2

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AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATEDSTATEMENTS OF OPERATIONS

(InThousands)

(Unaudited)

 

 
| ** **                                 | ** ** | **NINE MONTHS ENDED** | ** ** |
|--------------------------------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **9/30/2005**         | ** ** | **9/30/2004** | ** ** |
| ** **                                 | ** ** | ** **            | ** ** | **(Note 1)** | ** ** |
| REVENUES:                                  |       |                  |       |   |   |
| Membership services                        |       | $                     | 101,922    |   | $ | 100,365 |   |
| Publications                               |       | 46,450                |       | 47,179 |   |
| Retail                                     |       | 218,244               |       | 198,995 |   |
|                                       |       | 366,616               |       | 346,539 |   |
|                                       |       |                  |       |   |   |
| COSTS APPLICABLE TO REVENUES:              |       |                  |       |   |   |
| Membership services                        |       | 66,837                |       | 66,612 |   |
| Publications                               |       | 32,160                |       | 32,696 |   |
| Retail                                     |       | 129,746               |       | 118,562 |   |
|                                       |       | 228,743               |       | 217,870 |   |
|                                       |       |                  |       |   |   |
| GROSS PROFIT                               |       | 137,873               |       | 128,669 |   |
|                                       |       |                  |       |   |   |
| OPERATING EXPENSES:                        |       |                  |       |   |   |
| Selling, general and administrative        |       | 94,496                |       | 85,306 |   |
| Depreciation and amortization              |       | 11,711                |       | 10,225 |   |
|                                       |       | 106,207               |       | 95,531 |   |
|                                       |       |                  |       |   |   |
| INCOME FROM OPERATIONS                     |       | 31,666                |       | 33,138 |   |
|                                       |       |                  |       |   |   |
| NON-OPERATING ITEMS:                       |       |                  |       |   |   |
| Interest income                            |       | 695                   |       | 555 |   |
| Interest expense                           |       | (24,157               | )          | (17,821 | ) |
| Debt extinguishment expense                |       | —                |       | (5,035 | ) |
| Other non-operating items, net             |       | 49                    |       | 525 |   |
|                                       |       | (23,413               | )          | (21,776 | ) |
|                                       |       |                  |       |   |   |
| INCOME FROM OPERATIONS BEFORE INCOME TAXES |       | 8,253                 |       | 11,362 |   |
|                                       |       |                  |       |   |   |
| INCOME TAX EXPENSE                         |       | (2,920                | )          | (4,268 | ) |
|                                       |       |                  |       |   |   |
| NET INCOME                                 |       | $                     | 5,333      |   | $ | 7,094 |   |
|                                            |            |                       |            |  |  |  |  |  |

 

See notes to consolidated financialstatements.

 

3

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AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

(InThousands)

(Unaudited)

 
| ** **                                                                         | ** ** | **NINE MONTHS ENDED** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                         | ** ** | **9/30/2005**         | ** ** | **9/30/2004** | ** ** |
| ** **                                                                         | ** ** | ** **            | ** ** | **(Note 1)** | ** ** |
| CASH FLOWS  FROM OPERATING ACTIVITIES:                                             |       |                  |       |   |   |
| Net income                                                                         |       | $                     | 5,333      |   | $ | 7,094 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                  |       |   |   |
| Depreciation                                                                       |       | 6,838                 |       | 6,199 |   |
| Amortization                                                                       |       | 4,873                 |       | 4,026 |   |
| Provision for losses on accounts receivable                                        |       | 505                   |       | 1,700 |   |
| Deferred compensation                                                              |       | 2,925                 |       | 1,050 |   |
| Deferred tax benefit                                                               |       | (3,076                | )          | (2,555 | ) |
| Gain on sale of property and equipment                                             |       | (1                    | )          | (417 | ) |
| Loss on early extinguishment of debt                                               |       | —                |       | 5,035 |   |
| Non-cash interest on AGHI Notes                                                    |       | 5,007                 |       | — |   |
| Accretion of original issue discount                                               |       | 98                    |       | — |   |
| Changes in operating assets and liabilities                                        |       |                  |       |   |   |
| Accounts receivable                                                                |       | 3,547                 |       | 2,184 |   |
| Inventories                                                                        |       | (7,543                | )          | (6,304 | ) |
| Prepaid expenses and other assets                                                  |       | (5,289                | )          | (5,451 | ) |
| Accounts payable                                                                   |       | (1,955                | )          | 5,177 |   |
| Accrued and other liabilities                                                      |       | (6,649                | )          | 5,431 |   |
| Deferred revenues and gains                                                        |       | 9,568                 |       | 8,393 |   |
| Net cash provided by operating activities                                          |       | 14,181                |       | 31,562 |   |
|                                                                               |       |                  |       |   |   |
| CASH FLOWS  FROM INVESTING ACTIVITIES:                                             |       |                  |       |   |   |
| Capital expenditures                                                               |       | (8,579                | )          | (6,703 | ) |
| Net proceeds from sale of property and equipment                                   |       | 30                    |       | 399 |   |
| Change in intangible assets                                                        |       | (38                   | )          | (8 | ) |
| Investment in affiliate                                                            |       | (81,005               | )          | — |   |
| Acquisitions, net of cash received                                                 |       | (2,639                | )          | — |   |
| Net proceeds from sale of publication  assets                                      |       | —                |       | 3,939 |   |
| Loans receivable                                                                   |       | 22                    |       | (15 | ) |
| Net cash used in investing activities                                              |       | (92,209               | )          | (2,388 | ) |
|                                                                               |       |                  |       |   |   |
| CASH FLOWS  FROM FINANCING ACTIVITIES:                                             |       |                  |       |   |   |
| Dividends paid                                                                     |       | —                |       | (63,600 | ) |
| Borrowings on long-term debt                                                       |       | 85,005                |       | 200,000 |   |
| Payment of debt issue costs                                                        |       | (3,563                | )          | (7,319 | ) |
| Principal payments of long-term debt                                               |       | (1,070                | )          | (129,438 | ) |
| Net cash provided by (used in) financing  activities                               |       | 80,372                |       | (357 | ) |
|                                                                               |       |                  |       |   |   |
| NET INCREASE  IN CASH AND CASH EQUIVALENTS                                         |       | 2,344                 |       | 28,817 |   |
|                                                                               |       |                  |       |   |   |
| CASH AND  CASH EQUIVALENTS AT BEGINNING OF YEAR                                    |       | 24,564                |       | 6,115 |   |
|                                                                               |       |                  |       |   |   |
| CASH AND  CASH EQUIVALENTS AT END OF PERIOD                                        |       | $                     | 26,908     |   | $ | 34,932 |   |

 

See notes to consolidated financialstatements.

 

4

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**AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES**

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

**(1) BASISOF PRESENTATION**

 

*Principles of Consolidation**—*The consolidated financial statements includedherein include the accounts of Affinity Group Holding, Inc. (“AGHI”), itswholly-owned subsidiary, Affinity Group, Inc (“AGI”), and AGI’s subsidiaries(collectively the “Company”), in accordance with U.S. generally acceptedaccounting principles, and pursuant to the rules and regulations of theSecurities and Exchange Commission.  AGHIwas formed on March 2, 2005, at which time all of the stock of AGI wascontributed to AGHI from its parent, AGI Holding Corp. (“AGHC”) aprivately-owned corporation.  On April27, 2004, AGI’s previous parent, Affinity Group Holding, Inc. (“AGH”) wasmerged into AGI, with AGI being the surviving entity after the merger.  The merger was accounted for as a combinationof entities under common control using historical costs.  The balance sheet as of December 31, 2004 isthat of AGI prior to the formation of AGHI on March 2, 2005.  The nine months ended September 30, 2004 havebeen restated to reflect the combined financial position and results ofoperations of AGI and AGH.  These interimconsolidated financial statements should be read in conjunction with AGI’sconsolidated financial statements and notes for the year ended December 31,2004 included in the Registration Statement on Form S-4 filed April 15,2005.  Certain balances in the prior yearconsolidated financial statements were reclassified to conform to the currentyear presentation.  In the opinion ofmanagement of the Company, these consolidated financial statements contain alladjustments of a normal recurring nature necessary to present fairly thefinancial position, results of operations and cash flows of the Company for theinterim periods presented.

 

**(2) DISCLOSURES ABOUT SEGMENTS OF ANENTERPRISE AND RELATED INFORMATION**

 

The Company’s threeprincipal lines of business are Membership Services, Publications, andRetail.  The Membership Services segmentoperates the Good Sam Club, Coast to Coast Club, and Camping World’sPresident’s Club for recreational vehicle (“RV”) owners, campers and outdoorvacationers, and the Golf Card Club for golf enthusiasts.  The Publications segment publishes a varietyof publications for selected markets in the recreation and leisure industry,including general circulation periodicals, directories, and RV and powersportsindustry trade magazines.  The Retailsegment sells specialty retail merchandise and services for RV owners primarilythrough retail supercenters and mail order catalogs.  The Company evaluates performance based onprofit or loss from operations before income taxes.

 

The reportable segments arestrategic business units that offer different products and services.  They are managed separately because eachbusiness requires different technology, management expertise and marketingstrategies.

 

5

----

 

The Company does notallocate income taxes or unusual items to segments.  Financial information by reportable businesssegment is summarized as follows (in thousands):

 
| ** **                                 | ** ** | **Membership** | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
|--------------------------------------------|------------|----------------|------------|------------------|------------|------------|------------|------------------|------------|
| ** **                                 | ** ** | **Services**   | ** ** | **Publications** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **THREE  MONTHS ENDED SEPTEMBER 30, 2005** |       |           |       |             |       |       |       |             |       |
| Revenues from external customers           |       | $              | 35,098     |             | $          | 13,951     |       | $                | 75,668     |   | $ | 124,717 |   |
| Gain on sale of property and equipment     |       | —         |       | —           |       | 3          |       | 3                |       |
| Interest income                            |       | 1,353          |       | —           |       | 4          |       | 1,357            |       |
| Interest expense                           |       | —         |       | 70               |       | 2,497      |       | 2,567            |       |
| Depreciation and amortization              |       | 882            |       | 666              |       | 1,762      |       | 3,310            |       |
| Segment profit                             |       | 9,274          |       | 2,197            |       | 2,497      |       | 13,968           |       |
|                                       |       |           |       |             |       |       |       |             |       |
| **THREE  MONTHS ENDED SEPTEMBER 30, 2004** |       |           |       |             |       |       |       |             |       |
| Revenues from external customers           |       | $              | 32,824     |             | $          | 13,367     |       | $                | 71,422     |   | $ | 117,613 |   |
| Gain on sale of property and equipment     |       | —         |       | 17               |       | 1          |       | 18               |       |
| Interest income                            |       | 674            |       | —           |       | 1          |       | 675              |       |
| Interest expense                           |       | —         |       | 137              |       | 2,555      |       | 2,692            |       |
| Depreciation and amortization              |       | 907            |       | 464              |       | 2,195      |       | 3,566            |       |
| Segment profit                             |       | 9,408          |       | 2,596            |       | 290        |       | 12,294           |       |

 
| ** **                                     | ** ** | **Membership** | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
|------------------------------------------------|------------|----------------|------------|------------------|------------|------------|------------|------------------|------------|
| ** **                                     | ** ** | **Services**   | ** ** | **Publications** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **NINE  MONTHS ENDED SEPTEMBER 30, 2005**      |       |           |       |             |       |       |       |             |       |
| Revenues from external customers               |       | $              | 101,922    |             | $          | 46,450     |       | $                | 218,244    |   | $ | 366,616 |   |
| Gain (loss) on sale of property and  equipment |       | —         |       | (5               | )          | 6          |       | 1                |       |
| Interest income                                |       | 3,523          |       | —           |       | 9          |       | 3,532            |       |
| Interest expense                               |       | —         |       | 229              |       | 7,709      |       | 7,938            |       |
| Depreciation and amortization                  |       | 2,641          |       | 1,682            |       | 5,250      |       | 9,573            |       |
| Segment profit                                 |       | 30,286         |       | 10,388           |       | 4,285      |       | 44,959           |       |
|                                           |       |           |       |             |       |       |       |             |       |
| **NINE  MONTHS ENDED SEPTEMBER 30, 2004**      |       |           |       |             |       |       |       |             |       |
| Revenues from external customers               |       | $              | 100,365    |             | $          | 47,179     |       | $                | 198,995    |   | $ | 346,539 |   |
| Gain on sale of property and equipment         |       | —         |       | 17               |       | 2          |       | 19               |       |
| Interest income                                |       | 1,902          |       | —           |       | 2          |       | 1,904            |       |
| Interest expense                               |       | —         |       | 641              |       | 7,792      |       | 8,433            |       |
| Depreciation and amortization                  |       | 2,718          |       | 1,314            |       | 4,585      |       | 8,617            |       |
| Segment profit                                 |       | 28,198         |       | 10,761           |       | 2,913      |       | 41,872           |       |

 

6

----

 

The following is areconciliation of income from operations to the Company’s consolidatedfinancial statements for the three and nine months ended September 30, (inthousands):

 
| ** **                                                     | ** ** | **THREE MONTHS ENDED** | ** ** | **NINE MONTHS ENDED** | ** ** |
|----------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                     | ** ** | **9/30/2005**          | ** ** | **9/30/2004**         | ** ** | **9/30/2005** | ** ** | **9/30/2004** | ** ** |
| **Income  From Continuing Operations Before Income Taxes**     |       |                   |       |                  |       |   |   |   |   |
| Total profit  for reportable segments                          |       | $                      | 13,968     |                  | $          | 12,294 |   | $ | 44,959 |   | $ | 41,872 |   |
| Unallocated  G & A expense                                 |       | (5,615                 | )          | (4,936                | )          | (15,512 | ) | (13,528 | ) |
| Unallocated  depreciation and amortization expense             |       | (747                   | )          | (587                  | )          | (2,138 | ) | (1,608 | ) |
| Unallocated  interest expense, net of intercompany elimination |       | (6,410                 | )          | (3,503                | )          | (16,219 | ) | (9,386 | ) |
| Unallocated  interest income, net of intercompany elimination  |       | (1,006                 | )          | (477                  | )          | (2,837 | ) | (1,351 | ) |
| Unallocated  gain on sale of property and equipment            |       | —                 |       | 398                   |       | — |   | 398 |   |
| Unallocated  debt restructure expense                          |       | —                 |       | —                |       | — |   | (5,035 | ) |
| Income from continuing operations before  income taxes         |       | $                      | 190        |                  | $          | 3,189 |   | $ | 8,253 |   | $ | 11,362 |   |

 

The following is areconciliation of assets of reportable segments to the Company’s consolidatedfinancial statements as of September 30, 2005 and December 31, 2004 (inthousands):

 
| ** **                                           | ** ** | **9/30/2005** | ** ** | **12/31/2004** | ** ** |
|------------------------------------------------------|------------|---------------|------------|----------------|------------|
| Membership  services segment                         |       | $             | 173,920    |           | $          | 170,270 |   |
| Publications  segment                                |       | 79,742        |       | 75,731         |       |
| Retail  segment                                      |       | 212,096       |       | 124,325        |       |
| Total assets  for reportable segments                |       | 465,758       |       | 370,326        |       |
| Capitalized  finance costs not allocated to segments |       | 12,991        |       | 10,951         |       |
| Corporate  unallocated assets                        |       | 16,993        |       | 13,705         |       |
| Elimination  of intersegment receivable              |       | (75,307       | )          | (74,760        | )          |
| Total assets                                         |       | $             | 420,435    |           | $          | 320,222 |   |

 

Total assetsfor the retail segment increased $87.8 million from December 31, 2004 primarilydue to the acquisition of a preferred membership interest in FreedomRoadsHolding Company, LLC, a related party, (See Note 5).

 

**(3) STATEMENTS OF CASH FLOWS**

 

Supplementaldisclosures of cash flow information for the nine months ended September 30 (inthousands):

 
| ** **                        | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
| Cash paid  during the period for: |       |     |       |     |       |
| Interest                          |       | $        | 23,487     |     | $          | 19,316 |   |
| Income taxes                      |       | 8,493    |       | 4,423    |       |
|                                   |            |          |            |          |            |  |  |

 

7

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In February 2004, the Company declared and distributed a $4.4 millionnon-cash dividend to its ultimate parent, AGHC, consisting of notes receivablefrom the Adams Insurance Holding LLC, a related party.

 

In May 2005, the Company assumed $0.5 million of liabilities and issued$1.5 million of debt in the acquisition of the *PowerboatMagazine* title and related assets from Nordskog Publishing, Inc.

 

It is theCompany’s intent to pay the current interest on the AGHI Notes through theissuance of additional notes of the same tenor as the AGHI Notes.  Non-cash interest as of September 30, 2005was $5.0 million.

 

**(4) GOODWILL AND INTANGIBLE ASSETS**

 

The Company reviews goodwilland indefinite-lived intangible assets for impairment at least annually.  The Company performs its annual impairmentreview during the fourth quarter.  Basedon the results of the annual impairment test, the Company determined that noimpairment of goodwill existed as of December 31, 2004.

 

The following is a summary ofchanges in the Company’s goodwill by business segment, for the nine monthsended September 30, 2005 and 2004 (in thousands):

 
| ** **                        | ** ** | **Membership** | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
|-----------------------------------|------------|----------------|------------|------------------|------------|------------|------------|------------------|------------|
| ** **                        | ** ** | **Services**   | ** ** | **Publications** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
|                              |       |           |       |             |       |       |       |             |       |
| Balance as  of January 1, 2005    |       | $              | 54,288     |             | $          | 46,884     |       | $                | 47,601     |   | $ | 148,773 |   |
| Dispositions                      |       | —         |       | —           |       | —     |       | —           |       |
| Balance as  of September 30, 2005 |       | $              | 54,288     |             | $          | 46,884     |       | $                | 47,601     |   | $ | 148,773 |   |
|                              |       |           |       |             |       |       |       |             |       |
| Balance as  of January 1, 2004    |       | $              | 54,288     |             | $          | 48,181     |       | $                | 47,601     |   | $ | 150,070 |   |
| Dispositions                      |       | —         |       | (3,553           | )          | —     |       | (3,553           | )          |
| Balance as  of September 30, 2004 |       | $              | 54,288     |             | $          | 44,628     |       | $                | 47,601     |   | $ | 146,517 |   |

 

8

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Finite lived intangible assets,related accumulated amortization and weighted average useful life consisted ofthe following at September 30, 2005 (in thousands, except as noted):

 
| ** **                                       | ** ** | **Weighted**        | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|---------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                                       | ** ** | **Average Useful**  | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | **Life (in years)** | ** ** | **Gross**  | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
| Membership  and customer lists                   |       | 6                   |       | $          | 16,031     |             | $          | (6,234     | )          | $ | 9,797 |   |
| Resort and  golf course participation agreements |       | 23                  |       | 13,558     |       | (11,405          | )          | 2,153      |       |
| Non-compete  and deferred consulting agreements  |       | 15                  |       | 18,455     |       | (11,206          | )          | 7,249      |       |
| Deferred  financing costs                        |       | 7                   |       | 15,149     |       | (3,505           | )          | 11,644     |       |
|                                             |       |                |       | $          | 63,193     |             | $          | (32,350    | )          | $ | 30,843 |   |

 

In August2004, the Company’s subsidiary Ehlert Publishing Group, Inc. sold certainpublication assets for $4.2 million in cash. The Company paid $0.2 million in transaction fees related to the salesand recorded a $3.6 million reduction in goodwill.  As a result of the sale, the Company recordeda net gain of $0.4 million.  Approximately$3.6 million of goodwill was allocated to this reporting unit and was thereforea part of the carrying amount of the net assets disposed of in determining thegain.

 

In April 2005, Camping World,Inc. acquired the assets of an RV catalog retailer for $0.6 million.  The acquisition price was allocated toinventory and membership and customer lists. In May 2005, Ehlert Publishing Group, Inc. acquired the publishingassets of Nordskog Publishing, Inc. for $4.0 million.  The acquisition price was allocated primarilyto membership and customer lists and non-compete agreements.

 

**(5) RECENT EVENTS**

 

On March 24,2005 in a private placement, the Company issued $88.2 million principal amountof its 10-7/8% senior notes due 2012 (the “AGHI Notes”) at a $3.2 millionoriginal issue discount.  The Companycompleted a registered exchange of the AGHI Notes under the Securities Act of1933 on June 8, 2005.  The AGHI Notes areunsecured obligations of the Company, and its subsidiaries have not guaranteedpayment of principal or interest on the AGHI Notes.  Interest on the AGHI Notes is payablesemi-annually on February 15 and August 15 commencing August 15, 2005 and theentire $88.2 million principal amount of the AGHI Notes are due in full onFebruary 15, 2012.  For interest paymentson and prior to February 15, 2008, AGHI may elect to pay interest on the AGHINotes in cash or by the issuance of additional notes of the same tenor as theAGHI Notes.  Any additional AGHI Notesissued in payment of interest are due in full on or before March 15, 2010.  The AGHI Notes cannot be redeemed prior toFebruary 15, 2008.  Although the onlysource of the cash payment of the AGHI Notes is dividends from its subsidiary,there are certain restrictions on the payment of dividends under AGI’s seniorsecured credit facility (the “AGI

 

9

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Senior CreditFacility”) and the indenture (“AGI Indenture”) under which AGI has issued$200.0 million in 9% senior subordinated notes due 2012.

 

The Company contributed the net proceedsfrom the issuance of the AGHI Notes, approximately $81.0 million, to AGI and inturn, AGI made an equity contribution to its wholly-owned subsidiary, CampingWorld, Inc. (“Camping World”).  CampingWorld then made an equity capital contribution in the same amount to itswholly-owned subsidiary, CWI, Inc. (“CWI”). CWI created a new wholly-owned subsidiary named CWFR Capital Corp., aDelaware corporation (“CWFR”) which is an “unrestricted subsidiary” as definedunder the AGHI Notes and the AGI Indenture. Since CWFR is an unrestricted subsidiary, its operations are notrestricted by either the AGI Indenture or the AGHI Notes.  CWI made an equity capital contribution toCWFR in an equal amount to the capital contribution that CWI received fromCamping World.  CWFR used the proceedsfrom the equity capital contribution to acquire a preferred membership interestin FreedomRoads Holding Company, LLC (“FreedomRoads Holding”), a Minnesotalimited liability company owned 90% by The Stephen Adams Living Trust whichalso indirectly owns 97.4% of the outstanding capital stock of AGHC andindirectly AGHI.

 

The preferred membership interestacquired by CWFR has a face amount of $88.2 million and is entitled to receivea preferred payment from FreedomRoads Holding at 10-7/8% per annum when and asdeclared by the Board of Governors of FreedomRoads from any source legallyavailable therefor.  Any portion of thepreferred payment not paid will accumulate and will be compounded semi-annuallyuntil paid.  FreedomRoads Holding mayredeem the preferred membership interest upon the payment of $88.2 million plusthe accrued and unpaid preferred return to the date of redemption.  FreedomRoads Holding will be required toredeem the preferred membership interest at that same redemption price if thereis a sale or reorganization of the membership interests of FreedomRoads Holdingor a sale of substantially all of the assets of FreedomRoads Holding. According to the terms of the preferred membership interest, FreedomRoadsHolding cannot make distributions with respect to membership interests otherthan (a) distributions with respect to the preferred membership interest, (b)distributions for the members’ estimated tax liabilities from earnings ofFreedomRoads Holding and (c) distributions in the aggregate not to exceed 50%of the amount of (i) FreedomRoads Holding’s net profit for the period fromJanuary 1, 2005 through the end of the fiscal quarter next preceding thedistribution date less (ii) the aggregate amount of tax distributions madeduring the period from January 1, 2005 through the end of the fiscal quarternext preceding the distribution date. CWFR may not sell, pledge or otherwise transfer the preferred membershipinterest.  The preferred membershipinterest does not provide CWFR with any voting rights in FreedomRoads Holding.  The preferred membership interestFreedomRoads Holding is being carried at cost and is reviewed periodically forimpairment.

 

10

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**(6) CONTINGENCIES**

 

From time totime, the Company is involved in litigation arising in the normal course ofbusiness operations.

 

In September 2004, the Company’s subsidiary,CWI, Inc., was sued in California state court by Privacy Rights Clearinghouseand Benjamin Greene (the “Plaintiffs”) in a suit alleging that CWI, Inc. wasrecording personal identification information from retail customers inviolation of certain California statutes. The plaintiff sought injunctive relief preventing CWI, Inc. fromengaging in any act or practice constituting unfair competition under the statutesand for statutory penalties and damages. CWI, Inc. responded to the suit and denied that its practices violatethe statutes.  Without admittingliability or wrongdoing, CWI, Inc. and the Plaintiffs have entered into aSettlement Agreement which has received preliminary approval by the court.  After expiration of applicable noticeperiods, the Settlement Agreement will be subject to final approval by thecourt.  In the opinion of management, theterms of the Settlement Agreement did not have a material adverse effect on theCompany’s results of operations or financial position.

 

11

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**ITEM 2:**

 

AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

 

The following table is derived from theCompany’s Consolidated Statements of Operations and expresses the results fromoperations as a percentage of revenues and reflects the net increase (decrease)between periods:

 
| ** **                                  | ** ** | **THREE MONTHS ENDED** | ** ** |
|---------------------------------------------|------------|------------------------|------------|
| ** **                                  | ** ** | **9/30/2005**          | ** ** | **9/30/2004** | ** ** | **Inc/(Dec)** | ** ** |
|                                        |       |                   |       |   |   |   |   |
| REVENUES:                                   |       |                   |       |   |   |   |   |
| Membership services                         |       | 28.1                   | %          | 27.9 | % | 6.9 | % |
| Publications                                |       | 11.2                   | %          | 11.4 | % | 4.4 | % |
| Retail                                      |       | 60.7                   | %          | 60.7 | % | 5.9 | % |
|                                        |       | 100.0                  | %          | 100.0 | % | 6.0 | % |
|                                        |       |                   |       |   |   |   |   |
| COSTS  APPLICABLE TO REVENUES:              |       |                   |       |   |   |   |   |
| Membership services                         |       | 19.5                   | %          | 18.3 | % | 12.9 | % |
| Publications                                |       | 8.3                    | %          | 8.1 | % | 8.5 | % |
| Retail                                      |       | 36.4                   | %          | 36.7 | % | 5.4 | % |
|                                        |       | 64.2                   | %          | 63.1 | % | 8.0 | % |
|                                        |       |                   |       |   |   |   |   |
| GROSS PROFIT                                |       | 35.8                   | %          | 36.9 | % | 2.7 | % |
|                                        |       |                   |       |   |   |   |   |
| OPERATING  EXPENSES:                        |       |                   |       |   |   |   |   |
| Selling, general and administrative         |       | 25.4                   | %          | 26.0 | % | 4.0 | % |
| Depreciation and amortization               |       | 3.3                    | %          | 3.5 | % | (2.3 | )% |
|                                        |       | 28.7                   | %          | 29.5 | % | 3.2 | % |
|                                        |       |                   |       |   |   |   |   |
| INCOME FROM  OPERATIONS                     |       | 7.1                    | %          | 7.4 | % | 0.6 | % |
|                                        |       |                   |       |   |   |   |   |
| NON-OPERATING  ITEMS:                       |       |                   |       |   |   |   |   |
| Interest income                             |       | 0.3                    | %          | 0.3 | % | 75.5 | % |
| Interest expense                            |       | (7.2                   | )%         | (5.3 | )% | 44.9 | % |
| Other non-operating items, net              |       | —                 |       | 0.4 | % | (95.7 | )% |
|                                        |       | (6.9                   | )%         | (4.7 | )% | 54.8 | % |
|                                        |       |                   |       |   |   |   |   |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES |       | 0.2                    | %          | 2.7 | % | (94.0 | )% |
|                                        |       |                   |       |   |   |   |   |
| INCOME TAX  EXPENSE                         |       | (0.1                   | )%         | (1.1 | )% | (94.9 | )% |
|                                        |       |                   |       |   |   |   |   |
| NET INCOME                                  |       | 0.1                    | %          | 1.6 | % | (93.4 | )% |

 

12

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The following table is derived from theCompany’s Consolidated Statements of Operations and expresses the results fromoperations as a percentage of revenues and reflects the net increase (decrease)between periods:

 
| ** **                                  | ** ** | **NINE MONTHS ENDED** | ** ** |
|---------------------------------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **9/30/2005**         | ** ** | **9/30/2004** | ** ** | **Inc/(Dec)** | ** ** |
|                                        |       |                  |       |   |   |   |   |
| REVENUES:                                   |       |                  |       |   |   |   |   |
| Membership services                         |       | 27.8                  | %          | 29.0 | % | 1.6 | % |
| Publications                                |       | 12.7                  | %          | 13.6 | % | (1.5 | )% |
| Retail                                      |       | 59.5                  | %          | 57.4 | % | 9.7 | % |
|                                        |       | 100.0                 | %          | 100.0 | % | 5.8 | % |
|                                        |       |                  |       |   |   |   |   |
| COSTS  APPLICABLE TO REVENUES:              |       |                  |       |   |   |   |   |
| Membership services                         |       | 18.2                  | %          | 19.2 | % | 0.3 | % |
| Publications                                |       | 8.8                   | %          | 9.4 | % | (1.6 | )% |
| Retail                                      |       | 35.4                  | %          | 34.2 | % | 9.4 | % |
|                                        |       | 62.4                  | %          | 62.9 | % | 5.0 | % |
|                                        |       |                  |       |   |   |   |   |
| GROSS PROFIT                                |       | 37.6                  | %          | 37.1 | % | 7.2 | % |
|                                        |       |                  |       |   |   |   |   |
| OPERATING EXPENSES:                         |       |                  |       |   |   |   |   |
| Selling, general and administrative         |       | 25.7                  | %          | 24.6 | % | 10.8 | % |
| Depreciation and amortization               |       | 3.2                   | %          | 2.9 | % | 14.5 | % |
|                                        |       | 28.9                  | %          | 27.5 | % | 11.2 | % |
|                                        |       |                  |       |   |   |   |   |
| INCOME FROM  OPERATIONS                     |       | 8.6                   | %          | 9.6 | % | (4.4 | )% |
|                                        |       |                  |       |   |   |   |   |
| NON-OPERATING  ITEMS:                       |       |                  |       |   |   |   |   |
| Interest income                             |       | 0.2                   | %          | 0.2 | % | 25.2 | % |
| Interest expense                            |       | (6.5                  | )%         | (5.1 | )% | 35.6 | % |
| Debt extinguishment expense                 |       | —                |       | (1.5 | )% | (100.0 | )% |
| Other non-operating items, net              |       | —                |       | 0.1 | % | (90.7 | )% |
|                                        |       | (6.3                  | )%         | (6.3 | )% | 7.5 | % |
|                                        |       |                  |       |   |   |   |   |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES |       | 2.3                   | %          | 3.3 | % | (27.4 | )% |
|                                        |       |                  |       |   |   |   |   |
| INCOME TAX  EXPENSE                         |       | (0.8                  | )%         | (1.3 | )% | (31.6 | )% |
|                                        |       |                  |       |   |   |   |   |
| NET INCOME                                  |       | 1.5                   | %          | 2.0 | % | (24.8 | )% |
|                                             |            |                       |            |  |  |  |  |  |

 

13

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**RESULTS OF OPERATIONS**

 

**ThreeMonths Ended September 30, 2005**

**ComparedWith Three Months Ended September 30, 2004**

 

*Revenues*

 

Revenues of $124.7million for the third quarter of 2005 increased by approximately $7.1 million,or 6.0%, from the comparable period in 2004.

 

Membership servicesrevenues of $35.1 million for the third quarter of 2005 increased byapproximately $2.3 million, or 6.9%, from the comparable period in 2004.  This increase was largely attributable to a$2.2 million increase in member events revenue due to the timing of the GreatNorth American Rally, which occurred in the second quarter of 2004 versus thethird quarter of 2005, a $1.5 million increase in extended vehicle warrantyprogram revenue, due to continued growth in the sales of one-year warrantyproducts, and increased enrollment in the emergency road service programs.  These increases were partially offset by a$0.7 million decrease in dealer program marketing revenue, a $0.4 millionreduction in membership services revenue, primarily associated with reducedenrollment in the Coast to Coast Club and Golf Card Club, and a $0.3 millionreduction in marketing fee income recognized on RV financing products.

 

Publication revenues of$14.0 million for the third quarter of 2005 increased $0.6 million, or 4.4%,from the comparable period in 2004.  Thisincrease was primarily due to a $0.5 increase in advertising revenue for therecreational vehicle related titles, a $0.4 millionincrease in revenue due to a magazine title acquired in May 2005,*Powerboat Magazine,*and a $0.3 millionrevenue increase from additional issues of powersports magazine titles.  These increases were partially offset by a $0.6million reduction in revenue due to the disposition of archery-relatedpublication titles in the third quarter of 2004.

 

Retailrevenues of $75.7 million increased $4.2 million, or 5.9%, over the thirdquarter of 2004.  Store merchandise salesincreased $3.8 million over the third quarter of 2004 primarily due to a $3.6million revenue increase from the addition of eight new stores over the pasteighteen months.  Same store salesincreased $0.2 million, or 0.4%, compared to a 6.1% increase in the thirdquarter of 2004.  Same store salecalculations for a given period include only those stores that were open bothat the end of that period and at the beginning of the preceding fiscalyear.  Additionally, revenue from otherinstallation fees, supplies and services revenue increased $0.4 million.

 

*CostsApplicable to Revenues*

 

Costs applicable torevenues totaled $80.1 million for the third quarter of 2005, an increase of$5.9 million, or 8.0%, from the comparable period in 2004.

 

Membershipservices costs and expenses of $24.3 million increased approximately $2.8million, or 12.9%, from the third quarter of 2004.  This increase consisted of a $2.0 million

 

14

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increaseprimarily due to event timing, a $1.1 million increase in marketing costs andprogram expenses associated with increased enrollment in the extended vehiclewarranty and emergency road service programs, partially offset by a $0.3million decrease in membership services costs, primarily due to reducedmarketing expenses in the Coast to Coast Club and the Golf Card Club.

 

Publicationcosts and expenses of $10.4 million for the third quarter of 2005 increased $0.8million, or 8.5%, from the comparable period in 2004 primarily due to increasedcosts attributable to the newly acquired magazine title, *PowerboatMagazine,*and consumer shows purchased through the acquisition ofARU Inc. (“ARU”) in December 2004, and reduced operating expenses for varioustitles.  These increases were partiallyoffset by the disposition of archery-related titles in the third quarter of2004.

 

Retailcosts applicable to revenues increased $2.3 million, or 5.4%, to $45.4 millionprimarily due to new store openings.  Theretail gross profit margin of 40.1% for the third quarter of 2005 increasedfrom 39.8% from the comparable period in 2004 primarily due to favorablefreight and other vendor credits in the third quarter of 2005.

 

*Operating Expenses*

 

Selling,general and administrative expenses of $31.8 million for the third quarter of2005 increased $1.2 million compared to the third quarter of 2004 primarily dueto increases in retail selling, general and administrative expenses of approximately$0.5 million consisting mostly of an increase in retail labor, a $0.2 millionincrease in deferred executive compensation and a $0.5 million increase inother executive wages and hurricane relief contributions.

 

Depreciationand amortization expense of $4.1 million for the third quarter of 2005 remainedrelatively unchanged from the prior year, decreasing approximately $0.1 millionversus the comparable period in 2004.

 

*Income fromOperations*

 

Income from operationsfor the third quarter of 2005 of $8.8 million remained unchanged from thecomparable period in 2004 primarily due to increased gross profit from theretail operations of $1.9 million offset by increased operating expenses of$1.2 million and reduced gross profit from the membership services andpublications operations of $0.5 million and $0.2 million, respectively.

 

*Non-OperatingItems*

 

Non-operatingitems were $8.6 million for the third quarter of 2005, compared to $5.6 millionfor the same period in 2004.  This $3.0million increase was due $2.8 million of additional interest expense fromhigher loan balances associated with the issuance in March 2005 of the AGHINotes and higher interest rates, and a $0.4 million gain on sale of assets in2004 partially offset by a $0.2million increase in interest income.

 

15

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*Incomebefore Income Taxes*

 

Incomebefore income taxes for the third quarter of 2005 was $0.2 million, or $3.0million lower than the third quarter of 2004. This decrease was attributable to $2.8 million of additional interestexpense, and a $0.4 million gain on sale of assets in 2004, partially offset bya $0.2 million increase in interest income.

 

*Income TaxExpense*

 

The Company recordedapproximately $0.1 million of income tax expense for the third quarter of 2005,a decrease of $1.3 million from the third quarter of 2004.  The effective tax rates for the third quarterof 2005 and 2004 were 37.8% and 42.0%. The effective tax rates are higher than statutory rates primarily due tostate taxes.

 

# *NetIncome*

 

Netincome in the third quarter of 2005 was $0.1 million compared to a net incomeof $1.9 million for the same period in 2004.

 

*SegmentProfit*

 

Segment profit of approximately$14.0 million for 2005 (before unallocated depreciation and amortization,general and administrative, interest, debt restructuring, and income taxexpense) increased $1.7 million from the comparable period in 2004.

 

Membership services segmentprofit of $9.3 million for the third quarter of 2005 decreased $0.1 million, or1.4%, from the third quarter of 2004. This decrease is largely attributable to a $0.3 million decrease inmarketing fee income recognized on RV financing products, a $0.3 millionincrease in new product development expenses, a $0.2 million decrease in dealermarketing profit and $0.2 million increase in other operating expenses,partially offset by a $0.5 million increase in profit from the extendedwarranty program, and a $0.4 million increase in profit from emergency roadservice products.

 

Publication segment profit of$2.2 million for the third quarter of 2005 decreased by $0.4 million, or 15.4%,from the third quarter of 2004.  Thisdecrease was primarily attributable to reduced profit for the outdoor powersportspublications due to reduced issues published, increased book sizes, timing ofvarious titles, and a reduction in profit related to the disposition of thearchery related titles, partially offset by an increase in profit from therecreational vehicle related titles.

 

Retail segment profit of $2.5million for the third quarter of 2005 increased by $2.2 million, or 761.0%,from the third quarter of 2004.  The increase in segment profit resultedprimarily from a $2.3 million increase in gross profit, and a $0.4 millionreduction in depreciation expense, partially offset by a $0.5 million increasein selling, general and administrative expenses.

 

16

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**NineMonths Ended September 30, 2005**

**ComparedWith Nine Months Ended September 30, 2004**

 

*Revenues*

 

Revenues of $366.6million for the first nine months of 2005 increased by approximately $20.1million, or 5.8%, from the comparable period in 2004.

 

Membership servicesrevenues of $101.9 million for the first nine months of 2005 increased byapproximately $1.6 million, or 1.6%, from the comparable period in 2004.  This revenue increase was largelyattributable to a $3.6 million increase in extended vehicle warranty programrevenue due to continued growth in the sales of one-year warranty products, anda $1.0 million increase in emergency road service revenue due to increasedenrollment, partially offset by a $1.4 million reduction in membership servicesrevenue, primarily associated with reduced enrollment in the Coast to CoastClub and Golf Card Club, a $1.0 million reduction in marketing fee incomerecognized on RV financing, and a $0.6 million reduction in dealer programmarketing revenue.

 

Publication revenues of$46.5 million for the first nine months of 2005 decreased $0.7 million, or1.5%, from the comparable period in 2004 primarily resulting from a$2.0 million revenue reduction due to the disposition of archery-relatedpublication titles in the third quarter of 2004, a $0.7 million reduction inrevenue from reduced promotion of the campground atlas, a $0.8 millionreduction associated with reduced issues of snow and regional publications, anda $0.3 million reduction in ad revenue for the motorcycle titles.  These decreases were partially offset by a $1.8million revenue increase associated with the acquisition of consumer shows,acquired through the acquisition of ARU in December2004 and the newly acquired *Powerboat Magazine*title, a $0.9 million increase in advertising revenue in the recreationalvehicle related titles and $0.4 million revenue increase in the powersportsrelated titles due to the timing of issues published.

 

Retailrevenues of $218.2 million increased $19.2 million, or 9.7%, over the firstnine months of 2004.  Store merchandisesales increased $18.1 million over the first nine months of 2004 due to a samestore sales increase of $6.8 million or 4.9%, compared to a 9.9% increase inthe first nine months of 2004, and an $11.3 million revenue increase from theaddition of eight new stores over the past twenty-one months.  Same store sale calculations for a givenperiod include only those stores that were open both at the end of that periodand at the beginning of the preceding fiscal year.  In addition, retail revenue increased $1.1million due to increases in other installation fees, supplies and servicesrevenue.

 

*CostsApplicable to Revenues*

 

Costs applicable torevenues totaled $228.7 million for the first nine months of 2005, an increaseof $10.9 million, or 5.0%, from the comparable period in 2004.

 

Membershipservices costs and expenses of $66.8 million increased approximately $0.2million, or 0.3%, from the first nine months of 2004.  This increase consisted of a $2.4 millionincrease in marketing costs and program expenses associated with increased

 

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enrollmentin the extended vehicle warranty and emergency road service programs, partiallyoffset by a $1.5 million decrease in membership services costs, primarily dueto reduced marketing and program expenses of the Coast to Coast Club and GolfCard Club, and a $0.7 million reduction in dealer marketing expenses associatedwith reduced revenue.

 

Publicationcosts and expenses of $32.2 million for the first nine months of 2005 decreased$0.5 million from the comparable period in 2004 primarily due to a $1.7 millionreduction from the disposition of archery-related titles in the third quarterof 2004, a $0.9 million reduction in costs associated with the campgroundatlas, and a $0.5 million reduction associated with reduced issues of theregional publications.  These decreaseswere partially offset by $1.6 million of additional costs attributable to thenewly acquired operations of ARU and the *Powerboat Magazine*title and a $1.0 million increase in operating expenses of the powersportsrelated titles.

 

Retailcosts applicable to revenues increased $11.2 million, or 9.4%, to $129.7million primarily due to the opening of eight new stores over the pasttwenty-one months.  The retail grossprofit margin of 40.6% for the first nine months of 2005 increased slightlyfrom 40.4% for the comparable period in 2004.

 

*OperatingExpenses*

 

Selling,general and administrative expenses of approximately $94.5 million for thefirst nine months of 2005 increased $9.2 million compared to the first nine monthsof 2004 primarily due to an increase in retail selling and general andadministrative expenses of approximately $7.1 million consisting of increasesin retail labor, real property expenses, personal property expenses, andtraining and other retail general and administrative expenses of $4.8 million,$0.9 million, $0.4 million and $1.0 million, respectively, a $1.9 millionincrease in deferred executive compensation expense, and a $0.2 millionincrease in other general and administrative expenses.

 

Depreciationand amortization expense of $11.7 million increased approximately $1.5 millionover the prior year primarily due to increased depreciation on capitalexpenditures at Camping World, amortization of intangible assets associatedwith the purchase of ARU and *Powerboat Magazine*,costs associated with the issuance of $200.0 million in 9% Senior SubordinatedNotes in February 2004, and amortization of financing costs associated with theAGHI Notes.

 

*Income fromOperations*

 

Income from operationsfor the first nine months of 2005 totaling $31.7 million decreased $1.5 millioncompared to the first nine months of 2004. This decrease is primarily due to increased operating expenses of $10.7million and reduced gross profit for the publications operations of $0.2million, partially offset by increased gross profit for the retail andmembership services operations of $8.0 million and $1.4 million, respectively.

 

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*Non-OperatingItems*

 

Non-operatingitems were $23.4 million for the first nine months of 2005, compared to $21.8million for the same period in 2004. This $1.6 million increase comprises of $6.3 million of additionalinterest expense from higher loan balances associated with the issuance of$200.0 million in 9% Senior Subordinated Notes in February 2004 and the AGHINotes in March 2005, and a $0.4 million gain on sale of assets in 2004,partially offset by a $5.0 million reduction in debt extinguishment expensesassociated with the redemption in 2004 of the AGH senior notes due 2007 and a$0.1 million increase in interest income.

 

*Incomebefore Income Taxes*

 

Incomebefore income taxes for the first nine months of 2005 was $8.3 million, or $3.1million lower than the first nine months of 2004.  This decrease was attributable to a $6.3million increase in interest expense, a $1.5 million decrease in income fromoperations for the current period, and a $0.4 million reduction in othernon-operating items, partially offset by a $5.0 million reduction in debt extinguishmentexpense from the prior period and $0.1 million increase in interest income.

 

*Income TaxExpense*

 

The company recorded $2.9million of income tax expense for the first nine months of 2005, a decrease of$1.3 million from the first nine months of 2004.  The effective tax rates for the first ninemonths of 2005 and 2004 were 35.4% and 37.6%, respectively.  The effective tax rate in 2005 was lower than2004 due to a decrease in the company’s valuation allowance.  Overall, the effective tax rates are higherthan statutory rates due to state taxes.

 

# *NetIncome*

 

Netincome in the first nine months of 2005 was $5.3 million compared to $7.1million for the same period in 2004.

 

*SegmentProfit*

 

Segment profit of $45.0 millionfor the first nine months of 2005 (before unallocated depreciation andamortization, general and administrative, interest, debt restructuring, andincome tax expense) increased $3.1 million, or 7.4%, from the comparable periodin 2004.

 

Membership services segmentprofit of $30.3 million for the first nine months of 2005 increased $2.1million, or 7.4%, from the comparable period in 2004.  This increase is largely attributable to a$1.7 million increase in profit from emergency road service products, a $1.8million increase in profit from the extended warranty program, a $0.8 millionincrease in profit from the Coast to Coast Club and Golf Card Club, partiallyoffset by a $1.0 million decrease in profit from marketing fee incomerecognized on RV financing products and a $0.3 million decrease in profit inthe Good Sam Club member publication, *Highways Magazine*,due to increased production costs, a $0.6 million increase in other

 

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new product developmentexpenses, and a $0.2 million decrease in dealer program marketing profit.

 

Publication segment profit of$10.4 million for the first nine months of 2005 decreased $0.4 million from thecomparable period in 2004.  Reducedprofit in the powersport publications was partially offset by an increase inprofit associated with the consumer shows acquired through the acquisition ofARU in December 2004.

 

Retail segment profit of $4.3million for the first nine months of 2005 increased by $1.4 million, or 47.1%from the comparable period in 2004.  The increased profit resulted primarily froma $9.1 million increase in gross profit margin partially offset by a $7.1million increase in selling, general and administrative expenses, and a $0.6million increase in depreciation expense.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

The Company has historicallyoperated with a working capital deficit. The working capital deficit as of September 30, 2005 and December 31,2004 was $4.1 million and $10.8 million, respectively.  The primary reason for the working capital deficitis the deferred revenue and gains reported under current liabilities in theamount of $70.2 million and $57.7 million as of September 30, 2005 and December31, 2004, respectively.  Deferred revenueis primarily comprised of cash collected for club memberships in advance, whichis amortized over the life of the membership. The Company uses net proceeds from this deferred membership revenue tolower its long-term borrowings. Management believes that funds generated by operations together withavailable borrowings under the AGI Senior Credit Facility will be sufficient tomeet all of the Company’s debt service requirements and capital requirementsover the next twelve months.

 

Interest under the AGHINotes is due semi-annually on August 15 and February 15.  For interest payments through and includingFebruary 15, 2008, AGHI has the right to issue additional notes of the sametenor as the AGHI Notes.  Any additionalAGHI Notes issued in payment of interest are due in full on or before March 15,2010.  The source of cash for anyinterest that is to be paid in cash is dividends from AGI.  Both the AGI Senior Credit Facility and theAGI Indenture contain certain restrictions on the payment of dividends by AGIto AGHI.  Interest accrued on the AGHINotes has been classified in long-term debt as it is AGHI’s intent to issueadditional notes to pay the interest for the next twelve months.  The interest due on August 15, 2005 was paidby the issuance of additional notes of the same tenor as the AGHI Notes.

 

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*Contractual Obligations and Commercial Commitments*

 

Thefollowing table reflects the Company’s contractual obligations and commercialcommitments by maturity period at September 30, 2005, in thousands.

 
| ** **                                | ** ** | **Payments Due by Period** | ** ** |
|-------------------------------------------|------------|----------------------------|------------|
| ** **                                | ** ** | ** **                 | ** ** | **Balance of** | ** ** | **2006 and** | ** ** | **2008 and** | ** ** | ** ** | ** ** |
| **(in thousands)**                        | ** ** | **Total**                  | ** ** | **2005** | ** ** | **2007** | ** ** | **2009** | ** ** | **Thereafter** | ** ** |
| Long-term  debt                           |       | $                          | 404,847    |   | $ | 647 |   | $ | 3,962 |   | $ | 109,589 |   | $ | 290,649 |   |
| Operating  lease obligations              |       | 131,995                    |       | 3,143 |   | 22,768 |   | 17,043 |   | 89,041 |   |
| Deferred  compensation                    |       | 7,288                      |       | 564 |   | 2,163 |   | 3,883 |   | 678 |   |
| Standby and  commercial letters of credit |       | 7,198                      |       | 5,929 |   | 1,269 |   | — |   | — |   |
| Grand total                               |       | $                          | 551,328    |   | $ | 10,283 |   | $ | 30,162 |   | $ | 130,515 |   | $ | 380,368 |   |

 

On June 24, 2003, AGI enteredinto an Amended and Restated Credit Agreement and a Senior Secured FloatingRate Note Purchase Agreement (as amended, the AGI Senior Credit Facility).  The AGI Senior Credit Facility provides for arevolving credit facility of $35.0 million and term loans (“Term B1 and Term B2loans”) in the aggregate of $140.0 million. Proceeds from the AGI Senior Credit Facility were used to refinance theexisting senior secured indebtedness, pay a dividend of $13.7 million to theCompany’s parent AGI Holding Corp. and redeem $30.0 million principal amount ofthe AGH senior notes due 2007 (“AGH Notes”) at 103.667% of par in 2003.  As of September 30, 2005, $31.9 million and$79.6 million were outstanding under the Term B1 and Term B2 loans, respectively.  No borrowings were outstanding on therevolving credit facility as of September 30, 2005.  Reborrowings under the term loans are notpermitted.  The interest on borrowingsunder the AGI Senior Credit Facility is at variable rates based on the ratio oftotal cash flow to outstanding indebtedness (as defined).  Interest rates float with prime and theLondon Interbank Offered Rates, or LIBOR, plus an applicable margin rangingfrom 1.50% to 3.50% over the stated rates. As of September 30, 2005, the average interest rate on the term loans was6.84%, and permitted borrowings under the undrawn revolving facility were $27.8million.  AGI also pays a commitment feeof 0.5% per annum on the unused amount of the revolving credit facility.  The aggregate quarterly scheduled payments onthe term loans are $350,000.  Therevolving credit facility matures on June 24, 2008, and the Term B1 and Term B2loans mature on June 24, 2009.  The fundsavailable under the AGI Senior Credit Facility may be utilized for borrowingsor letters of credit; however, a maximum of $12.5 million may be allocated tosuch letters of credit.  As of September30, 2005, AGI had letters of credit in the aggregate amount of $7.2 millionoutstanding.  The AGI Senior CreditFacility is secured by virtually all of the Company’s assets and a pledge ofthe Company’s stock and the stock of the Company’s subsidiaries.

 

In February 2004, AGI issued $200.0 million aggregate principal amountof 9% senior subordinated notes due 2012 (the “AGI Notes”).  Interest is payable on the AGI Notes twice ayear on each February 15 and August 15, beginning August 15, 2004, and theNotes mature on February 15, 2012.  Theproceeds from the sale of the AGI Notes were used to fund the tender offer anddefeasance of the remaining $100.0 million outstanding principal amount of theAGH Notes, prepay $25.0 million of the Term B1 and Term B2

 

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loans under the AGI Senior Credit Facility, pay a $60.0 milliondividend distribution, create a $15.0 million segregated cash account, paycertain prepayment and transaction costs and for general corporatepurposes.  The amount held in thissegregated account, including any earnings thereon, was available to paystockholder dividends upon satisfaction of a leverage test specified in the AGISenior Credit Facility.  In August andNovember of 2004, AGI satisfied the specific leverage test and paid $3.6million and $11.5 million in dividends, respectively.  The segregated account replenishmentrequirement has been permanently eliminated.

 

In November 2004, AGI amended the AGI Senior Credit Facility dated June24, 2003.  The interest rates on the TermB1 and Term B2 loans were reduced by 1.00%. The applicable interest margin on the LIBOR and Prime Rate loans wasreduced from 4.00% to 3.00% and 3.00% to 2.00%, respectively.

 

On March 24,2005 in a private placement, the Company issued $88.2 million principal amountof its 10-7/8% senior notes due 2012 (the “AGHI Notes”) at a $3.2 millionoriginal issue discount.  The Companycompleted a registered exchange of these AGHI Notes under the Securities Act of1933 in June 2005.  The AGHI Notes areunsecured obligations of the Company and its subsidiaries have not guaranteedpayment of principal or interest on the AGHI Notes.  Interest on the AGHI Notes is payablesemi-annually on February 15 and August 15 commencing August 15, 2005 and theentire $88.2 million principal amount of the AGHI Notes are due in full onFebruary 15, 2012.  For interest paymentson and prior to February 15, 2008, AGHI may elect to pay interest on the AGHINotes in cash or by the issuance of additional notes of the same tenor as theAGHI Notes.  Any additional AGHI Notesissued in payment of interest are due in full on or before March 15, 2010.  The AGHI Notes cannot be redeemed prior toFebruary 15, 2008.  Although the sourceof the cash payment of the AGHI Notes is dividends from AGI, its wholly-ownedsubsidiary, there are certain restrictions on the payment of dividends under theAGI Senior Credit Facility and the AGI Indenture.

 

The Company contributed the net proceedsfrom the issuance of the AGHI Notes, approximately $81.0 million, to AGI and inturn, AGI made an equity contribution to its wholly-owned subsidiary, CampingWorld, Inc. (“Camping World”).  CampingWorld then made an equity capital contribution in the same amount to itswholly-owned subsidiary, CWI, Inc. (“CWI”). CWI created a new wholly-owned subsidiary named CWFR Capital Corp., aDelaware corporation (“CWFR”) which is an “unrestricted subsidiary” under theAGHI Notes, and the AGI Indenture.  SinceCWFR is an unrestricted subsidiary, its operations are not restricted by eitherthe AGI Indenture or the AGHI Notes.  CWImade an equity capital contribution to CWFR in an equal amount to the capitalcontribution that it received from Camping World.  CWFR used the proceeds from the equitycapital contribution to acquire a preferred membership interest in FreedomRoadsHolding Company, LLC (“FreedomRoads Holding”), a Minnesota limited liabilitycompany owned 90% by The Stephen Adams Living Trust, which also indirectly owns97.4% of the outstanding capital stock of AGHC and indirectly AGHI.

 

The AGI Indenture pursuant towhich the AGI Notes were issued and the AGI Senior Credit Facility containcertain restrictive covenants relating to, but not limited to, mergers, changesin the nature of the business, acquisitions, additional indebtedness, sale of

 

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assets, investments, and thepayment of dividends subject to certain limitations and minimum operatingcovenants.  AGI was in compliance withall debt covenants at September 30, 2005.

 

In April 2005, Camping World, Inc. acquired the assets of a mail ordercatalog retailer specializing in recreational vehicle merchandise for $0.6million.  In May 2005, the EhlertPublishing Group, Inc. acquired the publishing assets of Nordskog Publishing,Inc. for $4.0 million.  As part of thepurchase, the Company issued $1.5 million of debt and assumed $0.5 million ofliabilities.

 

For the nine months endedSeptember 30, 2005, the Company incurred $2.9 million of deferred executivecompensation expense under the phantom stock agreements and made payments of$0.9 million on the pay-out provisions of existing phantom stock agreements.  The earned incentives under these agreementsare scheduled to be paid at various times over the next seven years.  Phantom stock payments of $0.6 million arescheduled to**be made over the remainder of thecalendar year.

 

Capital expenditures for thefirst nine months of 2005 totaling $8.6 million increased $1.9 million from thefirst nine months of 2004.  Additionalcapital expenditures of $3.9 million are anticipated for the balance of 2005,primarily for new Camping World stores and equipment, a distribution centerexpansion, and computer hardware and software upgrades and enhancements.

 

**CRITICALACCOUNTING POLICIES**

 

*General*

 

The discussion and analysis ofthe Company’s financial condition and results of operations are based upon theCompany’s consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the UnitedStates.  The preparation of thesefinancial statements requires the Company to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses, andrelated disclosure of contingent assets and liabilities.  On an on-going basis, the Company evaluatesits estimates, including those related to membership programs and incentives,bad debts, inventories, intangible assets, employee health insurance benefits,income taxes, restructuring, contingencies and litigation.  The Company bases its estimates on historicalexperience and on various other assumptions that are believed to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. Actual results may differ from these estimates under differentassumptions or conditions.

 

The Company believes thefollowing critical accounting policies affect the more significant judgmentsand estimates used in the preparation of the Company’s consolidated financialstatements.

 

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*RevenueRecognition*

 

Merchandiserevenue is recognized when products are sold in the retail stores, shipped formail and internet orders, or when services are provided to customers.  Publication advertising and newsstand sales,net of estimated provision for returns, are recorded at time of delivery.  Subscription sales of publications aredeferred and recognized over the lives of the subscriptions.  Revenues from the emergency road serviceprogram (“ERS”) are deferred and recognized over the life of the membership.  ERS claim expenses are recognized whenincurred.  Advances on third party creditcard fee revenues are deferred and recognized based primarily on a percentageof credit card receivables held by third parties.  Membership revenue is generated from annual,multi-year and lifetime memberships.  Therevenue and expenses associated with these memberships are deferred andamortized over the membership period. For lifetime memberships, an 18-year period is used, which is theactuarially determined estimated fulfillment period.  Promotional expenses, consisting primarily ofdirect mail advertising, are deferred and expensed over the period of expectedfuture benefit.  Renewal expenses areexpensed at the time related materials are mailed.  Recognized revenues and profit are subject torevisions as the membership progresses to completion.  Revisions to membership period estimateswould change the amount of income and expense amortized in future accountingperiods.

 

*AccountsReceivable*

 

The Company estimates thecollectability of its trade receivables. A considerable amount of judgment is required in assessing the ultimaterealization of these receivables including the current credit-worthiness ofeach customer.  Changes in requiredreserves have been recorded in recent periods and may occur in the future dueto the market environment.

 

*Inventory*

 

The Company states inventoriesat the lower of cost or market.  Inassessing the ultimate realization of inventories, the Company is required tomake judgments as to future demand requirements and compare that with thecurrent or committed inventory levels. The Company has recorded changes in required reserves in recent periodsdue to changes in strategic direction, such as discontinuances of product linesas well as changes in market conditions due to changes in demandrequirements.  It is possible thatchanges in required inventory reserves may continue to occur in the future dueto the market conditions.

 

*Long-LivedAssets*

 

Purchased intangible assetswith finite lives are amortized using the straight-line method over theestimated economic lives of the assets, ranging from one to twenty-three years.

 

Long-lived assets, such asproperty, plant and equipment and purchased intangible assets with finite livesare evaluated for impairment whenever events or changes in circumstancesindicate the carrying value of an asset may not be recoverable in accordancewith SFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets.”  The Company assesses the fairvalue of the assets based on the future cash flow the assets are

 

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expected to generate andrecognize an impairment loss when estimated undiscounted future cash flowexpected to result from the use of the asset plus net proceeds expected fromdisposition of the asset (if any) are less than the carrying value of theasset.  When an impairment is identified,the Company reduces the carrying amount of the asset to its estimated fairvalue based on a discounted cash flow approach or, when available andappropriate, comparable market values. The Company determined there were no indicators of impairment oflong-lived assets as of December 31, 2004 or September 30, 2005.

 

The Company has evaluated theremaining useful lives of its finite-lived purchased intangible assets todetermine if any adjustments to the useful lives were necessary or if any ofthese assets had indefinite lives and were therefore not subject toamortization.  The Company determinedthat no adjustments to the useful lives of its finite-lived purchasedintangible assets were necessary.  Thefinite-lived purchased intangible assets consist of membership customer lists,resort and golf course agreements, non-compete and deferred consulting agreementsand deferred financing costs which have weighted average useful lives ofapproximately 6 years, 23 years, 15 years and 7 years, respectively.

 

*IndefiniteLived Intangible Assets*

 

The Company evaluatesindefinite lived intangible assets for impairment at least annually or whenevents indicate that an impairment exists in accordance with SFAS No. 142.  The impairment test for goodwill and otherindefinite-lived intangible assets is calculated annually using fair valuemeasurement techniques.

 

Determining the fair value of areporting unit and the fair value of individual assets and liabilities of areporting unit is judgmental in nature and often involves the use ofsignificant estimates and assumptions. These estimates and assumptions could have a significant impact onwhether or not an impairment charge is recognized and also the extent of suchcharge.  The Company’s estimates of fairvalue utilized in goodwill and other indefinite-lived intangible asset tests maybe based upon a number of factors, including assumptions about the projectedfuture cash flows, discount rate, growth rate, determination of marketcomparables, technological change, economic conditions or changes to theCompany’s business operations.  Suchchanges may result in impairment charges recorded in future periods.

 

The fair value of the Company’sreporting units is annually determined using a combination of the incomeapproach and the market approach.  Underthe income approach, the fair value of a reporting unit is calculated based onthe present value of estimated future cash flows.  Future cash flows are estimated by theCompany under the market approach, fair value is estimated based on marketmultiples of revenue or earnings for comparable companies.

 

Based on the results of the annualimpairment tests, the Company determined that no impairment of goodwill existedas of December 31, 2004.  However, futuregoodwill impairment tests could result in a charge to earnings.  The Company will continue to evaluategoodwill on an annual basis and whenever events and changes in circumstancesindicate that there may be a potential impairment.

 

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**ITEM 3:  QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Weare exposed to market risks relating to fluctuations in interest rates.  Our objective of financial risk management isto minimize the negative impact of interest rate fluctuations on our earningsand cash flows.  Interest rate risk ismanaged through the use of a combination of fixed and variable interest debt aswell as the periodic use of interest rate collar contracts.

 

Thefollowing information discusses the sensitivity to our earnings.  The range of changes chosen for this analysisreflects our view of changes which are reasonably possible over a one-yearperiod.  These forward-lookingdisclosures are selective in nature and only address the potential impacts fromfinancial instruments.  They do not includeother potential effects which could impact our business as a result of theseinterest rate fluctuations.

 

*Interest Rate Sensitivity Analysis*

 

AtSeptember 30, 2005, we had debt totaling $404.8 million, comprised of $111.5million of variable rate debt and $293.3 million of fixed rate debt.  Holding other variables constant (such asdebt levels), the earnings and cash flow impact of a one-percentage pointincrease/ decrease in interest rates would have an unfavorable/ favorableimpact of approximately $1.1 million.

 

*Credit Risk*

 

Weare exposed to credit risk on accounts receivable.  We provide credit to customers in theordinary course of business and perform ongoing credit evaluations.  Concentrations of credit risk with respect totrade receivables are limited due to the number of customers comprising ourcustomer base.  We currently believe ourallowance for doubtful accounts is sufficient to cover customer credit risks.

 

**ITEM 4: CONTROL AND PROCEDURES**

 

Within 90 days prior to thefiling of this Quarterly Report on Form 10-Q, the Company carried out anevaluation, under the supervision and with the participation of the Company’smanagement, including the President and Chief Executive Officer and the SeniorVice President and Chief Financial Officer, of the effectiveness of the designand operation of the Company’s disclosure controls and procedures pursuant toRegulation 13a-14 under the Securities Exchange Act of 1934.  Based upon that evaluation, the President andChief Executive Officer along with the Senior Vice President and Chief FinancialOfficer concluded that the disclosure controls and procedures are effective intimely alerting them to material information relating to the Company (includingits consolidated subsidiaries) required to be included in the periodic SECfilings.  There have been no significantchanges in the Company’s internal controls or in other factors that couldsignificantly affect these controls subsequent to the date the Company carriedout its evaluation.

 

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**PARTII:  OTHER INFORMATION**

 

None

 

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**SIGNATURES:**

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the Registrants have duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 

 
| ** **              | ** ** | **AFFINITY  GROUP HOLDING, INC.** |
|-------------------------|------------|-----------------------------------|
|                    |       |                              |
|                    |       |                              |
|                    |       | /s/ Thomas  F. Wolfe              |   |
| Date:  November 2, 2005 |       | Thomas F.  Wolfe                  |
|                    |       | Senior Vice  President and        |
|                    |       | Chief  Financial Officer          |

 

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