** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-K**

**(MarkOne)**

 
| **ý** | ** ** | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                                                                                                               |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                               |
| ** ** | ** ** | **For the  fiscal year ended December 31, 2005**                                                                                                                                                                                              |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                         |
| **OR**     |
| ** ** |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                            |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                         |
| ** ** | ** ** | **For the  transition period  from                to                  ** |

 

**CommissionFile Number     333-113982**

 

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**AFFINITY GROUP, INC.**

(Exact name ofregistrant as specified in its charter)

 
| **Delaware**                                     | ** ** | **13-3377709**                                              |
|--------------------------------------------------|------------|-------------------------------------------------------------|
| (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 REGISTEREDPURSUANT TO SECTION 12 (b) OF THE ACT:  **NONE**

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

**9% SeniorSubordinated Notes Due 2012**

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.

YES  o  NO ý

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.

YES  o   NO ý

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

YES  ý  NO o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K(§229.405 of this chapter) is not contained herein, and will not be contained,to the best of registrant's knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K.

o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of "accelerated filer and largeaccelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Accelerated filer o   Large accelerated filer o   Non-accelerated filer ý

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

YES  o   NO ý

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

 
| **Class**                      | ** ** | **Outstanding as of  March 3, 2006** | ** ** |
|--------------------------------|------------|-------------------------------------------|------------|
| Common stock,  $.001 par value |       | 2,000                                     |       |

 

 

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**PART I**

 

**ITEM 1: BUSINESS**

 

**General**

 

Except where the context indicates otherwise, the term “Company,”or “AGI” means Affinity Group, Inc. and its predecessors and subsidiaries.

 

We are a wholly-ownedsubsidiary of Affinity Group Holding, Inc., a privately-ownedcorporation.  We are a member-baseddirect marketing organization targeting North American recreational vehicle (“RV”)owners and outdoor enthusiasts.  Our clubmembers form a receptive audience to which we sell products, services,merchandise and publications targeted to their specific recreational interests.  In addition, we are a specialty retailer ofRV-related products.  We operate through threeprincipal lines of business, consisting of (i) club memberships andrelated products and services, (ii) subscription magazines and otherpublications including directories, and (iii) specialty merchandise sold primarilythrough our 44 Camping World retail stores, mail order catalogs and theInternet.

 

There are approximately 1.8 million dues paying membersenrolled in our clubs.  We currently haveapproximately 5.7 million in aggregate circulation and 1.0 million paidcirculation across our 37 publications. For the year ended December 31, 2005, our revenue, operating incomeand net income were $485.6 million, $42.7 million and $10.7 million,respectively.

 

**Competitive Strengths**

 

Webelieve that our key competitive strengths are as follows:

 

*Stable, Recurring Cash FlowStream -* Approximately 85% of our operating income, net ofnon-cash charges, is generated through our membership club, subscription-basedproducts and services and publications businesses, which historically haveprovided a recurring income stream through a core base of customers. Our fourmembership clubs have a historical average renewal rate of 66%, which webelieve compares favorably to other subscription-based businesses. Similarly,our subscription-based products and services have historically also experiencedhigh renewal rates, averaging over 85% over the past four years for our largestproduct and service offerings, Emergency Road Service (“ERS”), RV vehicleinsurance and extended warranty.

 

*Established Market Positions*- We are a member-based direct marketing organization targeting North AmericanRV owners and outdoor enthusiasts with comprehensive targeted productofferings. The Good Sam Club, which was founded in 1966, and the President’sClub are both long-established RV membership clubs in North America.  Camping World is a long-established nationalspecialty retailer of merchandise accessories and services for RV owners andcamping enthusiasts.

 

We believe oursignificant size relative to our competition is a meaningful advantage thatprovides us greater leverage to negotiate benefits and discounts withthird-party service providers for our members and consequently enhances thevalue of our product and service offerings.  Additionally, these negotiating and pricingadvantages allow us to increase membership dues without risking the loss ofmembers, who are compensated by additional savings.  These advantages compound as new customers aredrawn to the higher savings earned by our club members.  Our 1.8 million club members and the 7.6million consumers in our proprietary database serve as a unique, captiveaudience for direct marketing, which significantly lowers customer acquisitioncosts relative to our competitors and facilitates cost-effective cross-selling.

 

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*Largely Recession Resistant -*We believe the characteristics of our business mitigate the effects of economicdownturns on our operating performance.  Whilethe sale of new RVs is generally influenced by economic conditions, ourfinancial performance has historically shown little correlation to changes inthe Gross Domestic Product, gas prices or even new RV shipments.  We believe this is partially due to the smallcost of our products and services relative to the cost of purchasing an RV andthe fact that our clubs provide average annual savings in excess of the annualdues.  We market our clubs, products andservices to a sizable existing installed base of 7.9 million RV owners, whichaffords us the ability to continue to attract new customers irrespective of newRV sales.  We believe RV owners may bemore likely to take vacations utilizing RVs during an economic downturn,because they are generally less expensive than vacations necessitating plane ortrain travel and hotel accommodations, which would drive increased sales of ourproducts.

 

*Favorable Demographic Trends*- Favorable demographic trends, in particular the aging of the “baby boomers,”indicate that RV ownership should increase during the next five years.  Overall RV ownership rates have historicallybeen highest, with 10% penetration, in the 55-64 age bracket, an age group thatis expected to grow 20.1% by 2010, according to the National Survey of the RVConsumer by the University of Michigan in 2005 (the “RV Survey”).  Furthermore, the 45-54 age bracket, whichmaintains the second highest ownership rate of RVs, is expected to grow 6.3% by2010.  The growth in these age groups isexpected to generate dramatic growth in the pool of potential RV consumers.  Also, according to the RV Survey, this agegroup shift will drive the number of households that own at least one RV from 7.9million in 2005 to 8.5 million in 2010. In addition, RV owners have householdincomes that generally exceed the national average.  These demographics are attractive foradvertisers and third-party providers of products and services.

 

*Experienced and IncentivizedManagement Team -* Our executive management team has extensivepublishing, direct marketing and retail experience with significant expertisein the RV industry. With an average of 14 years with us, the team has developedsubstantial experience in increasing our target customer base, using strategicalliances to bolster product offerings that create value for our customers andincreasing cross-selling opportunities for our high margin product offerings.Our consistent operating performance, to a great extent, is attributable to oursenior managers who are responsible for developing and implementing ourbusiness strategy and focusing on increasing profitability. Our executivemanagement team is compensated both through an annual salary and through amanagement incentive program that is directly tied to our financialperformance.

 

**Our Strategy**

 

Ourprimary business strategy is to maximize the sale of club memberships,products, services, publications and merchandise to our target customer base ofRV owners and outdoor enthusiasts. To this end, we focus on cross-selling ourvarious offerings to each of our customers while managing customer acquisitioncosts and maintaining high renewal rates by providing high value productofferings.

 

*MaximizeCustomer Retention with Value-Added Product Offerings -*A key aspect of our strategy is to developstrong membership loyalty by providing an attractive value proposition for clubmembers and offering add-on products specifically targeted to meet their needsas reflected by our strong customer renewal rates. Each of our four membershipclubs provides our customers with tangible savings over and above themembership fee.  On average, club membersrealize savings five times greater than the cost of their annual membershipdues as the result of being able to purchase products and services at discountsmade available through our clubs.  Webelieve that the participation levels and renewal rates of club members reflectthe benefits derived from their membership.  As such, in order to maximize customer renewalrates, we constantly evaluate member satisfaction and actively respond tochanging member preferences through the enhancement or introduction of newmembership benefits including products and services.

 

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*EfficientlyAcquire New Customers -*Webelieve efficient customer acquisition and a sizeable database population arecritical to driving our growth and profitability.  Camping World and its discount buyer’s club,President’s Club, together, account for approximately 40% of our new customerdatabase entries.  In addition to being ahighly valuable customer loyalty program, President’s Club allows us to capturespecific information about each customer including RV type and usage, as wellas information on the customer’s age, income, net worth and interests, whileadding virtually no incremental customer acquisition costs.  We are able to customize our direct marketingoffers based upon our customers’ profiles.  Other methods of customer acquisition includepurchasing lists from data providers and placing our publications atcampgrounds and dealerships. We then manage our database and target our offersto the customers most likely to purchase more than one of our productofferings.

 

*Cross-SellProducts and Services to Existing Customers -*We proactively cross-sell our products andservices across our customer base. For example, we use our existing customerdatabase to cost-efficiently market Camping World products through catalogs.  Conversely, Camping World supercenters providedirect customer referrals to our membership clubs, products and servicesthrough their in-store kiosks.  Inaddition, we use our publications to communicate with our core customer baseand to promote our other business segments to existing club members.  Our magazines contain relevant content as wellas various forms of advertisements for our membership clubs, products andservices.

 

*ExpandNiche Recreational Publications -*We believe aggregate circulation of our magazines is an importantfactor in determining the amount of revenue we can obtain from advertisers.  Consequently, we seek to expand our presenceas a publisher in select recreational niches through the introduction of newmagazine titles and the acquisition of other publications or businesses in ourmarkets or in complementary recreational market niches.  Publications in complementary niches may alsoprovide the opportunity to launch new membership clubs, to market our productsand services to new customers and to develop other products and services, whichmeet the special needs of these customers.  For example, our acquisition of the publishingassets of Nordskog Publications, Inc. in May 2005 allowed us toexpand our presence in the recreational boat market niche.  In addition, we acquired 18 consumer outdoorrecreation shows over the past two years which provide an expanded face-to-faceforum for acquiring new customers.

 

*IncreaseCamping World Penetration -*We intend to continue the controlled expansion of our Camping Worldsupercenter network by developing Camping World stores alongside or withinindependent RV dealerships, including RV dealerships owned and operated by ouraffiliates, which provides a competitive advantage by creating a means ofincreasing retail customer traffic.  In2005 we opened five new Camping World stores, and in 2006 we intend to open sevennew Camping World stores as a part of our dealer alliance program.  In addition to generating increased cash flowsfrom the sale of merchandise, a larger network of geographically diverseCamping World stores will enhance our ability to market our portfolio ofmembership clubs, publications and product and service offerings to a significantlylarger customer base.

 

**RV Industry**

 

The use of RVs and thedemand for club memberships and related products and services may be influencedby a number of factors including general economic conditions, the availabilityand price of propane and gasoline, and the total number of RVs.  We believe that both the installed base ofRVs and the type of RV owned (full service vehicles excluding van conversions)are the most important factors affecting the demand for our membership clubs,merchandise, products and services. Based on the RV Survey, the number of households owning RVs is projectedto increase from 7.9 million in 2005 to nearly 8.5 million in 2010.  The RV Survey also indicates that thepercentage of households owning RVs during this period will rise slightly from 8.0%to 8.2%.

 

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According to the RV Survey,the average RV owner is 49 years old.  RVownership also increases with age reaching its highest percentage level amongthose 55 to 64 years old.  Households inthis age group are projected to increase from 18.2 million in 2005 to 21.6million in 2010.  RV ownership also isconcentrated in the western United States, an area in which the populationgrowth rate continues to be greater than the national average.  The RV Survey also indicates that RVownership is associated with higher than average annual household income, whichamong RV owners was approximately $68,000 per annum as compared to the nationalaverage of $43,000 per annum.

 

The average age andannual household income of our club members in 2001 were 57 years and $57,000,respectively, based on member survey data compiled by us.  We believe that the demographic trend towardsan aging population will have a favorable impact on RV ownership.  The demographic profile of our typical clubmember follows that of the general population and thus we believe this willalso have a favorable impact on demand for our club memberships and relatedproducts and services.

 

**Membership Clubs**

 

We operate the Good Sam Club, President’s Club, and Coast toCoast Club for RV owners, campers and outdoor vacationers, and the Golf CardClub for golf enthusiasts.  Themembership clubs form a receptive audience to which we market our products andservices.

 

The following table sets forth the number of members at December 31,2005, annual membership dues and average annual renewal rates during the periodof 2001 to 2005 for each club:

 
| **Membership  Club**   | ** ** | **Number of Members  atDecember 31, 2005 (1)** | ** ** | **Annual Fee (2)** | ** ** | **Average Renewal  Rate (3)** | ** ** |
|------------------------|------------|-----------------------------------------------------|------------|--------------------|------------|-------------------------------|------------|
| ** **             | ** ** | ** **                                          | ** ** | ** **         | ** ** | ** **                    | ** ** |
| Good  Sam Club         | ** ** | 984,100                                             |       | $12 - $25          |       | 66                            | %          |
| President’s  Club |       | 643,100                                             |       | $15 - $20          |       | 66                            | %          |
| Coast  to Coast Club   |       | 85,200                                              |       | $90 - $140         |       | 70                            | %          |
| Golf  Card Club        |       | 57,800                                              |       | $49 - $65          |       | 57                            | %          |

 

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(1)  Also includesmulti-year and lifetime members.

(2)  For a singlemember, subject to special discounts and promotions.

(3)  Excludesmembers having lifetime memberships.

 

Inaddition to regular annual memberships, we also sell multi-yearmemberships.  We believe that multi-yearmemberships provide several advantages, including the up-front receipt of duesin cash, reduced membership costs and a strengthened member commitment.

 

*Good Sam Club*

 

The Good Sam Club,founded in 1966, is a membership organization for RV owners.  The Good Sam Club is the largest RV organizationworldwide with approximately 984,100 member families.  As of December 31, 2005, there were1,800 local chapters throughout the United States and Canada.  The average renewal rate for Good Sam Clubmembers was approximately 66% during the period 2001 through 2005.

 

The Good Sam Club is widely recognized as an essential partof the RV ownership experience.  Bydelivering value to members through information, support and benefits,including 10% discounts at

 

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1,580 RV parks across the U.S. and Canada, members savemoney, come together to share experiences and more thoroughly enjoy RVing.  Other benefits include discounts on thepurchase of RV supplies and accessories at select RV service centers; an annualsubscription to *Highways*, the club’s regular newsmagazine; discounts on our other publications; trip routing andmail-forwarding; and access to products and services developed for clubmembers.  Based on typical usagepatterns, we estimate that Good Sam Club members realize estimated annualsavings from discounts of approximately $91.

 

The Good Sam Club establishes quality standards for RV parksand campgrounds participating in its discount program.  Campgrounds and parks participating in theGood Sam Club program benefit from increased occupancy and sales ofcamping-related products.  We believethat we have established considerable penetration of those for-profit RV parksand campgrounds that meet our quality standards for participation in thediscount program.  We monitor ouraffiliated campgrounds and remove substandard facilities from our program toensure that our brand image and reputation are not diluted.

 

In 1992, the Good Sam Club began selling lifetimememberships.  In 2005, the average pricefor a life membership was $245 with 136,100 members registered as of December 31,2005.  Based on an actuarial analysis ofthe life members, we expect the average length of a lifetime membership to be18 years.

 

The following table lists the number of club members and RVparks and campgrounds from 2001 through 2005 at which discounts for memberswere available at December 31st of the respective year:

 
| ** **                                                       | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Number  of Good Sam memberships                                  |       | 984,100  |       | 971,000  |       | 958,000  |       | 960,600  |       | 946,800  |       |
| Lifetime  members included above                                 |       | 136,100  |       | 131,900  |       | 127,700  |       | 121,400  |       | 119,000  |       |
| Number  of RV campgrounds offering discounts to Good Sam members |       | 1,580    |       | 1,750    |       | 1,750    |       | 1,650    |       | 1,650    |       |

 

*President’s Club*

 

The President’s Club program, which was established in 1986,is the discount buyer’s club for Camping World and the second largest RV clubworldwide (behind only our Good Sam Club). As of December 31, 2005, the President’s Club had 643,100members.  The primary benefit offered tomembers of the President’s Club is a 10% discount on all retail merchandise atCamping World stores.  The President’sClub offers us an extremely cost effective and powerful method of acquiringcustomers who are likely to be receptive to our product and serviceofferings.  We use the significant amountof information gathered when a customer signs up for membership in thePresident’s Club to tailor product offers to his or her likely needs andinterests.  Additionally, we believe thatthe President’s Club, much like a traditional customer loyalty program, servesto bolster sales at our Camping World supercenters.

 

In addition to the 10% discount at Camping World stores,President’s Club members also receive *RV View*, theclub magazine, as well as special mailings, including newsletters and flyersoffering selected products and services at special prices.  Typically, we use the President’s Club brandin the marketing of our products and services to these customers.

 

President’s Club memberships may initially be obtained forone, two or three years at a cost of $20, $35 or $50, respectively.  We estimate that the average President’s Clubmember realizes annual savings of approximately $43.  The average renewal rate for members of thePresident’s Club was 66% during the period from 2001 to 2005.

 

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The following table sets forth the number of President’s Clubmembers and number of retail stores at year-end for 2001 through 2005:

 
| ** **                                              | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|---------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Camping  World’s President’s Club memberships |       | 643,100  |       | 596,700  |       | 598,200  |       | 626,000  |       | 596,500  |       |
| Number  of stores                                       |       | 44       |       | 39       |       | 33       |       | 30       |       | 30       |       |

 

*Coast to Coast Club*

 

The Coast to Coast Cluboperates a long-established reciprocal use network of private RV resorts inNorth America.  We offer a series ofmembership benefits depending upon pricing and program type under the Coast toCoast Club name.  Members of the Coast toCoast Club belong to a private RV resort owned and operated by partiesunrelated to us.  Our club members mayuse the other resorts in the Coast to Coast Club network on a reservation orspace available basis and obtain discounts from other non-private campgrounds.  At December 31, 2005, there were approximately85,200 member families in the Coast to Coast Club which had nationwide accessto approximately 301 private RV resorts and a network of approximately 225public affiliated campgrounds that participated in the Coast to Coast Club reciprocaluse programs.  These private resorts aredesigned primarily for RV owners, but typically provide camping or lodgingfacilities, comprised of RVs, cabins, park models, and condominiums.  For an initial membership fee plus annualmaintenance fees, both paid by the customer to the resort, the private resortsprovide an RV site with water, sewer and electrical hook-ups and recreationalamenities, such as swimming, tennis or fishing, or proximity to theme parks orother recreational activities.  We haveestablished quality criteria for resorts to join and remain in the Coast toCoast Club networks.

 

For standardannual renewal dues from $89.95 for a single year membership to $179.95 for amultiple-year membership, Coast to Coast Club members receive the followingbenefits: discounts for overnight stays at participating resorts andcampgrounds; an annual subscription to *Coast to Coast Magazine;*the*Coast to Coast Directory*providing information on theparticipating resorts; discounts on our other publications; access to discount hotelsand travel services; and access to ancillary products and services developedfor our club members.

 

We believe that resortsparticipating in the Coast to Coast Club networks view access to reciprocatingmember resorts as an incentive for their customers to join their resort.  Because a majority of Coast to Coast Club membersown RVs, access to participating resorts throughout North America can be animportant complement to local resort membership.  Based on typical use patterns, we estimatethat Coast to Coast Club members realize estimated annual savings from thesediscounts of approximately $131.  Theaverage annual renewal rate for members of the Coast to Coast Club after theinitial one-year membership (which is generally paid by the member resort notthe club member) was approximately 70% during the period 2001 through 2005.

 

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The following table setsforth the number of members in the Coast to Coast Club, resorts participatingin the reciprocal use program, and the number of public resorts extendingdiscounts to Coast to Coast Club members for 2001 through 2005:

 
| ** **                                 | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Number  of Coast to Coast Club memberships |       | 85,200   |       | 98,700   |       | 117,300  |       | 139,800  |       | 157,200  |       |
| Participating  private resorts             |       | 301      |       | 309      |       | 329      |       | 383      |       | 360      |       |
| Participating  public resorts              |       | 225      |       | 176      |       | 220      |       | 572      |       | 624      |       |

 

The reduction in the number of participating public resortsin the Coast to Coast Club reciprocal use program prior to 2005 resultedprimarily from the operational changes in the system which were implemented by theCoast to Coast Club during 2003 to improve the quality of the system for Coastto Coast Club members.  By raising theoverall quality of the parks in our system, we have been able to attract morequality public resorts to our network in 2005.

 

##### *Golf Card Club*

 

The Golf Card Club,founded in 1974, had approximately 57,800 members at December 31, 2005.  The major attraction for membership is thefinancial savings which members receive when playing at any of the 3,600participating golf courses located throughout the US and Canada. The annualmembership fee varies with the length and type (single or double) ofmembership.  We believe that theparticipating golf courses providing playing privileges to club membersrepresent the largest number of golf courses participating in a discountprogram in North America.  None of theparticipating golf courses are owned or operated by us.

 

Golf Card Club members receivea variety of benefits, including:  a minimumof two rounds annually of free or discounted golf at participating golf courses;discounted vacation packages at 175 “Stay and Play” resorts; discounts on golf practiceat 63 driving ranges; savings on golf merchandise purchases at select membergolf courses; car rental discounts from National and Alamo; an annualsubscription to the *Golf Traveler* memberpublication, published three times per year in print and twelve timeselectronically; the annual directory listing participating golf courses andresorts; chances to win free golf merchandise in quarterly member giveaways; accessto 110 local Grasshopper Clubs for tournaments and social activities; anopportunity to play in member-guest tournaments; an opportunity to test (andkeep) select golf products; a chance to win a free golf lesson from aparticipating Golf Card pro; and access to the club web site (www.golfcard.com)including member-only features such as handicap tracking, course reviews, andtrip routing.

 

Municipal, daily-fee, semi-private, and resortgolf courses participate in the Golf Card program.  The program is attractive to participatingcourses because it builds traffic and helps fill empty tee times duringoff-peak hours.  In addition, participatingcourses receive promotion of their golf course in the *GolfTraveler* member publication, the Annual Directory, and the clubwebsite.  Members also purchase othermerchandise or services when exercising their playing privileges.  In this manner, Golf Card members tend toprovide incremental revenue to the golf courses.  Based on surveys conducted by us, membersrealize savings on green fees, ranging from $150 to $250 annually, whichsignificantly exceed the cost of membership.

 

The standard annualmembership fee is $59 for a single membership and $99 for a twosomemembership.  Multi-year memberships rangefrom a single two-year membership for $118, to a three-year twosome membership for$267.  The average renewal rate for GolfCard Club members was approximately 57% for the period from 2001 to 2005.

 

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The following table setsforth the number of Golf Card Club members, participating golf courses and “Stayand Play” resorts at December 31st of each respective year:

 
| ** **                                        | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Number  of Golf Card Club memberships (1)         |       | 57,800   |       | 67,200   |       | 77,400   |       | 79,400   |       | 82,300   |       |
| Number  of Participating Golf Courses             |       | 3,600    |       | 3,650    |       | 3,800    |       | 3,800    |       | 3,300    |       |
| Number  of “Stay and Play” Golf Resorts |       | 175      |       | 200      |       | 220      |       | 225      |       | 241      |       |

 

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(1)  A singlemembership counts as one member and a double membership as two members.

 

**Membership Products and Services**

 

Our approximately 1.8 million club members form a receptiveaudience to which we sell products and services targeted to the recreationalinterests of our club members.  Wepromote products and services which either address special needs arising in theactivities of our club members or appeal generally to persons with thedemographic characteristics of our club members.  The two most established products are the emergencyroad service (“ERS”) and the vehicle insurance programs.  Most of our products and services areprovided by third parties who pay us a marketing fee, with the exception of ERSwhere we assume the risk of incurred claims. We believe it is important to target the diversified market niches withidentifiable products that offer a full range of benefits.  We currently market these products throughdirect mail, advertising in publications, campground directories, space ads,Internet, telemarketing and direct sales.

 

*Emergency Road Service*

 

We promote various ERS products to our existing membershipclubs, as well as to non-club members. The ERS programs provide towing and roadside assistance for subscriberswith annual dues ranging from $79.95 to $99.95. We developed ERS initially for Good Sam members in 1984, and 31% of theGood Sam Club membership is currently enrolled in the Good Sam ERS program.

 

The table below sets forth the total enrollment in thevarious ERS programs for 2001 through 2005:

 
| ** **      | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|-----------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| ERS  Enrollment |       | 369,900  |       | 360,900  |       | 354,400  |       | 348,400  |       | 345,100  |       |

 

For the eighth year in a row, enrollment in the various ERSprograms has grown through promotional and marketing efforts which haveattracted new members and improved renewal rates.  Combined enrollment in the programs hasincreased by 24,800 members or approximately 7.2% since 2001.

 

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*Vehicle Insurance Programs*

 

We offer two vehicle insurance programs that offercost-effective collision and liability insurance suitable to the demographiccharacteristics and vehicle usage patterns of our various club members.  Both the Vehicle Insurance Program (“VIP”) andthe Motor Vehicle Program (“MVP”) are marketed to various segments of thecustomer database.  For 2005, the twoprograms had approximately 205,800 policyholders, which represented a 13.7%, 6.4%,and 2.8% penetration, respectively, of the Good Sam Club, the President’s Cluband the Coast to Coast Club.  During theperiod 2001 to 2005, the average renewal rate of members participating in theseinsurance programs was 91%.  Ourmarketing fee revenue is based on the amount of written premiums and theinsurance provider assumes all claim risks.

 

The following sets forth the total number of policies inforce, the dollar amount of written premiums paid to insurance providers, andthe marketing fees generated for 2001 through 2005:

 
| ** **                                               | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|----------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Total  policies in force                                 |       | 205,800  |       | 208,000  |       | 213,400  |       | 230,600  |       | 234,600  |       |
| Written  premiums paid to insurance providers (millions) |       | $        | 251        |     | $          | 253      |       | $        | 254        |     | $          | 249 |   | $ | 240 |   |
| Marketing  fees (millions)                               |       | $        | 20         |     | $          | 20       |       | $        | 20         |     | $          | 19 |   | $ | 18 |   |

 

*OtherProducts and Services*

 

Other products andservices marketed to club members include extended vehicle warranties, vehiclefinancing, credit cards, supplemental health and life insurance, and financialservices.  Most of these services areprovided to club members by third parties who pay us a marketing fee.

 

In 1996, welaunched the Continued Service Plan, a private label extended vehicle warrantyprogram for RVs.  Total net revenue for2005 increased 29% over 2004, to a total of $20.5 million.  The program had 34,105 policies in force asof December 31, 2005.  Sales of newpolicies were derived from direct mail marketing, print ads in our magazines,Internet and e-mail solicitations, and retail kiosks in Camping Worldstores.  Policy renewals represented 42%of the total sales in 2005.

 

The RV financing programis administered by GEMB Lending Inc., a subsidiary of GE Money Bank.  The number of GEMB RV loans to our clubmembers decreased by 64% from 2004 to 2005. The decrease in loans can be directly attributed to the current risinginterest rate environment and the fact that most RV loans outstanding havealready been refinanced at the current lower rate.

 

In addition, we evaluateother products and services that club members may find attractive.  When introducing new products and services, weconcentrate on products and services provided by third parties, which we canmarket without significant capital investment by us, and for which we receive amarketing fee from the service provider based on sales volume.  We seek to utilize the purchasing power of ourclub members to obtain products and services at attractive prices.

 

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**Publications**

 

We produce and distributea variety of publications for select markets in the recreation and leisureindustry, including general circulation periodicals, club magazines, directories,and RV and powersports industry trade magazines.  Revenues are recognized from the sale ofadvertising, subscriptions and direct sales of some of the publications.  We believe that the focused audience of eachpublication is an important factor in attracting advertisers.

 

The following chart sets forth the circulation and frequencyof our publications:

 
| **Publication**                                                | ** ** | **2005  Circulation** | ** ** | **Issues Published  Annually** | ** ** |
|----------------------------------------------------------------|------------|-----------------------|------------|--------------------------------|------------|
| **PAID CIRCULATION MAGAZINES (1)**                             | ** ** | ** **            | ** ** | ** **                     | ** ** |
| American  Rider                                                |       | 60,111                |       | 6                              |       |
| ATV  Sport                                                     |       | 48,557                |       | 10                             |       |
| Bass &  Walleye Boats                                 |       | 65,351                |       | 9                              |       |
| Camping  Life                                                  |       | 84,617                |       | 7                              |       |
| MotorHome                                                      |       | 143,198               |       | 12                             |       |
| Powerboat                                                      |       | 25,299                |       | 11                             |       |
| Rider                                                          |       | 125,458               |       | 12                             |       |
| SnowGoer                                                       |       | 64,810                |       | 7                              |       |
| Snow  Week                                                     |       | 19,582                |       | 14                             |       |
| Trailer  Boats                                                 |       | 100,037               |       | 11                             |       |
| Trailer  Life                                                  |       | 271,059               |       | 12                             |       |
| **CONTROLLED CIRCULATION-Business  (2)**                       | ** ** | ** **            | ** ** | ** **                     | ** ** |
| Boating  Industry                                              |       | 23,520                |       | 10                             |       |
| Campground  Management                                         |       | 14,317                |       | 12                             |       |
| PowerSports  Business                                          |       | 11,046                |       | 16                             |       |
| PowerSports  Business Directory/Market Data Book               |       | 13,358                |       | 1                              |       |
| RV  Business                                                   |       | 18,008                |       | 12                             |       |
| **CONTROLLED CIRCULATION-Consumer  (3)**                       | ** ** | ** **            | ** ** | ** **                     | ** ** |
| ATV  Magazine                                                  |       | 237,616               |       | 6                              |       |
| Cruising  Rider                                                |       | 76,992                |       | 6                              |       |
| Snowmobile                                                     |       | 475,490               |       | 1                              |       |
| Watercraft  World                                              |       | 74,259                |       | 6                              |       |
| **FREE DISTRIBUTION (4)**                                      | ** ** | ** **            | ** ** | ** **                     | ** ** |
| Thunder  Press- North                                          |       | 33,512                |       | 12                             |       |
| Thunder  Press- East                                           |       | 27,445                |       | 12                             |       |
| Thunder  Press- West                                           |       | 51,481                |       | 12                             |       |
| Woodall’s  Specials                                       |       | 45,000                |       | 1                              |       |
| Woodall’s  Regional News Tabloids                         |       | 92,703                |       | 12                             |       |
| **ANNUALS (1)**                                                | ** ** | ** **            | ** ** | ** **                     | ** ** |
| Trailer  Life Campground/RV Park & Services Directory |       | 256,410               |       | 1                              |       |
| Trailer  Life’s RV Buyers Guide                           |       | 107,045               |       | 1                              |       |
| Towing  Guide                                                  |       | 668,400               |       | 1                              |       |
| Ultimate  Snowmobile Buyers Guide                              |       | 153,912               |       | 1                              |       |
| Woodall’s  Buyer’s Guide                             |       | 56,220                |       | 1                              |       |
| Woodall’s  Campground Directory                           |       | 317,278               |       | 1                              |       |
| Woodall’s  Tenting Directory                              |       | 30,496                |       | 1                              |       |
| Woodall’s  Go & Rent Rent & Go (4)      |       | 102,000               |       | 1                              |       |
| **CLUB MAGAZINES (6)**                                         | ** ** | ** **            | ** ** | ** **                     | ** ** |
| Coast  to Coast Magazine                                       |       | 114,196               |       | 8                              |       |
| Golf  Traveler (7)                                             |       | 58,329                |       | 4                              |       |
| Highways                                                       |       | 948,395               |       | 11                             |       |
| RV  View                                                       |       | 612,236               |       | 4                              |       |

 

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*(1)**        *Paidcirculation, may include supplemental qualified controlled circulation.

*(2)**        *Tradepublication distributed to industry-specific groups.

*(3)**        *Qualifiedand limited paid circulation.

*(4)**        *Includeslimited paid circulation.

*(5)**        *Distributionto RV outlets, including campgrounds and dealerships.

*(6)**        *Limitedto club members and promotional copies. The price is included in the membership fee.

*(7)**        *Onlyone magazine is issued when two members are from the same household.

 

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*PaidCirculation Magazines*

 

*American Rider*,introduced in November 1993, is targeted to owners and operators ofHarley-Davidson motorcycles.

 

*ATV Sport* wasintroduced in May 1998 and targets recreational and racing sport quadriders.

 

*Bass andWalleye Boats* is dedicated to freshwater fishing boat ownerswho demand top performance from their boats, engines and accessories.

 

*Camping Life*appeals to family-style campers and other outdoor enthusiastswith articles about destinations, products and activities to enhance theiroutdoor lifestyles.

 

*MotorHome* is amonthly periodical for owners and prospective buyers of motorhomes which hasbeen published since 1968 and features articles on subjects such as producttests, travel and tourist attractions.

 

*Powerboat* is aleading performance boating magazine which was founded in 1968 and acquired byus in 2005.  This magazine focuses onperformance boats, engines, as well as race coverage. The magazine is wellknown for its “Performance Trials,” regarded as one of the industry’s mostcomprehensive and authoritative testing programs while boasting some of themarine industry’s finest photography and writing.

 

*Rider* is amonthly magazine for motorcycle touring enthusiasts and has been publishedsince 1974.  Each issue focuses onmotorcycles, personalities, technical subjects, travel notes and other featuresof interest to this recreational affinity group.

 

*SnowGoer*is designed for highly active snowmobiling participants and provides detailedequipment and product critiques, and maintenance tips.

 

*Snow Week*is the central source of information for the competition and high-performancesnowmobiling market segment.  Thepublication provides timely, year-round articles on racing, performanceenhancing products, technical assistance, new product introductions, andgeneral industry information.

 

*Trailer Boats*magazine,the country’s only trailer boating magazine, is dedicated to the hard-coreenthusiast of trailerable boats, marine propulsion, accessory installations anduse, maintenance and repair, tow vehicles, boat trailering, seamanship, watersports and cruising.

 

*Trailer Life*,initially published in 1941, is the leading consumer magazine for the RVindustry, featuring articles on subjects including product tests, travel andtourist attractions.

 

#### *Controlled CirculationMagazines- Business*

 

*Boating Industry*isthe leading source of news and information for dealers, manufacturers,aftermarket vendors and other professionals in the marine industries throughits bi-monthly magazine and daily web site.

 

*Campground Management*is the leading trade magazine for the campground industry.

 

*PowerSports Business*isan industry trade magazine, introduced in January 1998, which combines thepreviously issued *Snowmobile Business* and *Watercraft Business* with a motorcycle and ATV businesssection.  Distribution is to dealersservicing these industries, which in numerous cases have combined operations toservice more than one of these segments.

 

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*PowerSports Directories*are supplier directories for each of the ATV, snowmobile and watercraftmarkets.  These directories featurehundreds of manufacturers and suppliers of parts, services, apparel and muchmore, complete with detailed company information.

 

*RV Business* isthe leading trade magazine covering industry news and trends for RV dealers,manufacturers, suppliers, associations and others.

 

##### *Controlled Circulation Magazines- Consumer*

 

*ATVMagazine’s* first issue was published in October 1995.  The publication is designed to reach largenumbers of active ATV owners with comprehensive product information during thepeak periods when equipment is purchased.

 

*Cruising Rider*was introduced in March 1998 and targets cruiser motorcycle owners andbuyers.

 

*Snowmobile*magazine delivers broad-based editorial and snowmobile-related information toits audience of active snowmobile enthusiasts.

 

*WatercraftWorld* is targeted to avid personal watercraft enthusiasts andprovides detailed critiques of watercraft, in-depth gear and accessoryevaluations, technical tips and racing information.

 

#### *Free DistributionPublications*

#### * *

###### *Thunder Press*newspapersare published monthly in three separate editions to reach the country’smotorcycling public and are available primarily through motorcycledealers.  This tell-it-like-it-ismagazine is designed for the ultra-active motorcycle enthusiast who feelspassionate about the lifestyle.

 

*Woodall’s Specials*are annual publications geared around specific events, such as the beginning ofthe camping season and the beginning of the snowbird season.  Its editorial content is aimed at seasonalevents and the ads are largely from regional campgrounds.

#### * *

| *Woodall’s Regional News Tabloids*  publications are designed to appeal to the prospective or first time RV  owner. Stories in these publications cover area campgrounds and RV  dealerships, as well as new vehicles on the market and new products within  the industry. The publications are primarily distributed at campgrounds and  RV parks, as well as at RV shows and state welcome centers. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

#### * *

#### *Annual Publications*

 

*Trailer Life Campground/ RV Park &Services Directory*, initially published in 1972, is anannually updated directory which provides information on and ratings forapproximately 12,000 public and private campgrounds, approximately 800 RVservice centers, and almost 800 tourist attractions in North America along withcolor maps of the areas covered.  Thepublication features Good Sam Parks that offer discounts on overnight campingfees to our club members.  This directoryis sold primarily by direct mail to Good Sam Club members, at RV dealershipsand in bookstores.  In 2000, we beganissuing a version of the directory on CD-ROM.

 

*TrailerLife’s RV Buyers Guide*, issued annually, features more than 400 listings with photos, floorplans and specifications on new RVs including travel trailers, fifth-wheeltrailers, folding camping trailers, motorhomes and pickup campers.  The publication is sold at newsstands and bymail order from magazine advertisements.

 

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The*Towing Guide*is a booklet dedicated to meeting the needs ofall camping and boating enthusiasts that are towing a trailer.  This booklet serves as a step-by-steptutorial for newcomers and a refresher course for trailer-towing veterans toensure that maximum enjoyment of their trailer by making informed decisions.

 

The*Ultimate Snowmobile Buyers Guide*is an annual publicationfocusing on new snowmobiles introduced in the current year, along withaccessories, providing competitive statistics to enable the reader to makeinformed purchases.

 

*Woodall’sBuyer’s Guide* isan annual publication distributed mainly through bookstores and newsstands,which provides photos, floor plans and specifications of the new model year RVs.  The buyer’s guide was first published in1978.

 

*Woodall’sCampground Directory,* initially published in 1948, is an annual consumer directory offeredin both national and regional editions. This directory is primarily distributed through book stores.

 

*Woodall’sTenting Directory*isan annual directory distributed primarily through newsstands, which providesinformation on both government and privately-owned campgrounds and the outdooractivities and attractions that are available near them.

 

*Woodall’sGo & Rent... Rent & Go* is an annual catalog providing information on whereto find on-site lodging and cabin rentals at RV Parks & Campgroundsand “Over-the-Road” RV Rentals, as well as fully equipped campsites throughoutthe U.S.A. and Canada.  This bookfeatures “turn-key” camping experiences for those who want to try camping, renta cabin, or rent a fully-equipped campsite.

#### * *

#### *Club or Trade Magazinesand Books*

 

Each of our membershipclubs has its own publication which provides information on club activities andevents, feature stories and other articles. We publish *Highways* for the Good Sam Club, *Coast to Coast Magazine* for the Coast to Coast Club, *The Golf Traveler* for the Golf Card Club, and*RV View* for the President’s Club.  We also periodically publish books targeted toour club membership which address the RV lifestyle.

 

#### *Consumer Shows*

 

Wecurrently operate 18 consumer outdoor recreation shows primarily focused on RVand powersports markets.  Three of theshows were acquired with the purchase of ARU, Inc. in 2004 and twelve wereacquired from Royal Productions, Inc. in December 2005.  These shows provide us with the opportunityto reach new customers and interact with them on a face-to-face basis.  Revenues are recognized from the sale ofexhibitor booth space and admission fees.

 

**Retail**

 

#### *Camping WorldSupercenters*

 

Camping World is anational specialty retailer of merchandise and services for RV owners.  With the opening of our two newest CampingWorld supercenters in the fourth quarter of 2005, we currently operate 44Camping World retail locations in 24 states. These stores accounted for approximately 74% of the 2005 total retailrevenue in merchandise revenues, while approximately 16% were derived fromcatalog and Internet sales and approximately 10% were derived fromnon-merchandise revenues such as shop fees, and supplies.

 

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In the RV accessoryindustry, we believe that Camping World has a high level of name recognition,an effective triple channel distribution strategy (store, catalog, andInternet), and a commitment to offer a broad selection of specialized RVproducts and services at competitive prices combined with technical assistanceand on-site installation.  Camping World’ssupercenters offer approximately 8,000 SKUs, most of which are not regularlyavailable in general merchandise stores. The Camping World supercenters also provide installation and repairservices for RV products, which are not available at general merchandisestores.  Products sold by Camping Worldinclude specialty-sized refrigerators, housewares and other appliances, beddingand furniture, generators and hydraulic leveling systems, awnings, foldingboats, chairs, ladders, cleaning and maintenance products, bicycles,hitch-towing, sanitation products, automotive electronics and lifestyleproducts.  Many Camping World storesfeature resource centers, staffed with licensed insurance agents who marketsuch products and services as vehicle insurance, extended warranty and ERS.  Camping World’s supercenters are designed toprovide one-stop shopping by combining broad product selection, technicalassistance and on-site installation services. We strategically locate Camping World supercenters in areas where manyRV owners live, along major Interstates, and/or in proximity to destinationsfrequented by RV users.

 

Camping World sources itsproducts from approximately 1,100 vendors. Camping World attends regional, national and international trade showsto determine the products it will offer. The purchasing activities of Camping World are focused on RV parts andaccessories, electronics, housewares, hardware, automotive, crafts, clothing,home furnishings, gifts, camping and sporting goods.  Camping World uses an automated “plan-o-gram”system to develop and maintain merchandising plans unique to each supercenterand an inventory replenishment system for its operations to improve in stockrates on key items.  Camping Worldbelieves that the volume of merchandise it purchases from domestic andinternational suppliers and its ability to buy direct from manufacturersenables them to obtain merchandise at costs which compare favorably to local RVdealers and retailers.  Camping Worlddoes not enter into material long-term contracts or commitments with theirvendors.

 

The retailsupercenters are periodically reset to enhance the customers shoppingexperience as well as to maximize merchandise category offerings.  New products and services are introduced inorder to keep pace with the advances of the RV industry and to satisfy ourcustomers’ needs.  Customers take advantageof the state-of-the art performance centers staffed with expert RV technicalconsultants and equipped with demonstrable merchandise to assist in educatingcustomers about RV performance products. The resource centers provide an opportunity to promote service offeringsin a more interactive and consultative selling environment.  They are staffed with professionals marketinginsurance products, extended warranties, roadside service, club memberships,and RV financing, which product offerings add to the depth of services that CampingWorld customers have become accustomed to receiving at our supercenters.  Finally, store dress, promotional signage anddirectional signage are periodically refreshed to further enhance our customers’shopping experience at Camping World’s supercenters.

 

Camping World’ssupercenters generally range in size from approximately 10,000 to 64,000 squarefeet.  Approximately 40% of eachsupercenter is devoted to a retail sales floor, a customer service area, and atechnical information counter; 40% is comprised of the installation facility,which contains 4 to 16 drive-through installation bays; and 20% is allocated tooffice and warehouse space.  Largeparking areas provide sufficient space and facilitate maneuvering of RVs.  By combining broad product selection,technical assistance, installation and repair services, Camping World’ssupercenters provide one-stop shopping for RV owners.  Camping World maintains toll-free telephonenumbers for customers to schedule installation and repairappointments.  All supercenters are openseven days a week.

 

Camping Worldintends to continue the controlled expansion of their supercenter store networkwhile at the same time develop dealer partnerships across North America.  We plan to establish additional Camping Worldstores alongside or within existing RV dealerships.  This marketing strategy will provide anexpanded number of customers with access to the vast array of products andservices that we offer

 

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and generatetraffic for our dealer partners by marketing locally, regionally and nationallyour extensive parts and accessories business. Currently we operate 25 Camping World stores alongside or within RVdealerships, including 17 Camping World stores that are part of our dealeralliance program.  Of the Camping Worldstores that are part of our dealer alliance program, 14 are located withindealerships indirectly owned or operated by FreedomRoads, LLC, (“FreedomRoads”).  FreedomRoads is indirectly owned andcontrolled by Stephen Adams, our Chairman.

 

#### *Mail Order Operationsand Internet*

 

Camping World initiatedits catalog operations in 1967.  CampingWorld currently has a proprietary mailing list of approximately 2.4 million RVowners, all of whom have made a purchase or requested a catalog from CampingWorld within the prior 60 months. Camping World maintains a database of these names, which includesinformation such as order frequency, size of order, date of most recent orderand type of merchandise purchased. Camping World analyzes its database to determine those customers mostlikely to order from Camping World’s catalogs. As a result, Camping World is able to target catalog mailings moreeffectively than direct marketers of catalogs offering generalmerchandise.  Camping World continuallyexpands its proprietary mailing list through in-store subscriptions andrequests for catalogs in response to advertisements in regional publicationsdirected to RV owners.  In addition,Camping World rents mailing lists of RV owners from third parties.

 

During 2005, CampingWorld distributed 7.1 million catalogs, 5.9 million of which were mailed in twelveseparate mailings, and the remaining 1.2 million catalogs were distributed insupercenters, at campgrounds and other RV locations, and as packageinserts.  During the same period, CampingWorld processed approximately 336,000 catalog orders at an average net ordersize of $113, excluding postage and handling charges.  Camping World distributed eleven high-quality,full-color catalogs during 2005, consisting of ten catalogs plus a MasterCatalog in the Spring of 2005.

 

TheInternet has proven to be a significant, low-cost source for new club members,subscriptions and other ancillary product sales.  We maintain thirty-nine Internet web sites,which are accessible through *http://www.rv.net*,and are experiencing significant growth. In 2000, our club operations commenced a low-cost marketing strategythrough e-mail membership acquisition campaigns.  Members added in 2005 under these programsrepresented approximately 20.3% of all new club members.  E-mail acquisition campaigns and Internetonline revenue totaled approximately $32.1 million in 2005, an increase of 23.6%over prior year.

 

**Marketing**

 

We market our club memberships and related products andservices through direct mail, e-mail, inserts, ride-alongs, spaceadvertisements, promotional events, point of sale, member-get-a-member campaigns,and telemarketing.  Direct responsemarketing efforts account for approximately 48% of new enrollments with theremaining 52% derived from other sources. We use a variety of commercially available mailing lists of RV owners inour direct mail efforts.  Currently, themost widely used list databases are provided by three commercial listcompilers, and direct response lists are from RV industry participants, RVconsumer surveys, and proprietary in-house lists.

 

Our publications segmentsolicits advertisements through an internal sales force and by payingcommissions to advertising agencies and independent contractors who placeadvertisements.  Many advertisers arerepeat customers with whom we have long standing relationships.

 

We market our retailproducts through mail order catalogs, direct mail retail flyers, advertisementsin national and regional industry publications, vendor co-op advertisingprograms, promotional events, the President’s Club direct mailings and personalsolicitations and referrals. Camping World’s principal marketing strategy is tocapitalize on its broad name recognition among RV owners.

 

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**Operations**

 

Our customer serviceoperations are located in Denver, Colorado and Bowling Green, Kentucky.  The primary focus of these groups is tomanage our customers’ expectations and relationship with the organization.  On average, these member service operationsprocess approximately 6,900 telephone calls daily.  Approximately fifty percent of the callsoriginate from the marketing efforts of catalog mailings, membershipacquisition, membership renewals and associated ancillary products andevents.  All such efforts use toll-freenumbers as a response mechanism.

 

Camping World’s catalog, internetand fulfillment operations are located in Franklin, Kentucky.  Fulfillment operations involve the processingof orders and checks principally received by mail.   Orders are usually processed and shippedwithin 24 hours of receipt.  Certainfulfillment operations are performed by third parties.  Our publication operations develop the layoutfor publications and outsource printing to third parties.

 

**Information Support Services**

 

We utilize integrated computer systems to support ourmembership club and publishing operations. A database containing all customer activity across our variousbusinesses and programs has been integrated into our web sites and callcenters.  Comprehensive information oneach member, including a profile of the purchasing activities of members, isavailable to customer service representatives when responding to memberrequests and when marketing our products and services.  We employ publishing software for publicationmakeup and content, and for advertising to support our publicationsoperations.  A wide-area networkfacilitates communication within and between our offices.  We also utilize information technology,including list segmentation, merge and purge programs, and advanced data baseanalysis and modeling techniques to select prospects for direct mail solicitationsand other direct marketing efforts.

 

Camping World’s management information systems and electronicdata processing systems consist of an extensive range of retail, mail order,financial and merchandising systems, including purchasing, inventorydistribution and control, sales reporting, accounts payable and merchandisemanagement.  Camping World’s managementinformation system includes point-of-sale registers that are equipped with barcode readers in each supercenter.  Theseregisters are polled nightly by a central computer.  With this point-of-sale information and theinformation from Camping World’s on-line distribution centers, Camping Worldcompiles comprehensive data, including detailed sales volume and inventoryinformation by product, merchandise transfers and receipts, special orders,supply orders and returns of product purchases to vendors.  In conjunction with its nightly polling,Camping World’s central computer sends price changes to registers at the pointof sale.  The registers capture President’sClub member numbers and associated sales and references to specific promotionalcampaigns.  Management monitors theperformance of each supercenter and mail order operation to evaluate inventorylevels, determine markdowns and analyze gross profit margins by product.

 

Camping World’s catalog operations also utilize acomputerized management system allowing on-line desktop access to informationwhich previously required manual retrieval. Screen prompts that provide product, promotional, and revenue potentialinformation have allowed Camping World to maintain high service levels duringseasonal sales peaks.

 

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**Regulation**

 

Our operations aresubject to varying degrees of federal, state and local regulation.  Specifically, our outbound telemarketing,direct mail, and ERS, as well as certain services provided by third parties,including insurance, RV financing, and extended warranty programs, arecurrently subject to certain regulation, and may be subjected to increased regulationin the future.  We do not believe thatsuch federal, state and local regulations currently have a material impact on ouroperations.  However, new regulatoryefforts impacting our operations may be proposed from time to time in thefuture at the federal, state and local level. There can be no assurance that such regulatory efforts will not have amaterial adverse effect on our ability to operate our businesses or on ourresults of operations.

 

**Competition**

 

In general, ourmembership clubs, retail and catalog operations and publications compete withnumerous organizations in the recreation industry for disposable income spenton leisure activities.  By offeringsignificant membership benefits at a reasonable cost and actively marketing toclub members, we believe that we have been able to maintain a loyal followingfor our membership organizations as evidenced by the high renewal rates of ourmembership clubs.  The products andservices marketed by us compete with similar products and services offered byother providers.  However, managementbelieves that we are able to use the large volume of purchases by our clubmembers to secure attractive pricing for the products and services marketed byus.

 

**Employees**

 

As of December 31,2005, we had 1,705 full-time and 137 part-time or seasonal employees, consistingof 8 executives, 1,174 employees in retail operations, 391 employees inadministrative and club operations, 218 employees in publishing and advertisingsales, 11 employees in resort services and 40 employees in marketing.  No employees are covered by a collective bargainingagreement.  We believe that our employeerelations are good.

 

**Trademarks and Copyrights**

 

We own a variety ofregistered trademarks and service marks for the names of our clubs, magazinesand other publications.  We also own thecopyrights to certain articles in our publications.  We believe that our trademark and copyrightshave significant value and are important to our marketing efforts.

 

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**ITEM 1A:  RISK FACTORS**

 

The risks described below are not the only risks we face.  Any of the following risks could materiallyadversely affect our business, financial condition or results of operations.Additional risks and uncertainties not currently known to us, or that wecurrently deem to be immaterial, may also materially adversely affect ourbusiness operations.

 

**Risks Relating to our Debt**

 

*Our substantial indebtedness could adversely affect our financialhealth.*

 

We have a significant amount of indebtedness.  As of December 31, 2005, our total debtand total stockholder’s deficit were $320.0 million and $66.4 million,respectively.  In the future, we intendto use cash generated by operations to reduce our indebtedness.  However, we may from time to time, subject torestrictions imposed by the terms of our indebtedness, pay dividends or find itmore advantageous to employ cash generated by operations for capitalinvestments and acquisitions.

 

Our ability to satisfy our debt service obligations depends primarily onour operating performance. Future debt repayments by us, including theprincipal amount of the notes, may require funds in excess of our availablecash flow.  We cannot assure ourinvestors that we will be able to raise additional funds, if necessary, throughfuture financings.  The indenturepursuant to which the 9% Senior Subordinated Notes due 2012 (“AGI Senior Notes”)were issued imposes several restrictions upon us, including restrictions on ourability to incur additional indebtedness and pledge assets.

 

Our substantial indebtedness could have important consequences to ourinvestors.  For example, it could: (i) increaseour vulnerability to general adverse economic and industry conditions, (ii) requireus to dedicate a substantial portion of our cash flow from operations topayments on our indebtedness, thereby reducing the availability of our cashflow to fund working capital, capital expenditures, expansion throughacquisitions and other general corporate purposes, (iii) limit ourflexibility in planning for, or reacting to, changes in our business and theindustry in which we operate, (iv) place us at a competitive disadvantagecompared to our competitors that have less debt, and (v) limit ourability, among other things, to borrow additional funds.

 

*Despite current indebtedness levels and restrictive covenants, we stillmay be able to incur substantially more debt in the future.*

 

Despite our current level of debt, we or our subsidiaries may be ableto incur substantial additional debt in the future.  Our Amended and Restated Credit Agreement (“SeniorCredit Facility”) will permit total borrowings of up to $138.7 million.  Although our Senior Credit Facility and ourAGI Senior Notes restrict us and our restricted subsidiaries from incurringadditional debt, these restrictions are subject to important exceptions andqualifications.  If we or oursubsidiaries incur additional debt, the risks that we and they now face asresult of our leverage could increase.

 

If our financial condition and operating results deteriorate, ourrelationships with our creditors, including the holders of the AGI Senior Notes,the lenders under our Senior Credit Facility and our suppliers, may beadversely affected.

 

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*Our operations are substantially restricted by the terms of the AGISenior Notes and our Senior Credit Facility which could adversely affect us andincrease our credit risk.*

 

The indenture governing the AGI Senior Notes and the credit agreementfor the Senior Credit Facility include a number of significant restrictivecovenants.  These covenants restrict,among other things, our ability to: (i) incur more debt, (ii) paydividends or make other distributions, (iii) make investments, (iv) issuestock of subsidiaries, (v) repurchase stock, (vi) create liens, (vii) enterinto transactions with affiliates, (viii) enter into sale-leasebacktransactions, (ix) merge or consolidate, and (x) transfer and sell assets.

 

These covenants could limit our ability to plan for or react to marketconditions or to meet our capital needs.  These covenants are subject to certainimportant exceptions.

 

Our Senior Credit Facility contains additional and more restrictivecovenants than the terms of the indenture governing the AGI Senior Notes,including financial covenants that requires us to achieve certain financial andoperating results and maintain compliance with specified financial ratios.  Our ability to comply with these covenants andrequirements may be affected by events beyond our control, and we may have tocurtail some of our operations and growth plans to maintain compliance.

 

If we are not able to comply with the covenants and other requirementscontained in the indenture for the AGI Senior Notes, our Senior Credit Facilityor our other debt instruments, an event of default under the relevant debtinstrument could occur.  Our ability tocomply with the provisions of the indenture, our Senior Credit Facility and theagreements or indentures governing other debt we may incur in the future couldbe affected by events beyond our control and, therefore, we might be unable tomeet those ratios and conditions. If an event of default does occur, it couldtrigger a default under our other debt instruments, we could be prohibited fromaccessing additional borrowings, and the holders of the defaulted debt coulddeclare amounts outstanding with respect to that debt to be immediately due andpayable.  We cannot assure our investorsthat our assets or cash flow would be sufficient to fully repay borrowingsunder our outstanding debt instruments or that we would be able to refinance orrestructure the payments of these debt instruments. Even if we were able tosecure additional financing, it may not be available on terms favorable to us.

 

*To service our indebtedness, we will require a significant amount ofcash, the availability of which depends on many factors beyond our control.*

 

Our ability to make payments on and to refinance our indebtedness andthe indebtedness of our subsidiaries, and to fund planned capital expenditureswill depend on our ability to generate cash in the future. To a certain extent,this is subject to general economic, financial, competitive, legislative,regulatory and other factors that are beyond our control.

 

We cannot assure our investors that our business will generatesufficient cash flow from operations or that future borrowings will beavailable to us under our Senior Credit Facility in an amount sufficient toenable us to pay our indebtedness, including the notes, as it becomes due or tofund our other liquidity needs.  If ourfuture cash flow from operations and other capital resources are insufficientto pay our obligations as they mature or to fund our liquidity needs, we may beforced to reduce or delay our business activities and capital expenditures,sell assets, sell additional shares of capital stock or restructure orrefinance all or a portion of our debt, on or before its maturity.  We cannot assure our investors that we will beable to refinance any of our indebtedness, including the Senior Credit Facilityand the AGI Senior Notes, on satisfactory terms or at all.

 

Our failure to comply with our obligations under the indenturegoverning the AGI Senior Notes or the credit agreement for the Senior CreditFacility may result in an event of default under those debt instruments.  A default, if not cured or waived, may permitacceleration of our other indebtedness.

 

19

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Wecannot be certain that we will have funds available to remedy these defaults.If our indebtedness is accelerated, we cannot be certain that we will havesufficient funds available to pay the accelerated indebtedness or that we willhave the ability to refinance the accelerated indebtedness on terms favorableto us or at all.

 

*We maynot have the ability to raise the funds necessary to repurchase the AGI SeniorNotes upon a change of control.*

 

Uponthe occurrence of certain specific kinds of change of control events, we willbe required to offer to repurchase all outstanding AGI Senior Notes at 101% ofthe principal amount thereof plus accrued and unpaid interest and liquidateddamages, if any, to the date of repurchase. However, it is possible that we willnot have sufficient funds at the time of the change of control to make anyrequired repurchases or that the AGI Senior Credit Facility will not allow suchrepurchases. Our failure to purchase tendered notes would constitute a defaultunder the indenture governing the notes. In addition, certain importantcorporate events relating to our capital structure would not constitute a “changeof control” under the indenture.

 

**RisksRelating to Our Business**

 

*Wedepend on our ability to attract and retain active members.*

 

Ourfuture success depends in large part upon continued demand for our membershipclub programs by consumers. Any number of factors could affect the frequencywith which consumers participate in our programs or whether they enroll in amembership club at all. These factors include (1) consumer taste preferences,(2) the frequency with which members participate in club activities, (3)general economic conditions, (4) weather conditions, and (5) the availabilityof alternative discount programs in the region in which consumers live and work.Any significant decline in usage or increase in program cancellations, withouta corresponding increase in new member enrollments, could have a materialadverse effect on our business.

 

Ourfuture growth depends upon continued demand for our membership clubs fromconsumers we serve or seek to serve. A significant downturn in leisure travelor in any of the other areas served by our membership clubs would have amaterial adverse effect on our business, financial condition and results ofoperations.

 

*Wedepend on our relationships with our marketing partners and a disruption ofthese relationships or of our marketing partners’ operations could have anadverse effect on our business and results of operations.*

 

Ourbusiness depends in part on developing and maintaining productive relationshipswith providers of products and services that we offer to our customers. Manyfactors outside our control may harm these relationships. For example,financial difficulties that some of our marketing partners may face mayadversely affect our marketing program with them. A disruption of ourrelationships with our marketing partners or a disruption in our marketingpartners’ operations could have a material adverse effect on our business andresults of operations.

 

*We facesignificant competition for disposable income spent on leisure merchandise andactivities.*

 

Ingeneral, our membership clubs, retail and catalog operations and publicationscompete with numerous organizations in the recreation industry for disposableincome spent on leisure merchandise and activities. The products and services wemarket compete with similar products, services, publications and retailbusinesses offered by other providers. Increased competition from

 

20

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theseand other sources could require us to respond to competitive pressures byestablishing pricing, marketing and other programs or seeking out additionalstrategic alliances or acquisitions that may be less favorable to us than wecould otherwise establish or obtain.

 

*Ourbusiness could be adversely affected by deteriorating general economicconditions.*

 

Ouractivities relate significantly to the amount of leisure time and the amount ofdisposable income available to users of our products and services. Ourbusiness, therefore, may be sensitive to general economic conditions affectingthe willingness of consumers to purchase club memberships and related productsand services and of advertisers to place advertisements in our publications. Inparticular, during the gasoline shortages and resulting price increases in1973, 1980 and 1990, there was a reduction in advertising revenues for ourpublications. In addition, the success of the membership club portion of ourbusiness depends on our members’ use of certain RV sites and/or golf courses orthe purchase of goods through participating merchants. If the economy slows,our members may perceive that they have less disposable income to permit themto pursue leisure activities. As a consequence, they may travel lessfrequently, spend less when they travel and use the benefits of their clubmemberships less often, if at all. Any decline in program usage would hurt ourbusiness. In addition, a decline in the national economy could cause some ofthe merchants who participate in our programs to go out of business. It islikely that, should the number of merchants entering bankruptcy rise, thenumber of uncollectible accounts would also rise. This would have an adverseeffect on our business and financial results.

 

*Theinterests of our principal shareholder may conflict with the interests ofholders of the debt instruments.*

 

Weare a wholly-owned subsidiary of Affinity Group Holding, Inc., which is awholly-owned subsidiary of AGI Holding Corp. (“AGHC”), a privately held company.Stephen Adams, our Chairman, owns approximately 97.4% of the outstanding sharesof AGHC. Accordingly, Mr. Adams will be able to elect our Board of Directorsand to control matters submitted to the vote of our shareholders. Circumstancesmay occur in which the interests of Mr. Adams could be in conflict with theinterests of the holders of our debt instruments and lenders. For example, Mr.Adams may have an interest in pursuing acquisitions, divestitures or othertransactions that, in his judgment, could enhance the value of his equityinvestment, even though such transactions may involve risks to the holders ofour debt instruments and lenders.

 

*We aresubject to varying degrees of federal, state and local regulations which mayaffect our operations.*

 

Ouroperations are subject to varying degrees of federal, state and localregulation. Our outbound telemarketing, direct mail, ERS program, insurance andthrift and loan activities are currently subject to regulation. Specifically, aprincipal source of leads for our direct response marketing efforts was newvehicle registrations provided by motor vehicle departments in various states. Currently,all states restrict access to motor vehicle registration information. California,the state with the largest number of members of our clubs, discontinuedproviding access to motor vehicle registration information in 1989. Directresponse marketing costs could significantly increase as a result of thislegislation.

 

Inaddition to the existing regulatory framework, new regulatory efforts affectingour operations may be proposed from time to time in the future at the federal,state and local level. There can be no assurance that such regulatory effortswill not have a material adverse effect on our ability to operate ourbusinesses or our results of operations.

 

21

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Ourdirect marketing operations are subject to various federal and state “do notcall” list requirements. The Federal Trade Commission has created a national “donot call” registry. Under these federal regulations, consumers may have theirphone numbers added to the national “do not call” registry. Generally, we areprohibited from calling anyone on that registry. In September 2003,telemarketers were granted access to the registry and are now required tocompare their call lists against the national “do not call” registry at leastonce every 90 days. We also are required to pay a fee to access the registry ona quarterly basis. Enforcement of the “do not call” provisions began in late2003, and the rule provides for fines of up to $11,000 per violation and otherpossible penalties. These rules limit our ability to market our products andservices to new customers. Furthermore, we may incur penalties if we do notconduct our marketing activities in compliance with these rules.

 

*Increasein paper costs, postage costs and shipping costs may have an adverse impact onour future financial results.*

 

Theprice of paper is a significant expense relating to our publications and directmail solicitations. Postage for publication distribution and direct mailsolicitations is also a significant expense. In addition, shipping costs are asignificant expense for our business. Paper, postage and shipping costs have increasedin the past and may be expected to increase in the future. Such increases couldhave an adverse effect on our business if we are unable to pass them on to ourcustomers.

 

*If weare unable to retain senior executives and attract and retain other qualifiedemployees, our business might be adversely affected.*

 

Oursuccess depends in part on our ability to attract, hire, train and retainqualified managerial, sales and marketing personnel. Competition for thesetypes of personnel is high. We may be unsuccessful in attracting and retainingthe personnel we require to conduct our operations successfully and, in such anevent, our business could be materially and adversely affected. Our successalso depends to a significant extent on the continued service and performanceof our senior management team. The loss of any member of our senior managementteam could impair our ability to execute our business plan and could thereforehave a material adverse effect on our business, results of operations andfinancial condition.

 

22

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**ITEM 2: PROPERTIES**

 

We lease all of the realproperties where we have operations. Our real property leases generally providefor fixed monthly rentals with annual escalation clauses. The table below setsforth certain information concerning our properties and the lease expirationdate includes all stated option periods.

 
| ** **                                                                                  | ** ** | **Square   Feet** | ** ** | **Acres**  | ** ** | **Lease   Expiration** | ** ** |
|---------------------------------------------------------------------------------------------|------------|-------------------|------------|------------|------------|------------------------|------------|
| **Corporate  Headquarters:**                                                                | ** ** | ** **        | ** ** | ** ** | ** ** | ** **             | ** ** |
| Ventura, CA                                                                                 |       | 74,100            |       |       |       | 2039                   |       |
|                                                                                        |       |              |       |       |       |                   |       |
| **Other  Office Facilities:**                                                               |       |              |       |       |       |                   |       |
| Carson, CA  (regional publication office)                                                   |       | 10,048            |       |       |       | 2006                   |       |
| Denver, CO  (customer service, warehousing fulfillment, and information system  functions). |       | 60,000            |       |       |       | 2039                   |       |
| Bowling Green,  KY (retail administrative headquarters and mail order operations)           |       | 31,278            |       |       |       | 2039                   |       |
| Bowling Green  Headquarters Annex                                                           | ** ** | 4,100             |       |       |       | 2006                   |       |
| Seattle, WA  (regional publication sales office)                                            | ** ** | 912               |       |       |       | 2007                   |       |
| Elkhart, IN  (regional publication sales office)                                            | ** ** | 4,076             |       |       |       | 2008                   |       |
| Chesterfield, VA  (shows sales office)                                                      | ** ** | 5,900             |       |       |       | 2008                   |       |
| Maple Grove, MN  (Ehlert Publications Group, Inc. headquarters)                             | ** ** | 17,496            |       |       |       | 2010                   |       |
| Earth City, MO  (information systems functions)                                             |       | 1,769             |       |       |       | 2006                   |       |
|                                                                                        |       |              |       |       |       |                   |       |
| **Distribution  Centers:**                                                                  |       |              |       |       |       |                   |       |
| Bakersfield,  California                                                                    |       | 85,747            |       | 14.827     |       | 2037                   |       |
| Franklin,  Kentucky                                                                         |       | 175,000           |       | 33.000     |       | 2035                   |       |
|                                                                                        |       |              |       |       |       |                   |       |
| **Camping  World Supercenter Locations:**                                                   |       |              |       |       |       |                   |       |
| Dothan, AL (1)                                                                              |       | 18,906            |       | 11.275     |       | 2025                   |       |
| Tucson, AZ                                                                                  |       | 12,145            |       | 2.000      |       | 2018                   |       |
| Mesa, AZ                                                                                    |       | 27,500            |       | 3.140      |       | 2010                   |       |
| Bakersfield, CA (2)                                                                         |       | 23,325            |       | 9.940      |       | 2023                   |       |
| La Mirada, CA                                                                               |       | 33,479            |       | 5.501      |       | 2037                   |       |
| San Marcos, CA                                                                              |       | 25,522            |       | 2.212      |       | 2027                   |       |
| Fairfield, CA                                                                               |       | 43,434            |       | 3.780      |       | 2009                   |       |
| Rocklin, CA                                                                                 |       | 29,085            |       | 4.647      |       | 2037                   |       |
| San Bernardino,  CA                                                                         |       | 18,126            |       | 1.665      |       | 2012                   |       |
| San Martin, CA                                                                              |       | 29,486            |       | 5.000      |       | 2023                   |       |
| Valencia, CA                                                                                |       | 64,410            |       | 9.231      |       | 2037                   |       |
| Denver, CO                                                                                  |       | 27,085            |       | 4.132      |       | 2037                   |       |
| Ft. Myers, FL                                                                               |       | 22,886            |       | 4.217      |       | 2012                   |       |
| Kissimmee, FL                                                                               |       | 58,382            |       | 6.043      |       | 2037                   |       |
| Tampa, FL                                                                                   |       | 40,334            |       | 3.711      |       | 2026                   |       |
| Tallahassee, FL (1)                                                                         |       | 8,494             |       | 12.630     |       | 2024                   |       |
| Bolingbrook, IL                                                                             |       | 25,126            |       | 5.299      |       | 2035                   |       |
| Clarksville, IN (2)                                                                         |       | 19,480            |       | 6.291      |       | 2034                   |       |
| Elkhart, IN (1)                                                                             |       | 25,953            |       | 2.500      |       | 2034                   |       |
| Bowling Green,  KY                                                                          |       | 37,615            |       | 2.750      |       | 2037                   |       |
| Hammond, LA (2)                                                                             |       | 27,096            |       | 68.454     |       | 2034                   |       |
| Belleville, MI                                                                              |       | 44,248            |       | 7.260      |       | 2037                   |       |

 

23

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| Rogers, MN             |   | 24,700 |   | 6.303  |   | 2025 |   |
|------------------------|--------|--------|--------|--------|--------|------|--------|
| Statesville, NC (1)    |   | 39,050 |   | 7.412  |   | 2024 |   |
| Bridgeport, NJ         |   | 24,581 |   | 6.920  |   | 2031 |   |
| Amsterdam, NY (2)      |   | 13,420 |   | 28.000 |   | 2033 |   |
| Hamburg, NY (1)        |   | 13,095 |   | 6,553  |   | 2025 |   |
| Henderson, NV          |   | 25,850 |   | 4.400  |   | 2025 |   |
| Brunswick, OH (1)      |   | 23,233 |   | 4.087  |   | 2038 |   |
| Oklahoma City,  OK (2) |   | 12,500 |   | 8.219  |   | 2023 |   |
| Wilsonville, OR        |   | 32,850 |   | 4.653  |   | 2016 |   |
| Myrtle Beach, SC       |   | 38,962 |   | 5.410  |   | 2037 |   |
| Spartanburg, SC (1)    |   | 11,900 |   | 19.263 |   | 2033 |   |
| Chattanooga, TN (1)    |   | 9,400  |   | 10.840 |   | 2024 |   |
| Nashville, TN          |   | 34,478 |   | 3.238  |   | 2037 |   |
| Anthony, TX (1)        |   | 7,061  |   | 32.000 |   | 2035 |   |
| Denton, TX             |   | 22,984 |   | 6.887  |   | 2037 |   |
| Katy, TX (1)           |   | 25,913 |   | 38.861 |   | 2025 |   |
| New Braunfels,  TX (1) |   | 43,397 |   | 19.100 |   | 2035 |   |
| Mission, TX            |   | 23,094 |   | 3.430  |   | 2015 |   |
| Draper, UT             |   | 27,675 |   | 8.031  |   | 2026 |   |
| Manassas, VA (2)       |   | 16,348 |   | 9.754  |   | 2018 |   |
| Burlington, WA  (1)    |   | 23,033 |   | 6.500  |   | 2025 |   |
| Fife, WA               |   | 35,659 |   | 5.840  |   | 2032 |   |

 

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(1)    This supercenter is leasedfrom a FreedomRoads dealership and the acreage reflects the total dealershipproperty.

 

(2)            This supercenter islocated with an RV dealership (other than a FreedomRoads dealership) and theacreage reflects the total dealership property.

 

We also lease a body shop of 10,500 square feet on approximately 0.7acres in Denver, Colorado, a body shop of 12,000 square feet on approximately1.9 acres in Bellville, Michigan and other miscellaneous office equipment. Inaddition, we own 12.439 acres of unimproved land adjacent to the New Braunfels,Texas Camping World Supercenter.

 

**ITEM 3: LEGALPROCEEDINGS**

** **

From time to time, the Company is involved inlitigation arising in the normal course of business 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 injunctiverelief preventing CWI, Inc. from engaging in any act or practice constitutingunfair competition under the statutes and for statutory penalties and damages. CWI,Inc. responded to the suit and denied that its practices violate the statutes. Withoutadmitting liability or wrongdoing, CWI, Inc. and the Plaintiffs entered into aSettlement Agreement which was given final approval by the court on December16, 2005. The terms of the Settlement Agreement were not material.

 

24

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**ITEM 4: SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

None.

 

**PART II**

 

**ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY,RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**

 

Not Applicable

 

25

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**ITEM 6: SELECTED FINANCIAL DATA**

 

Theselected financial data of our company for each of the five years endedDecember 31 are derived from our audited consolidated financial statements.Prior to April 27, 2004, AGI was a wholly-owned subsidiary of Affinity GroupHolding, Inc. (“AGH”). On April 27, 2004, AGH was merged into AGI, with AGIbeing the surviving entity after the merger. The merger was accounted for as acombination of entities under common control using historical costs. Allperiods have been restated to reflect the results of operations of AGI and AGH,prior to the April 27, 2004 merger. Our selected financial data should be readin conjunction with “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and our Consolidated Financial Statementsand the notes thereto included herein.

 
| ** **                                                                                  | ** **   | **December 31,**             | ** **     |
|---------------------------------------------------------------------------------------------|--------------|------------------------------|----------------|
| *** ***                                                                                | *** *** | ***(dollars in thousands)*** | *** ***   |
| **Statement of Operations Data:**                                                           | ** **   | **2005**                     | ** **     | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| REVENUES:                                                                                   |         |                         |           |   |   |   |   |   |   |   |   |
| Membership  services                                                                        |         | $                            | 133,756        |   | $ | 131,608 |   | $ | 128,664 |   | $ | 124,546 |   | $ | 119,958 |   |
| Publications                                                                                |         | 79,122                       |           | 77,977 |   | 71,436 |   | 66,654 |   | 65,150 |   |
| Retail                                                                                      |         | 272,682                      |           | 255,094 |   | 225,306 |   | 239,922 |   | 220,264 |   |
|                                                                                        |         | 485,560                      |           | 464,679 |   | 425,406 |   | 431,122 |   | 405,372 |   |
|                                                                                        |         |                         |           |   |   |   |   |   |   |   |   |
| COSTS APPLICABLE  TO REVENUES:                                                              |         |                         |           |   |   |   |   |   |   |   |   |
| Membership  services                                                                        |         | 85,551                       |           | 84,231 |   | 79,500 |   | 74,097 |   | 72,944 |   |
| Publications                                                                                |         | 53,855                       |           | 53,042 |   | 48,392 |   | 45,351 |   | 46,175 |   |
| Retail                                                                                      |         | 162,363                      |           | 151,196 |   | 136,137 |   | 158,265 |   | 148,244 |   |
|                                                                                        |         | 301,769                      |           | 288,469 |   | 264,029 |   | 277,713 |   | 267,363 |   |
|                                                                                        |         |                         |           |   |   |   |   |   |   |   |   |
| GROSS PROFIT                                                                                |         | 183,791                      |           | 176,210 |   | 161,377 |   | 153,409 |   | 138,009 |   |
|                                                                                        |         |                         |           |   |   |   |   |   |   |   |   |
| OPERATING  EXPENSES:                                                                        |         |                         |           |   |   |   |   |   |   |   |   |
| Selling, general  and administrative                                                        |         | 121,178                      |           | 116,137 |   | 104,066 |   | 101,608 |   | 86,050 |   |
| Restructuring  charge                                                                       |         | —                       |           | — |   | 1,210 |   | 2,269 |   | — |   |
| Goodwill  impairment                                                                        |         | 4,344                        |           | — |   | — |   | — |   | — |   |
| Depreciation and  amortization                                                              |         | 15,529                       |           | 13,893 |   | 10,298 |   | 9,893 |   | 16,404 |   |
|                                                                                        |         | 141,051                      |           | 130,030 |   | 115,574 |   | 113,770 |   | 102,454 |   |
|                                                                                        |         |                         |           |   |   |   |   |   |   |   |   |
| INCOME FROM  OPERATIONS                                                                     |         | 42,740                       |           | 46,180 |   | 45,803 |   | 39,639 |   | 35,555 |   |
|                                                                                        |         |                         |           |   |   |   |   |   |   |   |   |
| NON-OPERATING  ITEMS:                                                                       |         |                         |           |   |   |   |   |   |   |   |   |
| Interest  expense, net                                                                      |         | (24,581                      | )              | (23,239 | ) | (18,123 | ) | (16,862 | ) | (24,234 | ) |
| Debt  extinguishment expense                                                                |         | —                       |           | (5,035 | ) | (3,218 | ) | — |   | (71 | ) |
| Other non-operating  income (expense), net                                                  |         | (5                           | )              | 420 |   | 201 |   | (44 | ) | (6,574 | ) |
|                                                                                        |         | (24,586                      | )              | (27,854 | ) | (21,140 | ) | (16,906 | ) | (30,879 | ) |
|                                                                                        |         |                         |           |   |   |   |   |   |   |   |   |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE |         | 18,154                       |  

  | 18,326 |  

  | 24,663 |  

  | 22,733 |  

  | 4,676 |  

  |
|                                                                                        |         |                         |           |   |   |   |   |   |   |   |   |
| INCOME TAX  EXPENSE                                                                         |         | (7,416                       | )              | (8,075 | ) | (9,275 | ) | (9,032 | ) | (4,110 | ) |
|                                                                                        |         |                         |           |   |   |   |   |   |   |   |   |
| INCOME FROM  OPERATIONS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE                       |         | 10,738                       |           | 10,251 |   | 15,388 |   | 13,701 |   | 566 |   |
|                                                                                        |         |                         |           |   |   |   |   |   |   |   |   |
| CUMULATIVE  EFFECT OF ACCOUNTING CHANGE                                                     |         | —                       |           | — |   | — |   | (1,742 | ) | — |   |
|                                                                                        |         |                         |           |   |   |   |   |   |   |   |   |
| NET INCOME                                                                                  |         | $                            | 10,738         |   | $ | 10,251 |   | $ | 15,388 |   | $ | 11,959 |   | $ | 566 |   |

 

26

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| Balance Sheet  Data (at period end): |   |    |   |     |   |    |   |    |    |    |   |
|--------------------------------------|--------|---------|--------|----------|--------|---------|--------|---------|---------|---------|--------|
| Working capital  (deficiency)        |   | $       | (6,731 | )        | $      | (10,813 | )      | $       | (25,770 | )  | $      | (39,820 | ) | $ | (55,585 | ) |
| Total assets                         |   | 415,460 |   | 320,222  |   | 302,862 |   | 285,960 |    | 305,622 |   |
| Deferred  revenues and gains (1)     |   | 98,920  |   | 99,130   |   | 98,410  |   | 94,475  |    | 96,162  |   |
| Total debt                           |   | 320,000 |   | 314,336  |   | 240,127 |   | 223,001 |    | 228,316 |   |
| Total  stockholder's deficit         |   | (66,365 | )      | (158,108 | )      | (88,905 | )      | (87,548 | )       | (76,349 | )      |
|                                      |        |         |        |          |        |         |        |         |         |         |        |  |  |  |  |  |

 

----

 

(1)Deferred revenues represent cash received by us in advance of the recognitionof revenues in accordance with accounting principles generally accepted in theUnited States. Deferred revenues primarily reflect club membership dues, annualERS fees, advances on third party credit card fee revenues and publicationsubscriptions. These revenues are recognized at the time the goods or servicesare provided or over the membership period, which averages approximately 18months. The deferred revenue balance for 2005, 2004, 2003, 2002 and 2001 alsoinclude deferred gains of $10.3 million, $10.8 million, $11.3 million, $11.8million and $12.1 million, respectively, from the real estate sale-leasebacktransactions which occurred in December 2001.

 

27

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**ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATION**

 

Thefollowing tables set forth the components of the statements of operations forthe years ended December 31, 2005, 2004, and 2003 as a percentage of totalrevenues, and the comparison of those components from period to period. Thefollowing discussion is based on our Consolidated Financial Statements includedelsewhere herein. Our revenues are derived principally from membershipservices, including club membership dues and marketing fees paid to us forservices provided by third parties, from publications, including subscriptionsand advertising, and from retail sales.

 
| ** **                                  | ** ** | **Percentage of  Total Revenues** | ** ** | **Percentage Increase/  (Decrease)** | ** ** |
|---------------------------------------------|------------|-----------------------------------|------------|--------------------------------------|------------|
| ** **                                  | ** ** | ** **                        | ** ** | ** **                           | ** ** | ** ** | ** ** | **Year 2005** | ** ** | **Year 2004** | ** ** |
| ** **                                  | ** ** | **2005**                          | ** ** | **2004**                             | ** ** | **2003** | ** ** | **over 2004** | ** ** | **over 2003** | ** ** |
| REVENUES:                                   |       |                              |       |                                 |       |   |   |   |   |   |   |
| Membership  services                        |       | 27.5                              | %          | 28.3                                 | %          | 30.2 | % | 1.6 | % | 2.3 | % |
| Publications                                |       | 16.3                              | %          | 16.8                                 | %          | 16.8 | % | 1.5 | % | 9.2 | % |
| Retail                                      |       | 56.2                              | %          | 54.9                                 | %          | 53.0 | % | 6.9 | % | 13.2 | % |
|                                        |       | 100.0                             | %          | 100.0                                | %          | 100.0 | % | 4.5 | % | 9.2 | % |
|                                        |       |                              |       |                                 |       |   |   |   |   |   |   |
| COSTS APPLICABLE  TO REVENUES:              |       |                              |       |                                 |       |   |   |   |   |   |   |
| Membership  services                        |       | 17.6                              | %          | 18.1                                 | %          | 18.7 | % | 1.6 | % | 6.0 | % |
| Publications                                |       | 11.1                              | %          | 11.4                                 | %          | 11.4 | % | 1.5 | % | 9.6 | % |
| Retail                                      |       | 33.4                              | %          | 32.6                                 | %          | 32.0 | % | 7.4 | % | 11.1 | % |
|                                        |       | 62.1                              | %          | 62.1                                 | %          | 62.1 | % | 4.6 | % | 9.3 | % |
|                                        |       |                              |       |                                 |       |   |   |   |   |   |   |
| GROSS PROFIT                                |       | 37.9                              | %          | 37.9                                 | %          | 37.9 | % | 4.3 | % | 9.2 | % |
|                                        |       |                              |       |                                 |       |   |   |   |   |   |   |
| OPERATING  EXPENSES:                        |       |                              |       |                                 |       |   |   |   |   |   |   |
| Selling, general  and administrative        |       | 25.0                              | %          | 25.0                                 | %          | 24.4 | % | 4.3 | % | 11.6 | % |
| Restructuring  charge                       |       | —                            |       | —                               |       | 0.3 | % | — |   | (100.0 | %) |
| Goodwill  impairment                        |       | 0.9                               | %          | —                               |       | — |   | 100.0 | % | — |   |
| Depreciation and  amortization              |       | 3.2                               | %          | 3.0                                  | %          | 2.4 | % | 11.8 | % | 34.9 | % |
|                                        |       | 29.1                              | %          | 28.0                                 | %          | 27.1 | % | 8.5 | % | 12.5 | % |
|                                        |       |                              |       |                                 |       |   |   |   |   |   |   |
| INCOME FROM  OPERATIONS                     |       | 8.8                               | %          | 9.9                                  | %          | 10.8 | % | (7.4 | %) | 0.8 | % |
|                                        |       |                              |       |                                 |       |   |   |   |   |   |   |
| NON-OPERATING  ITEMS:                       |       |                              |       |                                 |       |   |   |   |   |   |   |
| Interest income                             |       | 0.2                               | %          | 0.2                                  | %          | 0.2 | % | 40.5 | % | (6.7 | %) |
| Interest  expense, net                      |       | (5.3                              | %)         | (5.2                                 | %)         | (4.4 | %) | 6.9 | % | 26.7 | % |
| Debt  extinguishment expense                |       | —                            |       | (1.1                                 | %)         | (0.8 | %) | (100.0 | %) | 56.5 | % |
| Other  non-operating (expense) income, net  |       | —                            |       | 0.1                                  | %          | — |   | (101.2 | %) | 109.0 | % |
|                                        |       | (5.1                              | %)         | (6.0                                 | %)         | (5.0 | %) | (11.7 | %) | 31.8 | % |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES |       | 3.7                               | %          | 3.9                                  | %          | 5.8 | % | (0.9 | %) | (25.7 | %) |
|                                        |       |                              |       |                                 |       |   |   |   |   |   |   |
| INCOME TAX  EXPENSE                         |       | (1.5                              | %)         | (1.7                                 | %)         | (2.2 | %) | (8.2 | %) | (12.9 | %) |
|                                        |       |                              |       |                                 |       |   |   |   |   |   |   |
| NET INCOME                                  |       | 2.2                               | %          | 2.2                                  | %          | 3.6 | % | 4.8 | % | (33.4 | %) |

 

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**Year Ended December 31, 2005Compared with Year Ended December 31, 2004**

 

*Revenues*

 

Revenuesof $485.6 million for 2005 increased by approximately $20.9 million or 4.5%from the comparable period in 2004.

 

Membershipservices revenues for 2005 of $133.8 million increased by approximately $2.2million or 1.6% from 2004. This revenue increase was largely attributable to a$4.6 million increase in extended vehicle warranty program revenue due tocontinued growth in the sales of one-year renewable warranty products, and a$1.3 million increase in ERS revenue attributable to increased enrollment,partially offset by a $1.5 million reduction in membership services revenueprimarily associated with reduced enrollment in the Coast to Coast Club andGolf Card Club, a $1.4 million reduction in marketing fee income recognized onRV financing products, and a $0.8 million decrease in dealer marketing programrevenue.

 

Publicationsrevenues for 2005 of $79.1 million increased by approximately $1.1 million or1.5% from 2004. This increase was primarily attributable to a $1.4 millionrevenue increase due to the acquisition of *Powerboat Magazine*in May 2005, a $1.4 million increase associated with the acquisition of threeconsumer shows, acquired through the acquisition of ARU Inc. (“ARU”) inDecember 2004, and a $0.7 million increase in advertising revenue for therecreational vehicle related titles, partially offset by a $2.0 million revenuereduction due to the disposition of archery-related publication titles in thethird quarter of 2004, and a $0.4 million decrease due to a reduction in thenumber of issues of *Snowmobile Magazine*.

 

Retailrevenue for 2005 of $272.7 million increased $17.6 million or 6.9% from 2004.Store merchandise sales increased $17.9 million over 2004 primarily due to a$14.1 million revenue increase from the addition of eleven new stores over thepast two years. Same store sales increased $3.8 million, or 2.1%, compared toan 11.0% increase in 2004. Same store sale calculations for a given periodinclude only those stores that were open both at the end of that period and atthe beginning of the preceding fiscal year. In addition, installation fees,supplies and service revenue increased by $0.8 million from 2004 to 2005. Theseincreases were partially offset by a $1.1 million decrease in mail order sales.

 

*Costs Applicable to Revenues*

 

Costs applicable to revenues totaled $301.8million in 2005, an increase of $13.3 million or 4.6% from 2004.

 

Membership services costs and expenses increased by approximately $1.3million or 1.6% to $85.6 million for 2005. This increase consisted of $3.9 million ofmarketing and program expenses associated with the increased enrollment in theextended vehicle warranty programs and ERS programs, partially offset by a $1.7million decrease in membership services costs primarily associated with reducedmarketing and program expenses for Coast to Coast Club and Golf Card Club, a$0.6 million decrease in dealer marketing program costs, and a $0.3 milliondecrease in other overhead expenses.

 

Publication costs and expenses of $53.9 million for 2005increased $0.8 million or 1.5% compared to 2004. This increase was primarilyattributable to the recently acquired operations of the *PowerboatMagazine* and ARU consumer shows. This increase was partially offsetby a reduction in costs due to the sale of archery-related publication titlesin the third quarter of 2004.

 

Retailcosts applicable to revenues increased $11.2 million or 7.4% to $162.4 millionprimarily due to the opening of eleven new stores over the past two years. The retail gross profit margin increased by$6.4 million but the gross margin as a percent of revenues decreased from 40.7%in 2004 to 40.5% in 2005 due primarily to increased freight charges.

 

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*Operating Expenses*

 

Selling,general and administrative expenses of $121.2 million for 2005 increased $5.0million or 4.3% over 2004. The increased selling, general and administrativeexpenses resulted primarily from increased retail selling, labor and othergeneral and administrative expenses of $6.0 million, partially offset by a $0.5million decrease in executive compensation and a $0.5 million decrease in othercorporate general and administrative expenses. The $4.3 million non-cashgoodwill impairment charge was based on the estimate of the fair value of theGolf Card Club primarily using projected discounted cash flows as determined inconjunction with the Company’s impairment review of goodwill in the fourthquarter of 2005. Depreciation and amortization expenses of $15.5 million were$1.7 million higher than in 2004 due primarily to increased capitalexpenditures at Camping World, and the amortization of intangible assetsassociated with the purchase of ARU and Powerboat magazine.

 

*Income from Operations*

 

Incomefrom operations of $42.7 million for 2005 decreased $3.4 million or 7.4%compared to 2004. This decrease was attributable to increased operatingexpenses of $11.0 million, which included the $4.3 million non-cash goodwillimpairment charge, partially offset by increased gross profit in the retail,membership services and publications operations of $6.4 million, $0.9 millionand $0.3 million, respectively.

 

*Non-Operating Items*

 

Netnon-operating items for 2005 were approximately $24.6 million, a $3.3 milliondecrease from 2004. This decrease was primarily attributable to a $5.0 millionreduction in debt extinguishment expense associated with the redemption in 2004of the Affinity Group Holding, Inc. (“AGH”) senior notes and a $0.3 millionincrease in interest income, partially offset by $1.6 million of additionalinterest expense from higher interest rates and higher loan balances associatedwith the issuance of the $200.0 million in 9% Senior Subordinated Notes in2004, and a $0.4 million reduction in net gains on sales of various assets.

 

*Income before Income Taxes*

 

Incomebefore income taxes for 2005 was $18.2 million, or 0.9% less than 2004. This$0.2 million decrease from the prior year was attributable to the $3.4 milliondecrease in income from operations mentioned above, the increase in netinterest expense of approximately $1.4 million and the $0.4 million reduction in net gain on salesof various assets, partiallyoffset by the $5.0 million decrease in debt extinguishment expenses.

 

*Income Tax*

 

Incometaxes for 2005 of $7.4 million decreased $0.7 million from 2004 due primarilyto lower pretax income. The effective tax rates for 2005 and 2004 were 40.9%and 44.1%, respectively. The effective tax rate for 2005 is higher than thestatutory rate due primarily to state sales taxes, and a permanent differencecreated as a result of the goodwill impairment charge. These increases werepartially offset by a reduction in the valuation allowance due to the ultimaterealization of the asset related to the charitable contribution carryover. Theeffective tax rate for 2004 was higher than the statutory rate due to statetaxes and the permanent differences created as a result of the write-off ofbook goodwill on the sale of archery-related publication assets in August 2004.

 

30

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*Net Income*

 

Thenet income for 2005 was $10.7 million compared to $10.3 million for 2004.

 

*Segment Profit*

 

Segment profit of $58.2 million for 2005(before unallocated depreciation and amortization, general and administrative,interest, debt restructuring and income tax expense) decreased by $1.7 million,or 2.9%, from 2004.

 

Membership services segment profit of $37.7million in 2005 decreased by $2.1 million, or 5.4% from $39.8 million in 2004.This decrease was primarily attributable to a $4.0 million reduction in profitin the Golf Card Club primarily related to the goodwill impairment, a $1.4million decrease in profit from a reduction in marketing fee income from RVfinancing products, a $1.2 million increase in new product and club developmentefforts, a $0.2 million reduction in profit in the Good Sam Club member publication,*Highways Magazine*, due to increasedproduction costs and a $0.2 million decrease in dealer program marketingprofit. These decreases were partially offset by a $2.6 million increase inprofit associated with increased enrollment and increased interest income forthe ERS programs, a $1.4 million increase in profit in the extended vehiclewarranty program and a $0.9 million increase in profit in the Coast to CoastClub primarily due to expense reductions.

 

Publication segment profit for 2005 of $19.9million remained the same as 2004. The $0.3 million increase in gross profitmargin was offset by increased amortization expense related to theacquisitions.

 

Retail segment profit for 2005 ofapproximately $0.6 million increased by $0.4 million, or 145.4%, over 2004. Theincreased segment profit resulted primarily from a $6.4 million increase ingross profit margin partially offset by a $6.0 million increase in selling,general and administrative expenses.

 

**Year Ended December 31, 2004Compared with Year Ended December 31, 2003**

 

*Revenues*

 

Revenuesof $464.7 million for 2004 increased by approximately $39.3 million or 9.2%from the comparable period in 2003.

 

Membershipservices revenues for 2004 of $131.6 million increased by approximately $2.9million or 2.3% from 2003. This revenue increase was largely attributable to a$2.2 million increase in extended vehicle warranty program revenue due tocontinued growth in the sales of one-year renewable warranty products, a $1.7million increase in ERS revenue due to increased enrollment, and a $1.6 millionincrease in dealer marketing program revenue, partially offset by a $1.7million reduction in membership services revenue, primarily associated withreduced enrollment in the Coast to Coast Club and Golf Card Club, and a $0.9million reduction in marketing fee income recognized on RV financing products.

 

Publicationsrevenues for 2004 of $78.0 million increased by approximately $6.6 million or9.2% from 2003. This increase was primarily attributable to a $5.5 millionrevenue increase due to the acquisition of three publication titles from PoolePublications, Inc. in October 2003, a $0.9 million increase in sales ofthe annual RV directories, a $0.7 million increase in other ancillary productrevenue including ATV-related television revenues and other outdoor eventrevenues, and additional advertising revenue of approximately $0.5 million fromRV-related magazines. These increases were partially offset by a $1.0 millionrevenue reduction due to the sale of archery-related publication titles in thethird quarter of 2004.

 

31

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Retailrevenue for 2004 of $255.1 million increased $29.8 million or 13.2% from 2003.This increase consisted of a $38.9 million increase in Camping Worldmerchandise sales revenues partially offset by a $9.1 million decrease in RVsales. The increase in Camping World merchandise sales resulted primarily froma same store sales increase of $16.5 million or 11.0%, and $12.5 million due tothe addition of six new retail stores. 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. The remaining net increasein merchandise sales was attributable to a $5.9 million increase in mail ordersales and a $4.0 million increase in other installation fees, supplies andservices revenue. The $9.1 million decrease in RV sales is due to thedisposition of Camping World RV Sales, Inc. (“CWRV”) which was distributed tothe Company’s ultimate parent in the form of a non-cash dividend in October2003.

 

*Costs Applicable to Revenues*

 

Costs applicable to revenues totaled $288.5million in 2004, an increase of $24.4 million or 9.3% from 2003.

 

Membership services costs and expenses increased by approximately $4.7million or 6.0% to $84.2 million for 2004 compared to $79.5 million in 2003. This increase consisted of $1.5 million ofmarketing and program expenses associated with the increased enrollment in theextended vehicle warranty programs and ERS programs and a $0.8 million increasein membership services costs primarily associated with the introduction ofenhanced Coast to Coast Club member benefits including an online reservationsystem. In addition, dealer marketing program costs increased by $1.2 millionin conjunction with increased revenue, new business development expensesincreased $0.4 million, and other marketing expenses increased $0.8 millionprimarily due to marketing database enhancements and membership supportexpenses.

 

Publication costs and expenses of $53.0 million for 2004increased $4.6 million or 9.6% compared to 2003. This increase was primarilyattributable to the operations of the newly acquired publications**,** and costs associated withincreased annual directory revenues, the ATV-related television program andoutdoor events. These increases were partially offset by a reduction in costsdue to the sale of archery-related publication titles in the third quarter of2004 and the discontinuation of *REV* magazine in2003.

 

Retailcosts applicable to revenues increased $15.1 million or 11.1% to $151.2 milliondue to the increased store and mail order sales. The retail gross profit margin increased by$14.7 million, to 40.7% in 2004 from 39.6% in 2003 due primarily to theelimination of lower margin recreation vehicle sales as a result of thedivesture of CWRV in the fourth quarter of 2003.

 

*Operating Expenses*

 

Selling,general and administrative expenses of $116.1 million for 2004 increased $12.1million or 11.6% over 2003. The increased selling, general and administrativeexpenses resulted primarily from increased retail selling, labor and othergeneral and administrative expenses of $13.1 million, a $2.3 million increasein deferred executive compensation, and a $0.9 million increase in othercorporate general and administrative expenses. These increases were partiallyoffset by a $2.8 million reduction in executive compensation and reduced RVsales expenses of $1.4 million as a result of the divestiture of CWRV. Themanagement restructuring expense of $1.2 million in 2003 related to the retailsegment. Depreciation and amortization expenses of $13.9 million were $3.6million higher than in 2003 due primarily to increased capital expenditures atCamping World, and amortization of intangible assets associated with theacquisition of three titles from Poole Publications, Inc.

 

32

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*Income from Operations*

 

Incomefrom operations of $46.2 million for 2004 increased $0.4 million or 0.8%compared to 2003. This increase was attributable to increased gross profit inthe retail and publications operations of $14.7 million and $1.9 million,respectively, partially offset by reduced gross profit in the membershipservices operations of $1.8 million and increased operating expenses of $14.4million.

 

*Non-Operating Items*

 

Netnon-operating items for 2004 were approximately $27.9 million compared to $21.1million for 2003. This $6.7 million increase was primarily attributable to $5.1million of additional interest expense from higher loan balances associatedwith the issuance of the $200.0 million in 9% senior subordinated notes onFebruary 18, 2004, and a $1.8 million increase in debt extinguishment expenseassociated with the redemption of the AGH Senior Notes due 2007 (“AGH Notes”),partially offset by a net gain of $0.2 million on sales of various assets.

 

*Income before Income Taxes*

 

Incomebefore income taxes for 2004 was $18.3 million, or 25.7% less than 2003. This$6.3 million decrease from the prior period was attributable to the increase innet interest expense of $5.1 million, a $1.8 million increase in debtextinguishment expenses, partially offset by the $0.4 million increase inincome from operations mentioned above and a net gain of $0.2 million on sales of variousassets.

 

*Income Tax*

 

Incometaxes for 2004 of $8.1 million decreased $1.2 million from 2003. The effectivetax rates for 2004 and 2003 were 44.1% and 37.6%, respectively. The effectivetax rate for 2004 is higher than the statutory rate due to state taxes and thepermanent differences created as a result of the write-off of book goodwill onthe sale of publication assets in August 2004. The effective tax rate for 2003is higher than the statutory rate due primarily to state taxes.

 

*Net Income*

 

Thenet income for 2004 was $10.3 million compared to $15.4 million for 2003.

 

*Segment Profit*

 

Segment profit of $60.0 million for 2004(before unallocated depreciation and amortization, general and administrative,interest, debt restructuring and income tax expense) increased by $0.8 million,or 0.1%, from 2003.

 

Membership services segment profit of $39.8million in 2004 decreased by $1.6 million, or 3.8% from $41.4 million in 2003.This decrease was primarily attributable to a $2.7 million reduction in profitin the Coast to Coast Club, a $0.9 million decrease in profit due to areduction in marketing fee income from RV financing products, and a $0.6million increase in database and new business development expenses. Thesedecreases were partially offset by a $1.6 million increase in profit associatedwith increased enrollment and lower program expenses in the ERS programs, and a$1.0 million increase in profit in the extended vehicle warranty program.

 

Publication segment profit for 2004 of $19.9million increased by $0.9 million, or 4.8% from 2003. This increase wasprimarily attributable to the acquisition of three publication titles fromPoole Publications, Inc. in October 2003.

 

33

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Retail segment profit for 2004 of $0.3million increased by $1.4 million, or 123.2%, over 2003. The increased segmentprofit resulted primarily from a $14.7 million increase in gross profit marginpartially offset by an $11.7 million increase in selling, general andadministrative expenses and a $1.6 million increase in depreciation expense.

 

**Liquidity and Capital Resources**

 

We have historically operated witha working capital deficit. The working capital deficit as of December 31, 2005and 2004 was $6.7 million and $10.8 million, respectively. The primary reasonfor the working capital deficit is the deferred revenue and gains reportedunder current liabilities in the amount of $61.0 million and $57.7 million asof December 31, 2005 and 2004, respectively. Deferred revenue is primarilycomprised of cash collected for club memberships in advance which is deferredand recognized as revenue over the life of the membership. We use net proceedsfrom this deferred membership revenue to lower our long-term borrowings andfinance our working capital needs. We generated net cash**from operations of$17.2 million and $38.4 million, in2005 and 2004, respectively.

 

*Contractual Obligations andCommercial Commitments*

 

The following table reflects our contractualobligations and commercial commitments at December 31, 2005, in thousands. Thetable below includes principal and future interest due under our debtagreements based on interest rates as of December 31, 2005 and assumes debtobligations will be held to maturity.

 
| ** **                                        | ** ** | **Payments Due by Period** | ** ** |
|---------------------------------------------------|------------|----------------------------|------------|
| ** **                                        | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **(in thousands)**                                | ** ** | **Total**                  | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **Thereafter** | ** ** |
| Long-term debt                                    |       | $                          | 457,235    |   | $ | 30,787 |   | $ | 29,262 |   | $ | 29,240 |   | $ | 129,234 |   | $ | 18,462 |   | $ | 220,250 |   |
| Operating lease  obligations                      |       | 137,362                    |       | 12,606 |   | 11,454 |   | 9,581 |   | 8,795 |   | 8,457 |   | 86,469 |   |
| Deferred  compensation                            |       | 5,999                      |       | 611 |   | 1,731 |   | 1,754 |   | 1,660 |   | 133 |   | 110 |   |
| Other commercial  commitments

Letters of  credit |       | 7,523                      |       | 7,073 |   | 450 |   | — |   | — |   | — |   | — |   |
| Grand total                                       |       | $                          | 608,119    |   | $ | 51,077 |   | $ | 42,897 |   | $ | 40,575 |   | $ | 139,689 |   | $ | 27,052 |   | $ | 306,829 |   |

 

On June 24, 2003, we entered into the Amended and Restated Credit Agreementand a Senior Secured Floating Note Rate Purchase Agreement ("Senior CreditFacility") providing for term loans (“Term Loans”) in the aggregate of$140.0 million and a revolving credit facility of $35.0 million. In June 2003,proceeds from the Senior Credit Facility were used to refinance the existingsenior secured indebtedness, pay a dividend of $13.7 million to our ultimateparent AGI Holding Corp. and redeem $30.0 million principal amount of the AGHNotes at 103.667% of par in 2003. As of December 31, 2005, $111.2 million wasoutstanding under the Term Loans. No borrowings were outstanding on therevolving credit facility as of December 31, 2005. Reborrowings under the TermLoans are not permitted. The interest on borrowings under the Senior CreditFacility is at variable rates based on the ratio of total cash flow tooutstanding indebtedness (as defined). Interest rates float with prime and theLondon Interbank Offered Rates, or LIBOR, plus an applicable margin rangingfrom 0.75% to 2.75% over the stated rates. As of December 31, 2005, the averageinterest rate on the Term Loans was 6.97%, and permitted borrowings under theundrawn revolving facility were $27.5 million. We also pay a commitment fee of0.5% per annum on the unused amount of the revolving credit facility. Theaggregate quarterly scheduled payments on the Term Loans are $350,000. Therevolving credit facility matures on June 24, 2008, and the Term Loans matureon June 24, 2009. The funds 

 

34

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available under our Senior Credit Facility may be utilized forborrowings or letters of credit; however, a maximum of $12.5 million may beallocated to such letters of credit. As of December 31, 2005, we had letters ofcredit in the aggregate amount of $7.5 million outstanding. The Senior CreditFacility is secured by virtually all of our assets and a pledge of our stockand the stock of our subsidiaries. Further the Senior Credit Facility requiresthe loans to be prepaid in an amount equal to 75% of the excess cash flow, asdefined. The balance of the excess cash flow would be available fordistribution. As of December 31, 2005, the Company generated $1.7 million ofexcess cash flow, as defined and will prepay the Term Loans in the firstquarter of 2006, on a pro-rata basis, in inverse order of maturity, per theagreement.

 

In February 2004, we issued $200.0 million aggregate principal amountof 9% Senior Subordinated Notes due 2012 (the “AGI Senior Notes”). The Companycompleted a registered exchange of the AGI Senior Notes under the SecuritiesAct of 1933 in August 2004. The proceeds from the sale of the AGI Senior Noteswere used to fund the tender offer and defeasance of the remaining $100.0million outstanding principal amount of the AGH Notes, prepay $25.0 million ofthe Term Loans under our Senior Credit Facility, pay a $60.0 million dividenddistribution, create a $15.0 million segregated cash account, pay certainprepayment and transaction costs and for general corporate purposes. The amountheld in this segregated account, including any earnings thereon, was availableto pay stockholder dividends upon satisfaction of a leverage test specified inour Senior Credit Facility. In August and November of 2004, we satisfied thespecific leverage test and paid $3.6 million and $11.5 million in dividends,respectively.

 

In November 2004, we amended the Senior Credit Facility dated June 24,2003. The interest rates on the Term Loans were reduced by 1.00%. Theapplicable interest margin was reduced from 4.00% to 3.00% and 3.00% to 2.00%for the LIBOR and Prime Rate loans, respectively. On November 13, 2005, wefurther amended the Senior Credit Facility dated June 24, 2003 and terminatedthe Senior Secured Floating Rate Note Purchase Agreement dated as of June 24,2003. All Term Loans under the Senior Secured Floating Rate Note PurchaseAgreement were converted into Term Loans under the Credit Agreement. Inaddition, the interest rates on the Term Loans have been reduced by 0.50% andthe amendment provides for a further reduction of 0.25% at any time when theconsolidated total leverage ratio, as defined, for any period is less that 4.25to 1. The amendment also reduces the applicable interest margin from 3.00% to2.50% and 2.00% to 1.50% for the LIBOR and Prime Rate loans, respectively.

 

The Senior Credit Facility and the AGI Indenture contain certainrestrictive covenants relating to, but not limited to, mergers, changes in thenature of the business, acquisitions, additional indebtedness, sale of assets,investments, and the payment of dividends subject to certain limitations andminimum operating covenants. We were in compliance with all debt covenants atDecember 31, 2005.

 

In August 2004, Ehlert Publishing Group, Inc., a subsidiary of theCompany, sold certain publication assets for $4.2 million. We paid $0.2 millionin transaction fees and recorded a $3.6 million reduction in goodwill. As aresult of the sale, we reported a net gain of $0.4 million.

 

In December 2004, Ehlert Publishing Group, Inc. acquired the stock ofARU, Inc., a producer of consumer outdoor recreation shows. As part of thepurchase, the Company issued $0.7 million of purchase debt and assumed $0.4million of liabilities. Goodwill in the amount of $2.3 million was recordedupon the acquisition.

 

On March 24, 2005 in a private placement, the Company’s parent, AGHI,issued $88.2 million principal amount of its 10-7/8% senior notes due 2012 (the“AGHI Notes”) at a $3.2 million original issue discount. AGHI completed aregistered exchange of the AGHI Notes under the Securities Act of 1933 on June8, 2005. The AGHI Notes are unsecured obligations of AGHI, and neither AGI norits subsidiaries have guaranteed payment of principal or interest on the AGHINotes. Interest on the AGHI Notes is payable semi-annually on February 15 andAugust 15 commencing August 15, 2005 

 

35

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and the entire $88.2 million principal amount of the AGHI Notes are duein full on February 15, 2012. For interest payments on and prior to February15, 2008, AGHI may elect to pay interest on the AGHI Notes in cash or by theissuance of additional notes of the same tenor as the AGHI Notes. Anyadditional AGHI Notes issued in payment of interest are due in full on orbefore March 15, 2010. The AGHI Notes cannot be redeemed prior to February 15,2008. Although the only source of the cash payment of the AGHI Notes isdividends from AGI, there are certain restrictions on the payment of dividendsunder the Senior Credit Facility and the AGI Indenture.

 

AGHI contributed the net proceeds from theissuance of the AGHI Notes, approximately $81.0 million, to the Company and inturn, the Company made an equity contribution to its wholly-owned subsidiary,Camping World, Inc. (“Camping World”). Camping World then made an equitycapital contribution in the same amount to its wholly-owned subsidiary, CWI,Inc. (“CWI”). CWI created a new wholly-owned subsidiary named CWFR CapitalCorp., a Delaware corporation (“CWFR”) which is an “unrestricted subsidiary” asdefined under the AGHI Notes and the AGI Indenture. Since CWFR is anunrestricted subsidiary, its operations are not restricted by either the AGIIndenture or the AGHI Notes. CWI made an equity capital contribution to CWFR inan equal amount to the capital contribution that CWI received from CampingWorld. CWFR used the proceeds from the equity capital contribution to acquire apreferred membership interest in FreedomRoads Holding Company, LLC(“FreedomRoads Holding”), a Minnesota limited liability company owned 90% by The Stephen Adams Living Trustwhich also indirectly owns 97.4% of the outstanding capital stock of AGHC andindirectly AGI.

 

The preferred membership interest acquired byCWFR has a face amount of $88.2 million and is entitled to receive a preferredpayment from FreedomRoads Holding at 10-7/8% per annum when and as declared bythe Board of Governors of FreedomRoads from any source legally availabletherefor. Any portion of the preferred payment not paid will accumulate andwill be compounded semi-annually until paid. FreedomRoads Holding may redeemthe preferred membership interest upon the payment of $88.2 million plus theaccrued and unpaid preferred return to the date of redemption. FreedomRoadsHolding will be required to redeem the preferred membership interest at thatsame redemption price if there is a sale or reorganization of the membershipinterests of FreedomRoads Holding or a sale of substantially all of the assetsof FreedomRoads Holding. According to the terms of the preferred membershipinterest, FreedomRoads Holding cannot make distributions with respect tomembership interests other than (a) distributions with respect to the preferredmembership interest, (b) distributions for the members’ estimated taxliabilities from earnings of FreedomRoads Holding and (c) distributions in theaggregate not to exceed 50% of the amount of (i) FreedomRoads Holding’s netprofit for the period from January 1, 2005 through the end of the fiscalquarter next preceding the distribution date less (ii) the aggregate amount oftax distributions made during the period from January 1, 2005 through the endof the fiscal quarter next preceding the distribution date. CWFR may not sell,pledge or otherwise transfer the preferred membership interest. The preferredmembership interest does not provide CWFR with any voting rights inFreedomRoads Holding. The preferred membership interest in FreedomRoads Holdingis being carried at cost and is reviewed periodically for impairment.

 

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 Ehlert Publishing Group, Inc. acquired the *Powerboat Magazine* title and related assets from NordskogPublishing, Inc. for $4.0 million. As part of the purchase, we issued $1.5million of debt and assumed $0.5 million of liabilities. In December 2005, AGIProductions, Inc., a subsidiary of Ehlert Publishing Group, Inc., acquired theconsumer outdoor recreation show assets of Royal Productions, Inc. for $8.5million. As part of the purchase, we issued $6.0 million of debt and assumed$1.8 million of liabilities.

 

During 2005, we incurred $2.2 million of deferred executivecompensation expense under our phantom stock agreements and made payments of$1.5 million on mature phantom stock agreements. The earned incentives underthese agreements are scheduled to be paid at various 

 

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times over the next six years. Phantom stock payments of $0.6 millionare scheduled to**be made during 2006.

 

Capital expenditures for 2005 totaled $11.4 million compared to capitalexpenditures of $8.9 million in 2004. Capital expenditures are anticipated tobe approximately $10.8 million for 2006, primarily for new Camping World storesand equipment, information technology and databases enhancements, existingstore upgrades, inventory system replacement, and computer software upgradesand enhancements.

 

Managementbelieves that funds generated by operations, together with available borrowingsunder our revolving credit line, will be sufficient to meet all of ouranticipated cash requirements for the foreseeable future.

 

**Factors Affecting Future Performance**

 

Although increases in operating costs could adversely affect ouroperations, management does not believe that inflation has had a materialeffect on operating profit during the past several years. However, fuelshortages and substantial increases in propane and gasoline costs could have asignificant impact on our travel-related membership services and publicationsrevenues. Historically such events have caused declines in advertisements buthave not significantly affected club membership enrollment. We are unable topredict at what point fluctuating fuel prices may begin to adversely impactrevenues or cash flow. We believe we will be able to partially offset any costincreases with price increases to our members and certain cost reducingmeasures.

 

**Seasonality**

 

Our cash flow is highest in the summer months due to the seasonalnature of the retail segment, membership renewals and advertising prepaymentsfor the annual directories.

 

**Critical Accounting Policies**

 

*General*

 

Our discussion and analysis of our financial condition and results ofoperations is based upon our consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States. The preparation of these financial statements requires us tomake estimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses, and related disclosure of contingent assetsand liabilities. On an on-going basis, we evaluate our estimates, includingthose related to membership programs and incentives, bad debts, inventories,intangible assets, employee health insurance benefits, income taxes,restructuring, contingencies and litigation. We base our estimates onhistorical experience and on various other assumptions that are believed to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions.

 

We believe the following critical accounting policies affect our moresignificant judgments and estimates used in the preparation of our consolidatedfinancial statements.

 

*Revenue Recognition*

 

Merchandiserevenue is recognized when products are sold in the retail stores, shipped formail and Internet orders, or when services are provided to customers. EmergencyRoad Service (“ERS”) revenues are deferred and recognized over the life of themembership. ERS claim expenses are recognized when incurred. Royalty revenue isearned under the terms of an arrangement with a third 

 

37

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partycredit card provider based on a percentage of the Company’s outstanding creditcard balances with such third party credit card provider. Membership revenue isgenerated from annual, multi-year and lifetime memberships. The revenue andexpenses associated with these memberships are deferred and amortized over themembership period. For lifetime memberships, an 18-year period is used, whichis the actuarially determined estimated fulfillment period. Promotionalexpenses, consisting primarily of direct mail advertising, are deferred andexpensed over the period of expected future benefit, typically three monthsbased on historical actual response rates. Renewal expenses are expensed at thetime related materials are mailed. Recognized revenues and profit are subjectto revisions as the membership progresses to completion. Revisions tomembership period estimates would change the amount of income and expenseamortized in future accounting periods.

 

Newsstandsales of publications and related expenses are recorded at the time ofdelivery, net of estimated provision for returns. Subscription sales ofpublications are reflected in income over the lives of the subscriptions. Therelated selling expenses are expensed as incurred. Advertising revenues andrelated expenses are recorded at the time of delivery. Subscription andnewsstand revenues and expenses related to annual publications are deferreduntil the publications are distributed. Revenues and related expenses forconsumer shows are recognized when the show occurs.

 

*Accounts Receivable*

 

We estimate the collectability of our trade receivables. A considerableamount of judgment is required in assessing the ultimate realization of thesereceivables including the current credit-worthiness of each customer. Changesin required reserves have been recorded in recent periods and may occur in thefuture due to the market environment.

 

*Inventory*

 

We state inventories at the lower of cost or market. In assessing theultimate realization of inventories, we are required to make judgments as tofuture demand requirements and compare that with the current or committedinventory levels. We have recorded changes in required reserves in recentperiods due to changes in strategic direction, such as discontinuances ofproduct lines as well as changes in market conditions due to changes in demandrequirements. It is possible that changes in required inventory reserves maycontinue to occur in the future due to the market conditions.

 

*Long-Lived Assets*

 

Purchased intangible assets with finite lives are amortized using thestraight-line method over the estimated economic lives of the assets, rangingfrom one to twenty-three years.

 

Long-lived assets, such as property, plant and equipment and purchasedintangible assets with finite lives are evaluated for impairment wheneverevents or changes in circumstances indicate the carrying value of an asset maynot be recoverable in accordance with SFAS No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets.” We assess the fair value of the assets based on the future cash flow theassets are expected to generate and recognize an impairment loss when estimatedundiscounted future cash flow expected to result from the use of the asset plusnet proceeds expected from disposition of the asset (if any) are less than thecarrying value of the asset. When an impairment is identified, we reduce thecarrying amount of the asset to its estimated fair value based on a discountedcash flow approach or, when available and appropriate, comparable marketvalues. We determined there were no indicators of impairment of long-livedassets as of December 31, 2005.

 

We have evaluated the remaining useful lives of our finite-livedpurchased intangible assets to determine if any adjustments to the useful liveswere necessary or if any of these assets had indefinite lives and weretherefore not subject to amortization. We determined that no adjustments to theuseful lives of our finite-lived purchased intangible assets were necessary.The finite-lived purchased 

 

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intangible assets consist of membership customer lists, resort and golfcourse agreements, non-compete and deferred consulting agreements and deferredfinancing costs which have weighted average useful lives of approximately 6years, 23 years, 15 years and 7 years, respectively.

 

*Indefinite Lived Intangible Assets*

 

Effective January 1, 2002, we adopted new accounting standards on“Business Combinations” and “Goodwill and Other Intangible Assets.”  In accordance with these new standards,goodwill and intangible assets with indefinite lives are no longer amortizedbut instead are measured for impairment at least annually or when eventsindicate that an impairment exists. As required by the new standards, theimpairment tests for goodwill and other indefinite-lived intangible assets areassessed for impairment using fair value measurement techniques. Specifically,goodwill impairment is determined using a two-step process. The first step ofthe goodwill impairment test is used to identify potential impairment bycomparing the fair value of a reporting unit with the net book value (orcarrying amount), including goodwill. If the fair value of the reporting unitexceeds the carrying amount, goodwill of the reporting unit is considered notimpaired and the second step of the impairment test is unnecessary. If thecarrying amount of the reporting unit exceeds the fair value, the second stepof the goodwill impairment test is performed to measure the amount ofimpairment loss, if any. The second step of the goodwill impairment testcompares the implied fair value of the reporting unit’s goodwill with thecarrying amount of that goodwill. If the carrying amount of the reportingunit’s goodwill exceeds the implied fair value of that goodwill, an impairmentloss is recognized in an amount equal to that excess. The implied fair value ofgoodwill is determined in the same manner as the amount of goodwill recognizedin a business combination, accordingly the fair value of the reporting unit isallocated to all of the assets and liabilities of that unit as if the reportingunit had been acquired in a business combination and the fair value of thereporting unit was the purchase price paid to acquire the reporting unit. Theimpairment test for other intangible assets consists of a comparison of thefair value of the intangible asset with its carrying value. If the carryingvalue of the intangible asset exceeds its fair value, an impairment loss isrecognized in an amount equal to that excess.

 

Determining the fair value of a reporting unit under the first step ofthe goodwill impairment test and determining the fair value of individualassets and liabilities of a reporting unit under the second step of thegoodwill impairment test is judgmental in nature and often involves the use ofsignificant estimates and assumptions. These estimates and assumptions couldhave a significant impact on whether or not an impairment charge is recognizedand also the extent of such charge. Our estimates of fair value utilized ingoodwill and other indefinite-lived intangible asset tests may be based upon anumber of factors, including assumptions about the projected future cash flows,discount rate, growth rate, determination of market comparables, technologicalchange, economic conditions or changes to our business operations. Such changesmay result in impairment charges recorded in future periods.

 

The fair value of our reporting units is annually determined using acombination of the income approach and the market approach. Under the incomeapproach, the fair value of a reporting unit is calculated based on the presentvalue of estimated future cash flows. Future cash flows are estimated by usunder the market approach, fair value is estimated based on market multiples ofrevenue or earnings for comparable companies.

 

Based on the results of the annual impairment tests, we recorded animpairment charge of $4.3 million in 2005 related to Golf Card InternationalCorp., which is included in the membership services segment. During the currentyear, the number of Golf Card Club memberships decreased by approximately10,000 members, consistent with the loss in members in 2004. In 2004 we plannedto reduce the costs associated with the Golf Card Club to stabilize the overallearnings. In 2005 we determined that based on the reduced projected future cashflows as a result of reduced membership, combined with the increasingincremental costs necessary to acquire new members, the goodwill relating toGolf Card Club was impaired.

 

Future goodwill impairment tests could result in an additional chargeto earnings. We will continue to evaluate goodwill on an annual basis andwhenever events and changes in circumstances indicate that there may be apotential impairment.

 

39

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*IncomeTaxes*

 

TheCompany recognizes deferred tax assets and liabilities based on the liabilitymethod, which requires an adjustment to the deferred tax asset or liability toreflect income tax rates currently in effect. When income tax rates increase ordecrease, a corresponding adjustment to income tax expense is recorded byapplying the rate change to the cumulative temporary differences.

 

*Restructuring*

 

In 2003, we recordedreserves in connection with the restructuring program primarily within our retailsegment.  These reserves includedestimates pertaining to employee separation costs and the settlements ofcontractual obligations resulting from our actions.

 

**ITEM 7A:  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

 

We are exposed to marketrisks 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 notinclude other potential effects which could impact our business as a result ofthese interest rate fluctuations.

#### * *

#### *Interest RateSensitivity Analysis*

 

At December 31, 2005, wehad debt totaling $320.0 million, comprised of $111.2 million of variable ratedebt and $208.8 million of fixed rate debt. Holding other variables constant (such as debt levels), the earnings andcash flow impact of a one-percentage point increase/ decrease in interest rateswould have an unfavorable/ favorable impact of approximately $1.1 million.

 

#### *Credit Risk*

 

We are exposed to creditrisk on accounts receivable.  We providecredit to customers in the ordinary course of business and perform ongoingcredit evaluations.  Concentrations ofcredit risk with respect to trade receivables are limited due to the number ofcustomers comprising our customer base.  Wecurrently believe our allowance for doubtful accounts is sufficient to covercustomer credit risks.

 

###### **New Accounting Standards**

###### ** **

*Statement of Cash Flows*- On December 16, 2004, the FASB issued SFAS No. 123(R), which is a revision ofSFAS No. 123.  SFAS No. 123(R) supersedesAPB No. 25, and amends SFAS No. 95, “Statement of Cash Flows.”  Generally the approach in SFAS No. 123(R) issimilar to the approach described in SFAS No. 123.  However, SFAS No. 123(R) requires allshare-based payments to employees, including grants of employee stock options,to be recognized in the income statement based on their fair values.  Pro forma disclosure is no longer analternative.  The statement will notimpact the Company.

 

*Accounting Changes and ErrorCorrections* - In May 2005, the FASB issued SFAS No. 154, “AccountingChanges and Error Corrections.”  SFAS No.154 requires retrospective application to prior periods’ 

 

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financial statements of avoluntary change in accounting principle and that a change in method ofdepreciation, amortization, or depletion for long-lived, nonfinancial assets beaccounted for as a change in accounting estimate that is effected by a changein accounting principle.  SFAS No. 154 iseffective for accounting changes and corrections of errors made in fiscal yearsbeginning after December 15, 2005.   Wedo not believe the adoption of SFAS No. 154 will have a material impact on ourresults of operations or financial condition.

 

*Accounting for Rental CostsIncurred during a Construction Period* - On October 6, 2005,the FASB Staff Position (“FSP”) issued FSP FAS 13-1, “Accounting for RentalCosts Incurred during a Construction Period.” FSP FAS 13-1 requires rental costs associated with ground or buildingleases that are incurred during a construction period to be recognized asrental expense and included in income from continuing operations.  The lessee shall allocate rental costs overthe lease term following the guidance in SFAS No. 13, “Accounting for Leases,”and FASB Technical Bulletin No. 85-3, “Accounting for Operating Leases withScheduled Rent Increases,” starting with the beginning of the lease term.  FSP FAS 13-1 will become effective for usbeginning in fiscal year 2006.  We do notbelieve the adoption of FSP FAS 13-1 will have a material impact on our resultsof operations or financial condition.

 

###### **Disclosure Regarding Forward LookingStatements**

 

Thisfiling contains statements that are “forward looking statements,” and includes,among other things, discussions of our business strategy and expectationsconcerning market position, future operations, margins, profitability,liquidity and capital resources, as well as statements concerning theintegrations of acquired operations and the achievement of financial benefitsand operational efficiencies in connection with acquisitions.  Forward looking statements are included in “Business-General,” “Business- Competitive Strengths,” “Business- Our Strategy,” “Business-RV Industry,” “Business- Membership Clubs,” “Business- Membership Products andServices,” “Business- Publications,” “Business- Retail,” “Business- Marketing,”“Business- Operations,” “Business- Information Support Services,” “Business-Regulation,” “Business- Competition,” “Risk Factors,” “Legal Proceedings,” andin “Management’s Discussion and Analysis of Financial Condition and Results ofOperations.”  Although we believe thatthe expectations reflected in such forward looking statements are reasonable, wecan give no assurance that such expectations will prove to have beencorrect.  Generally, these statementsrelate to business plans or strategies, projected or anticipated benefits orother consequences of such plans or strategies, the number of acquisitions andprojected or anticipated benefits from acquisitions made by or to be made by us,or projections involving anticipated revenues, expenses, earnings, levels ofcapital expenditures or other aspects of operating results.  All phases of our operations of are subjectto a number of uncertainties, risks and other influences, including consumerspending, fuel prices, general economic conditions, regulatory changes andcompetition, many of which are outside our control, any one of which, or acombination of which, could materially affect the results of our operations andwhether the forward looking statements made by us ultimately prove to beaccurate.

 

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**ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

 

###### **Index to Financial Statements**

 
| Report of Independent  Registered Public Accounting Firm                                                    |   |
|-------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                        |   |
| Consolidated Balance Sheets as of  December 31, 2005 and 2004                                               |   |
|                                                                                                        |   |
| Consolidated  Statements of Operations for the years ended December 31, 2005, 2004 and 2003                 |   |
|                                                                                                        |   |
| Consolidated Statements of Stockholder’s  Deficit for the years ended December 31, 2005, 2004 and 2003 |   |
|                                                                                                        |   |
| Consolidated Statements of  Cash Flows for the years ended December 31, 2005, 2004 and 2003                 |   |
|                                                                                                        |   |
| Notes to Consolidated  Financial Statements                                                                 |   |

 

Allfinancial statement schedules have been omitted since the required informationis included in the consolidated financial statements, the notes thereto orbecause such information is not applicable.

 

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**REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM**

 

To Board of Directors

Affinity Group, Inc.

 

We have audited theaccompanying consolidated balance sheets of Affinity Group, Inc. and its subsidiariesas of December 31, 2005 and 2004, and the related consolidated statements ofoperations, stockholder’s deficit and cash flows for each of the three years inthe period ended December 31, 2005.  These financial statements are theresponsibility of the Company’s management.  Our responsibility is to express an opinion onthese financial statements based on our audits.

 
| We conducted our audits  in accordance with the standards of the Public Company Accounting Oversight Board  (United States).  Those standards  require that we plan and perform the audit to obtain reasonable assurance  about whether the financial statements are free of material misstatement. An  audit includes consideration of internal control over financial reporting as  a basis for designing audit procedures that are appropriate in the  circumstances, but not for the purpose of expressing an opinion on the  effectiveness of the Company’s internal control over financial  reporting.  Accordingly, we express no  such opinion.  An audit also includes  examining, on a test basis, evidence supporting the amounts and disclosures  in the financial statements, assessing the accounting principles used and  significant estimates made by management, and evaluating the overall financial  statement presentation.  We believe  that our audits provide a reasonable basis for our opinion. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the consolidated financial position of Affinity Group, Inc. andsubsidiaries at December 31, 2005 and 2004, and the consolidated results oftheir operations and their cash flows for each of the three years in the periodended December 31, 2005, in conformity with U.S. generally accepted accountingprinciples.

 

 
| February 10, 2006           | /s/ Ernst & Young  LLP |
|-----------------------------|----------------------------|
| Woodland Hills,  California |                       |

 

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**AFFINITYGROUP, INC. AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

**DECEMBER31, 2005 AND 2004 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)**

 
| ** **                                                                                   | ** ** | **2005**   | ** ** | **2004**     | ** ** |
|----------------------------------------------------------------------------------------------|------------|------------|------------|--------------|------------|
| ** **                                                                                   | ** ** | ** ** | ** ** | **(Note 1)** | ** ** |
| **ASSETS**                                                                                   |       |       |       |         |       |
| CURRENT ASSETS:                                                                              |       |       |       |         |       |
| Cash and cash  equivalents                                                                   |       | $          | 24,778     |         | $          | 24,564 |   |
| Accounts  receivable, less allowance for doubtful accounts of $952 in 2005 and $810 in  2004 |       | 26,508     |       | 24,228       |       |
| Inventories                                                                                  |       | 47,039     |       | 42,463       |       |
| Prepaid expenses  and other assets                                                           |       | 11,218     |       | 11,383       |       |
| Deferred tax  assets, net                                                                    |       | 4,995      |       | 6,615        |       |
| Total current  assets                                                                        |       | 114,538    |       | 109,253      |       |
|                                                                                         |       |       |       |         |       |
| PROPERTY AND  EQUIPMENT, net                                                                 |       | 29,843     |       | 27,642       |       |
| INVESTMENT IN  AFFILIATE                                                                     |       | 81,005     |       | —       |       |
| NOTE FROM AFFILIATE                                                                          |       | 4,722      |       | 4,752        |       |
| INTANGIBLE  ASSETS, net                                                                      |       | 34,572     |       | 27,716       |       |
| GOODWILL                                                                                     |       | 144,429    |       | 148,773      |       |
| DEFERRED TAX  ASSETS, net                                                                    |       | 4,620      |       | 323          |       |
| OTHER ASSETS                                                                                 |       | 1,731      |       | 1,763        |       |
| Total assets                                                                                 |       | $          | 415,460    |         | $          | 320,222 |   |
|                                                                                         |       |       |       |         |       |
| **LIABILITIES AND STOCKHOLDER’S DEFICIT**                                               |       |       |       |         |       |
| CURRENT  LIABILITIES:                                                                        |       |       |       |         |       |
| Accounts payable                                                                             |       | $          | 12,683     |         | $          | 16,511 |   |
| Accrued interest                                                                             |       | 6,897      |       | 6,857        |       |
| Accrued income  taxes                                                                        |       | 465        |       | 3,131        |       |
| Accrued  liabilities                                                                         |       | 34,094     |       | 34,230       |       |
| Deferred  revenues and gains                                                                 |       | 60,994     |       | 57,661       |       |
| Current portion  of long-term debt                                                           |       | 6,136      |       | 1,676        |       |
| Total current  liabilities                                                                   |       | 121,269    |       | 120,066      |       |
|                                                                                         |       |       |       |         |       |
| DEFERRED  REVENUES AND GAINS                                                                 |       | 37,926     |       | 41,469       |       |
| LONG-TERM DEBT,  net of current portion                                                      |       | 313,864    |       | 312,660      |       |
| OTHER LONG-TERM  LIABILITIES                                                                 |       | 8,766      |       | 4,135        |       |
|                                                                                         |       | 481,825    |       | 478,330      |       |
|                                                                                         |       |       |       |         |       |
| COMMITMENTS AND  CONTINGENCIES                                                               |       |       |       |         |       |
|                                                                                         |       |       |       |         |       |
| STOCKHOLDER’S  DEFICIT:                                                                 |       |       |       |         |       |
| Common stock,  $.001 par value, 2,000 shares authorized, 2,000 shares issued and outstanding |       | 1          |       | 1            |       |
| Additional  paid-in capital                                                                  |       | 81,005     |       | —       |       |
| Accumulated  deficit                                                                         |       | (147,371   | )          | (158,109     | )          |
| Total  stockholder’s deficit                                                            |       | (66,365    | )          | (158,108     | )          |
| Total liabilities and stockholder’s deficit                                             |       | $          | 415,460    |         | $          | 320,222 |   |

 

See notes toconsolidated financial statements.

 

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**AFFINITYGROUP, INC. AND SUBSIDIARIES**

** **

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**FOR THEYEARS ENDED DECEMBER 31, 2005, 2004 AND 2003 (IN THOUSANDS)**

 
| ** **                                 | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                       |       |     |       |     |       |     |       |
| REVENUES:                                  |       |     |       |     |       |     |       |
| Membership  services                       |       | $        | 133,756    |     | $          | 131,608  |       | $ | 128,664 |   |
| Publications                               |       | 79,122   |       | 77,977   |       | 71,436   |       |
| Retail                                     |       | 272,682  |       | 255,094  |       | 225,306  |       |
|                                       |       | 485,560  |       | 464,679  |       | 425,406  |       |
|                                       |       |     |       |     |       |     |       |
| COSTS APPLICABLE TO REVENUES:              |       |     |       |     |       |     |       |
| Membership  services                       |       | 85,551   |       | 84,231   |       | 79,500   |       |
| Publications                               |       | 53,855   |       | 53,042   |       | 48,392   |       |
| Retail                                     |       | 162,363  |       | 151,196  |       | 136,137  |       |
|                                       |       | 301,769  |       | 288,469  |       | 264,029  |       |
|                                       |       |     |       |     |       |     |       |
| GROSS PROFIT                               |       | 183,791  |       | 176,210  |       | 161,377  |       |
|                                       |       |     |       |     |       |     |       |
| OPERATING EXPENSES:                        |       |     |       |     |       |     |       |
| Selling, general  and administrative       |       | 121,178  |       | 116,137  |       | 104,066  |       |
| Restructuring  charge                      |       | —   |       | —   |       | 1,210    |       |
| Goodwill  impairment                       |       | 4,344    |       | —   |       | —   |       |
| Depreciation and  amortization             |       | 15,529   |       | 13,893   |       | 10,298   |       |
|                                       |       | 141,051  |       | 130,030  |       | 115,574  |       |
|                                       |       |     |       |     |       |     |       |
| INCOME FROM OPERATIONS                     |       | 42,740   |       | 46,180   |       | 45,803   |       |
|                                       |       |     |       |     |       |     |       |
| NON-OPERATING ITEMS:                       |       |     |       |     |       |     |       |
| Interest income                            |       | 1,061    |       | 755      |       | 809      |       |
| Interest expense                           |       | (25,642  | )          | (23,994  | )          | (18,932  | )          |
| Debt  extinguishment expense               |       | —   |       | (5,035   | )          | (3,218   | )          |
| Other  non-operating income (expense), net |       | (5       | )          | 420      |       | 201      |       |
|                                       |       | (24,586  | )          | (27,854  | )          | (21,140  | )          |
|                                       |       |     |       |     |       |     |       |
| INCOME FROM OPERATIONS BEFORE INCOME TAXES |       | 18,154   |       | 18,326   |       | 24,663   |       |
|                                       |       |     |       |     |       |     |       |
| INCOME TAX EXPENSE                         |       | (7,416   | )          | (8,075   | )          | (9,275   | )          |
|                                       |       |     |       |     |       |     |       |
| NET INCOME                                 |       | $        | 10,738     |     | $          | 10,251   |       | $ | 15,388 |   |

 

See notes toconsolidated financial statements.

 

45

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*** ***

**AFFINITYGROUP, INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF STOCKHOLDER’S DEFICIT**

**FORTHE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003**

**(INTHOUSANDS, EXCEPT SHARE AMOUNTS)**

 
| ** **                    | ** ** | ** **       | ** ** | ** **  | ** ** | **Additional**  | ** ** | ** **  | ** ** | ** ** | ** ** |
|-------------------------------|------------|------------------|------------|-------------|------------|-----------------|------------|-------------|------------|------------|------------|
| ** **                    | ** ** | **Common Stock** | ** ** | **Paid-in** | ** ** | **Accumulated** | ** ** | ** **  | ** ** |
| ** **                    | ** ** | **Shares**       | ** ** | **Amount**  | ** ** | **Capital**     | ** ** | **Deficit** | ** ** | **Total**  | ** ** |
| ** **                    | ** ** | ** **       | ** ** | ** **  | ** ** | ** **      | ** ** | ** **  | ** ** | ** ** | ** ** |
| BALANCES AT JANUARY 1, 2003   |       | 2,000            |       | $           | 1          |            | $          | 2,021       |       | $          | (89,570    | ) | $ | (87,548 | ) |
|                          |       |             |       |        |       |            |       |        |       |       |       |
| Dividends                     |       | —           |       | —      |       | (2,021          | )          | (14,724     | )          | (16,745    | )          |
| Net income                    |       | —           |       | —      |       | —          |       | 15,388      |       | 15,388     |       |
| BALANCES AT DECEMBER 31, 2003 |       | 2,000            |       | 1           |       | —          |       | (88,906     | )          | (88,905    | )          |
|                          |       |             |       |        |       |            |       |        |       |       |       |
| Dividends                     |       | —           |       | —      |       | —          |       | (79,454     | )          | (79,454    | )          |
| Net income                    |       | —           |       | —      |       | —          |       | 10,251      |       | 10,251     |       |
| BALANCES AT DECEMBER 31, 2004 |       | 2,000            |       | 1           |       | —          |       | (158,109    | )          | (158,108   | )          |
|                          |       |             |       |        |       |            |       |        |       |       |       |
| Additional paid  in capital   |       |             |       |        |       | 81,005          |       |        |       | 81,005     |       |
| Net income                    |       | —           |       | —      |       | —          |       | 10,738      |       | 10,738     |       |
| BALANCES AT DECEMBER 31, 2005 |       | 2,000            |       | $           | 1          |            | $          | 81,005      |       | $          | (147,371   | ) | $ | (66,365 | ) |

 

See notes toconsolidated financial statements.

 

46

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**AFFINITYGROUP, INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**FORTHE YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003 (IN THOUSANDS)**

 
| ** **                                                                         | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                               |       |     |       |     |       |     |       |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                             |       |     |       |     |       |     |       |
| Net income                                                                         |       | $        | 10,738     |     | $          | 10,251   |       | $ | 15,388 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |     |       |     |       |     |       |
| Goodwill  impairment                                                               |       | 4,344    |       | —   |       | —   |       |
| Deferred tax  provision (benefit)                                                  |       | (2,677   | )          | 2,274    |       | (122     | )          |
| Depreciation                                                                       |       | 9,194    |       | 8,433    |       | 6,380    |       |
| Amortization                                                                       |       | 6,335    |       | 5,460    |       | 3,918    |       |
| Provision for  losses on accounts receivable                                       |       | 521      |       | 585      |       | 1,611    |       |
| Deferred  compensation                                                             |       | 2,200    |       | 2,950    |       | 700      |       |
| Gain on sale of  property and equipment                                            |       | (2       | )          | (435     | )          | (210     | )          |
| Loss on early  extinguishment of debt                                              |       | —   |       | 5,035    |       | 3,218    |       |
| Changes in  operating assets and liabilities (net of purchased businesses):        |       |     |       |     |       |     |       |
| Accounts  receivable                                                               |       | (2,765   | )          | 547      |       | (1,765   | )          |
| Inventories                                                                        |       | (4,475   | )          | (5,624   | )          | (5,033   | )          |
| Prepaid expenses  and other assets                                                 |       | 442      |       | (427     | )          | (1,060   | )          |
| Accounts payable                                                                   |       | (3,828   | )          | 3,800    |       | 1,663    |       |
| Accrued and  other liabilities                                                     |       | (331     | )          | 4,774    |       | (5,242   | )          |
| Deferred  revenues and gains                                                       |       | (2,454   | )          | 743      |       | 2,404    |       |
| Net cash  provided by operating activities                                         |       | 17,242   |       | 38,366   |       | 21,850   |       |
|                                                                               |       |     |       |     |       |     |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                             |       |     |       |     |       |     |       |
| Capital  expenditures                                                              |       | (11,371  | )          | (8,869   | )          | (10,810  | )          |
| Net proceeds  from sale of property and equipment                                  |       | 33       |       | 420      |       | 294      |       |
| Change in  intangible assets                                                       |       | (45      | )          | (22      | )          | (66      | )          |
| Investment in  affiliate                                                           |       | (81,005  | )          | —   |       | —   |       |
| Acquisitions,  net of cash received                                                |       | (3,620   | )          | (2,599   | )          | (3,733   | )          |
| Loans  receivable- affiliate                                                       |       | 30       |       | (8       | )          | (192     | )          |
| Sale of  publication assets                                                        |       | —   |       | 3,939    |       | —   |       |
| Net cash used in  investing activities                                             |       | (95,978  | )          | (7,139   | )          | (14,507  | )          |
|                                                                               |       |     |       |     |       |     |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                             |       |     |       |     |       |     |       |
| Dividends paid                                                                     |       | —   |       | (75,096  | )          | (13,700  | )          |
| Borrowings on  long-term debt                                                      |       | 81,005   |       | 200,000  |       | 181,976  |       |
| Payment of debt  issue costs                                                       |       | (264     | )          | (7,777   | )          | (4,107   | )          |
| Principal  payments of long-term debt                                              |       | (1,791   | )          | (129,905 | )          | (167,127 | )          |
| Net cash  provided by (used in) financing activities                               |       | 78,950   |       | (12,778  | )          | (2,958   | )          |
|                                                                               |       |     |       |     |       |     |       |
| NET INCREASE IN  CASH AND CASH EQUIVALENTS                                         |       | 214      |       | 18,449   |       | 4,385    |       |
|                                                                               |       |     |       |     |       |     |       |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF YEAR                                    |       | 24,564   |       | 6,115    |       | 1,730    |       |
|                                                                               |       |     |       |     |       |     |       |
| CASH AND CASH  EQUIVALENTS AT END OF YEAR                                          |       | $        | 24,778     |     | $          | 24,564   |       | $ | 6,115 |   |

 

See notes toconsolidated financial statements.

 

47

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**AFFINITY GROUP, INC. ANDSUBSIDIARIES**

 

**NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS**

**YEARSENDED DECEMBER 31, 2005, 2004 AND 2003**

** **

1.                                       SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

 

*Principles of Consolidation –*The consolidated financial statements include the accounts of Affinity Group,Inc. (“AGI”) and its subsidiaries (collectively the “Company”), in accordancewith U.S. generally accepted accounting principles, and pursuant to the rulesand regulations of the Securities and Exchange Commission.  Prior to April 27, 2004, AGI was awholly-owned subsidiary of Affinity Group Holding, Inc. (“AGH”) and AGH was awholly-owned subsidiary of AGI Holding Corp. (“AGHC”), a privately-ownedcorporation.  On April 27, 2004, 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 years ended December 31, 2004 and 2003have been restated to reflect the combined financial position and results ofoperations of AGI and AGH, prior to the April 27, 2004 merger.  In March 2005, AGHC formed a holding company,Affinity Group Holding, Inc., a Delaware corporation (“AGHI”), at which timecontributed 100% of the outstanding shares of common stock of AGI to AGHI.  AGHI is the direct parent of theCompany.  All significant intercompanytransactions and balances have been eliminated.

 

*Description of the Business –*TheCompany is a membership-based direct marketing company which sells clubmemberships, products, services, and publications to selected affinity groupsprimarily in North America.** The Company markets club memberships,merchandise and services to RV owners, and camping and golf enthusiasts.  In addition, the Company operates 44 retailoutlets and a mail order business selling RV accessories, supplies andservices.  The stores are locatedthroughout the United States.  TheCompany also publishes magazines, directories and books.

 

*Use of Estimates –*Thepreparation of the Company’s consolidated financial statements in conformitywith accounting principles generally accepted in the United States requires theCompany’s management to make estimates and assumptions that affect the amountsreported in these financial statements and accompanying notes.  Actual results could differ from thoseestimates.

 

*Cash and Cash Equivalents –*TheCompany considers all short-term, highly liquid investments purchased with amaturity date of three months or less to be cash equivalents.  The carrying amount approximates fair valuebecause of the short maturity of these instruments.

 

*Concentration of Credit Risk –*TheCompany is potentially subject to concentrations of credit risk in accountsreceivable.  Concentrations of creditrisk with respect to accounts receivable is limited due to the large number ofcustomers and their geographical dispersion.

 

*Inventories –*Inventoriesare stated at lower of FIFO (first-in, first-out) cost or market.  Inventories consist of retail travel andleisure specialty merchandise.

 

48

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*Property and Equipment*–**Property and equipment are recorded at cost.  Depreciation of property and equipment isprovided using the straight-line method over the following estimated usefullives of the assets:

 
| ** **              | ** ** | ** ** | ** ** | **Years** | ** ** |
|-------------------------|------------|------------|------------|-----------|------------|
| Leasehold improvements  |       |       |       | 3-27      |       |
| Furniture and equipment |       |       |       | 3-12      |       |
| Software                |       |       |       | 3-5       |       |

* *

Leasehold improvementsare amortized over their useful lives or the remaining term of the respectivelease, whichever is shorter.

 

*Goodwill and Other IntangibleAssets* – Goodwill is reviewedat least annually for impairment, and more often when impairment indicators arepresent (See Note 3).  The finite-livedintangible assets consisting of membership customer lists, resort and golfcourse agreements, non-compete and deferred consulting agreements, and deferredfinancing costs have weighted average useful lives of approximately 6 years, 23years, 15 years and 7 years, respectively.

 

*Long-lived assets*- Long-lived assets, including capitalized software costs, to be held and usedare reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount of an asset may not be recoverable.  Impairment is recognized to the extent thesum of the discounted estimated future cash flows from the use of the asset isless than the carrying value.

 

*Self-insurance program*- We maintain a self-insurance program covering our costs, up to a deductiblelevel, for our California workers’ compensation exposures.  The amounts in excess of the deductible levelare fully insured.  We maintainfully-insured programs that guarantee the payment of all costs for workers’compensation exposures in the states of operation outside of California.  We maintain various insurance programscovering our costs, up to various deductible levels, for our general liabilityexposures for all of our operations. Amounts in excess of deductibles are fully insured.  Self-insurance accruals for these programsare calculated by outside actuaries and are based on claims filed and includeestimates for claims incurred but not yet reported.  Projections of future loss are inherentlyuncertain because of the random nature of insurance claims occurrences andcould be substantially affected if future occurrences and claims differsignificantly from these assumptions and historical trends.

 

*Long-term Debt*– The fair value of the Company’s long-term debt is estimated based on thequoted market prices for the same or similar issues or on the current ratesoffered for debt of the same or similar remaining maturities.  The fair value of the Company’s long-term debtwas $319.0 million as of December 31, 2005.

 

*Revenue Recognition –*Merchandiserevenue is recognized when products are sold in the retail stores, shipped formail and Internet orders, or when services are provided to customers.* *Emergency RoadService (“ERS”) revenues are deferred and recognized over the life of themembership.  ERS claim expenses arerecognized when incurred.  Royaltyrevenue is earned under the terms of an arrangement with a third party creditcard provider based on a percentage of the Company’s outstanding credit cardbalances with such third party credit card provider.  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.  Forlifetime memberships, an 18-year period is used, which is the actuariallydetermined estimated fulfillment period. Promotional expenses, consisting primarily of direct mail advertising,are deferred and expensed over the period of expected future benefit, typicallythree months based on historical actual response rates.  Renewal expenses are expensed at the time

 

49

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related materials aremailed.  Recognized revenues and profitare subject to revisions as the membership progresses to completion.  Revisions to membership period estimateswould change the amount of income and expense amortized in future accountingperiods.  At December 31, 2005 and 2004, $5.8million and $5.3 million of advertising expenses have been capitalized asdirect-response advertising, of which $3.3 million and $2.8 million,respectively, were reported as assets and $2.5 million in each year werereported net of related deferred revenue. Advertising expenses for 2005, 2004, and 2003 were $27.4 million, $28.1million, and $27.3 million, respectively.

 

*Publications Revenue and Expense –*Newsstand sales of publications andrelated expenses are recorded at the time of delivery, net of estimatedprovision for returns.  Subscriptionsales of publications are reflected in income over the lives of thesubscriptions.  The related sellingexpenses are expensed as incurred. Advertising revenues and related expenses are recorded at the time ofdelivery.  Subscription and newsstandrevenues and expenses related to annual publications are deferred until thepublications are distributed.  Revenuesand related expenses for consumer shows are recognized when the show occurs.

 

*Vendor Allowances*– The Company receives rebates from vendors pursuant to several different typesof programs.  Vendor consideration isaccounted for as a reduction of the inventory cost and related cost of saleswhen the inventory is sold.

 

*Shipping and Handling Fees andCosts –*The Company reports shippingand handling costs billed to customers as a component of revenues, and relatedcosts are reported as a component of cost applicable to revenues.

 

*Income**Taxes –*The Company recognizes deferred tax assets andliabilities based on the liability method, which requires an adjustment to thedeferred tax asset or liability to reflect income tax rates currently ineffect. When income tax rates increase or decrease, a corresponding adjustmentto income tax expense is recorded by applying the rate change to the cumulativetemporary differences.

 

*MajorCustomers –* Included in theMembership Services Segment is revenue in the amount of $20.0 million, $20.2million, and $20.3 million, for the years 2005, 2004 and 2003, respectively, whichwas received under contracts from one customer of the Company.

 

*Restructuring Charge –*TheCompany incurred restructuring charges of $1.2 million in 2003 which wasprimarily attributable to a management restructuring in the retail segment.

 

The following is asummary of the restructuring accrual activity for the years ended December 31,2005 and 2004 (in thousands)

 
| ** **               | ** ** | **Years ended December 31,** | ** **   |
|--------------------------|------------|------------------------------|--------------|
| ** **               | ** ** | **2005**                     | ** **   | **2004** | ** ** |
| Opening balance          |       | $                            | 83           |   | $ | 83 |   |
| Additions                |       | —                       |         | — |   |
| Charges against reserves |       | (83                          | )            | — |   |
| Ending balance           |       | $                            |  — |   | $ |  83 |   |

 

50

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A summary of theseverance activity for the years ended December 31, 2005, 2004 and 2003 follows(dollar amounts in thousands):

 
| ** **           | ** ** | **Years ended December 31,** | ** ** |
|----------------------|------------|------------------------------|------------|
| ** **           | ** ** | **2005**                     | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **           | ** ** | **# of**                     | ** ** | ** ** | ** ** | **# of** | ** ** | ** ** | ** ** | **# of** | ** ** | ** ** | ** ** |
| ** **           | ** ** | **Employees**                | ** ** | **Amount** | ** ** | **Employees** | ** ** | **Amount** | ** ** | **Employees** | ** ** | **Amount** | ** ** |
| Opening balance      |       | 1                            |       | $ | 83 |   | 1 |   | $ | 83 |   | 10 |   | $ | 560 |   |
| Planned terminations |       | —                       |       | — |   | — |   | — |   | 19 |   | 1,210 |   |
| Actual terminations  |       | (1                           | )          | (83 | ) | — |   | — |   | (28 | ) | (1,687 | ) |
| Ending balance       |       | —                       |       | $ | — |   | 1 |   | $ | 83 |   | 1 |   | $ | 83 |   |

 

*RecentAccounting Pronouncements:*

 

*Statementof Cash Flows* - On December 16, 2004, the FASB issued SFASNo. 123(R), which is a revision of SFAS No. 123.  SFAS No. 123(R) supersedes APB No. 25, andamends SFAS No. 95, “Statement of Cash Flows.” Generally the approach in SFAS No. 123(R) is similar to the approachdescribed in SFAS No. 123.  However, SFASNo. 123(R) requires all share-based payments to employees, including grants ofemployee stock options, to be recognized in the income statement based on theirfair values.  Pro forma disclosure is nolonger an alternative.  The statementwill not impact the Company.

 

*AccountingChanges and Error Corrections* - In May 2005, the FASB issuedSFAS No. 154, “Accounting Changes and Error Corrections.”  SFAS No. 154 requires retrospectiveapplication to prior periods’ financial statements of a voluntary change inaccounting principle and that a change in method of depreciation, amortization,or depletion for long-lived, nonfinancial assets be accounted for as a changein accounting estimate that is effected by a change in accountingprinciple.  SFAS No. 154 is effective foraccounting changes and corrections of errors made in fiscal years beginningafter December 15, 2005.   We do notbelieve the adoption of SFAS No. 154 will have a material impact on our resultsof operations or financial condition.

 

*Accountingfor Rental Costs Incurred during a Construction Period* - OnOctober 6, 2005, the FASB Staff Position (“FSP”) issued FSP FAS 13-1, “Accountingfor Rental Costs Incurred during a Construction Period.”  FSP FAS 13-1 requires rental costs associatedwith ground or building leases that are incurred during a construction periodto be recognized as rental expense and included in income from continuing operations.  The lessee shall allocate rental costs overthe lease term following the guidance in SFAS No. 13, “Accounting for Leases,”and FASB Technical Bulletin No. 85-3, “Accounting for Operating Leases withScheduled Rent Increases,” starting with the beginning of the lease term.  FSP FAS 13-1 will become effective for usbeginning in fiscal year 2006.  We do notbelieve the adoption of FSP FAS 13-1 will have a material impact on our resultsof operations or financial condition.

 

51

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2.      PROPERTY AND EQUIPMENT

 

Propertyand equipment consisted of the following at December 31 (in thousands):

 
| ** **                                       | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|
|                                             |       |     |       |     |       |
| Land                                             |       | $        | 477        |     | $          | 477 |   |
| Building and improvements                        |       | 7,969    |       | 6,906    |       |
| Furniture and equipment                          |       | 45,250   |       | 39,930   |       |
| Software                                         |       | 18,000   |       | 15,128   |       |
| Systems development and construction in progress |       | 4,117    |       | 2,068    |       |
|                                             |       | 75,813   |       | 64,509   |       |
| Less: accumulated depreciation                   |       | (45,970  | )          | (36,867  | )          |
|                                             |       | $        | 29,843     |     | $          | 27,642 |   |

 

3.                                       GOODWILLAND OTHER INTANGIBLE ASSETS

 

A summary of changes inthe carrying amount of goodwill by business segment consisted of the followingat December 31 (in thousands):

 
| ** **                      | ** ** | **Membership** | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
|---------------------------------|------------|----------------|------------|------------------|------------|------------|------------|------------------|------------|
| ** **                      | ** ** | **Services**   | ** ** | **Publications** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| Balance as of January 1, 2004   |       | $              | 54,288     |             | $          | 48,181     |       | $                | 47,601     |   | $ | 150,070 |   |
| Acquisitions                    |       | —         |       | 2,256            |       | —     |       | 2,256            |       |
| Dispositions                    |       | —         |       | (3,553           | )          | —     |       | (3,553           | )          |
| Balance as of December 31, 2004 |       | 54,288         |       | 46,884           |       | 47,601     |       | 148,773          |       |
| Impairments                     |       | (4,344         | )          | —           |       | —     |       | (4,344           | )          |
| Balance as of December 31, 2005 |       | $              | 49,944     |             | $          | 46,884     |       | $                | 47,601     |   | $ | 144,429 |   |

 

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Finite lived intangibleassets and related accumulated amortization consisted of the following atDecember 31 (in thousands):

 
| ** **                                      | ** ** | ** ** | ** ** | **2005**         | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                                      | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
| ** **                                      | ** ** | **Gross**  | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
| Membership and customer lists                   |       | $          | 24,514     |             | $          | (7,007     | )          | $ | 17,507 |   |
| Resort and golf course participation agreements |       | 13,539     |       | (11,622          | )          | 1,917      |       |
| Non-compete and deferred consulting agreements  |       | 18,455     |       | (11,492          | )          | 6,963      |       |
| Deferred financing costs                        |       | 11,851     |       | (3,666           | )          | 8,185      |       |
|                                            |       | $          | 68,359     |             | $          | (33,787    | )          | $ | 34,572 |   |

 
| ** **                                      | ** ** | ** ** | ** ** | **2004**         | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                                      | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
| ** **                                      | ** ** | **Gross**  | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
| Membership and customer lists                   |       | $          | 12,133     |             | $          | (4,404     | )          | $ | 7,729 |   |
| Resort and golf course participation agreements |       | 13,548     |       | (10,710          | )          | 2,838      |       |
| Non-compete and deferred consulting agreements  |       | 17,955     |       | (10,391          | )          | 7,564      |       |
| Deferred financing costs                        |       | 11,587     |       | (2,002           | )          | 9,585      |       |
|                                            |       | $          | 55,223     |             | $          | (27,507    | )          | $ | 27,716 |   |

 

The aggregate future five-yearamortization of finite lived intangibles at December 31, 2005 is as follows (inthousands):

 

| 2006       |   | $     | 7,907  |   |
|------------|--------|-------|--------|--------|
| 2007       |   | 7,749 |   |
| 2008       |   | 6,092 |   |
| 2009       |   | 4,606 |   |
| 2010       |   | 3,498 |   |
| Thereafter |   | 4,720 |   |
| Total      |   | $     | 34,572 |   |

 

Under SFAS No. 142, Goodwilland Other Intangible Assets, (“SFAS No. 142”) goodwill impairment is deemed toexist if the net book value of a reporting unit exceeds its estimated fairvalue.  The Company’s reporting units aregenerally consistent with the operating segments underlying the reporting segmentsidentified in Note 12 - Segment Information.

 

The Company performed itsannual impairment test of its goodwill and intangible assets during the fourthquarter of 2005.  Based on this test, theCompany recorded an impairment charge of $4.3 million related to the Golf CardClub which is included in the Membership Services segment.  During the current year, the number of GolfCard Club memberships decreased by approximately 10,000 members, consistentwith the loss in members in 2004.  In2004 we planned to reduce the costs associated with the Golf Card Club tostabilize the overall earnings.  In 2005we determined that based on the reduced projected future cash flows as a resultof reduced membership, combined with the increasing incremental costs necessaryto acquire new members, the goodwill relating to Golf Card Club was impaired.

 

53

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In August 2004, the Company’s subsidiaryEhlert Publishing Group, Inc. sold certain publication assets for $4.2 millionin cash.  The Company paid $0.2 millionin transaction fees related to the sales and recorded a $3.6 million reductionin goodwill.  As a result of the sale,the Company recorded a net gain of $0.4 million.  Approximately $3.6 million of goodwill wasallocated to this reporting unit and was therefore a part of the carryingamount of the net assets disposed of in determining the gain.

 

In December 2004, Ehlert Publishing Group,Inc. acquired the stock of ARU, Inc., a producer of consumer outdoor recreationshows.  As part of the purchase, the Companyissued $0.7 million of purchase debt and assumed $0.4 million of liabilities.  Goodwill in the amount of $2.3 million wasrecorded upon the acquisition.

 

In April 2005, Camping World, Inc. acquiredthe 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.  In December 2005, Ehlert Publishing Group,Inc., through its wholly-owned subsidiary, AGI Productions, Inc., acquired theconsumer outdoor recreation show assets of Royal Productions, Inc. for $8.5million.  The acquisition price wasallocated primarily to membership and customer lists.

 

4.                                       ACCRUEDLIABILITIES

 

Accrued liabilities consisted of the followingat December 31 (in thousands):

 
| ** **                | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|
| Compensation and benefits |       | $        | 12,911     |     | $          | 12,018 |   |
| Other accruals            |       | 21,183   |       | 22,212   |       |
|                      |       | $        | 34,094     |     | $          | 34,230 |   |

 

5.                                       LONG-TERMDEBT

 

The following reflectsoutstanding long-term debt as of December 31 (in thousands):

*** ***
| ** **                                | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
| AGI 9% Senior Subordinated Notes due 2012 |       | $        | 200,000    |     | $          | 200,000 |   |
| AGI Credit Facility:                      |       |     |       |     |       |
| Term Loans                                |       | 111,150  |       | 112,550  |       |
| Other long-term obligations               |       | 8,850    |       | 1,786    |       |
|                                      |       | 320,000  |       | 314,336  |       |
| Less: current portion                     |       | (6,136   | )          | (1,676   | )          |
|                                      |       | $        | 313,864    |     | $          | 312,660 |   |

 

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On June 24, 2003, the Company entered into an Amendedand Restated Credit Agreement and a Senior Secured Floating Rate Note PurchaseAgreement (“Senior Credit Facility”) providing for term loans (“Term Loans”) inthe aggregate of $140.0 million and a revolving credit facility of $35.0million.  Proceeds from the Senior CreditFacility were used to refinance the existing senior secured indebtedness, paydividends of $13.7 million to AGI’s parent, AGI Holding Corp., and redeem $30.0 millionof AGH Notes at 103.667% of par as of July 24, 2003.  The funds available under the revolvingcredit line of the Senior Credit Facility may be utilized for borrowings orletters of credit; however, a maximum of $12.5 million may be allocated to suchletters of credit.  Re-borrowings underthe Term Loans are not permitted.  Theinterest on borrowings under the Senior Credit Facility is at variable ratesbased on the ratio of total cash flow to outstanding indebtedness (asdefined).  Interest rates float withprime and the London Interbank Offered Rates (“LIBOR”), plus an applicablemargin ranging from 0.75% to 2.75% over the stated rates.  AGI also pays a commitment fee of 0.5% perannum on the unused amount of the revolving credit line.  Further, the Senior Credit Facility requiresthe loans to be prepaid in an amount equal to 75% of the excess cash flow, asdefined.  The balance of the excess cashflow would be available for distribution. As of December 31, 2005, the Company generated $1.7 million of excesscash flow, as defined and will prepay the Term Loans in the first quarter of2006, on a pro-rata basis, in inverse order of maturity, per theagreement.  The Senior Credit Facility issecured by substantially all the assets and a pledge of the stock of AGI.  As of the refinancing date, the Companyincurred a $1.7 million debt extinguishment charge representing the write-offof unamortized deferred financing cost associated with the prior financingfacility.

 

The Company also announced on June 24, 2003 thatnotice was given on the same date, to note holders of record, to redeem $30.0million of the AGH Notes.  The redemptiondate was July 24, 2003.  The notes wereredeemed at 103.667% of par plus accrued interest to the date ofredemption.  The redemption was funded byborrowings under the Senior Credit Facility. The bond redemption premium and the pro rata amount of unamortizeddeferred financing costs in the amount of $1.1 million and $0.4 million,respectively, were recognized as of the redemption date.

 

As of December 31, 2005, $111.2 million wasoutstanding under the Term Loans and the average interest rate on the TermLoans was 6.97%.  As of December 31, 2005permitted borrowings under the undrawn revolving line were $27.5 million.  The Company had commercial and standby lettersof credit in the aggregate amount of $7.5 million outstanding as of December31, 2005.  The aggregate quarterlyscheduled payments on the Term Loans are $0.35 million.  The revolving credit facility matures on June24, 2008, and the Term Loans mature on June 24, 2009.

 

On February 18, 2004,the Company issued $200.0 million of 9% Senior Subordinated Notes due 2012 (the“AGI Senior Notes”).  AGI completed aregistered exchange of the AGI Senior Notes in August 2004 under the SecuritiesAct of 1933.  Interest is payable on the AGISenior Notes twice a year on each February 15 and August 15, beginning August15, 2004, and the AGI Senior Notes mature on February 15, 2012.  The proceeds of the issuance were used tofund the tender offer and defeasance of the remaining $100.0 millionoutstanding principal amount of the AGH Notes. The Company used the remaining proceeds from the issuance of the AGISenior Notes to prepay $25.0 million of the Senior Credit Facility, pay a $60.0million dividend, create a $15.0 million segregated cash account, pay certainprepayment and transaction costs and for general corporate purposes.   The bond redemption premium, consent fee andthe unamortized deferred financing costs in the amount of $1.7 million, $1.7million, and $1.1 million, respectively, were recognized as of the redemptiondate.  The Company also incurred a $0.5 milliondebt extinguishment charge representing the pro rata unamortized deferredfinancing costs associated with the prepayment of the Senior Credit Facility.

 

55

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In November 2004, theCompany amended the Senior Credit Facility dated June 24, 2003 to reduce theinterest rates on the Term Loans in both agreements by 1.00%.  The amendments reduced the applicable interestmargin was reduced from 4.00% to 3.00% and 3.00% to 2.00% for the LIBOR andPrime Rate loans, respectively.  OnNovember 13, 2005, we further amended the Senior Credit Facility dated June 24,2003 and terminated the Senior Secured Floating Rate Note Purchase Agreementdated as of June 24, 2003.  All TermLoans under the Senior Secured Floating Rate Note Purchase Agreement wereconverted into Term Loans under the Credit Agreement.  In addition, the interest rates on the TermLoans have been reduced by 0.50% and the amendment provides for a furtherreduction of 0.25% at any time when the consolidated total leverage ratio, asdefined, for any period is less than 4.25 to 1. The amendment reduces the applicable interest margin from 3.00% to 2.50%and 2.00% to 1.50% for the LIBOR and Prime Rate loans, respectively.

 

On March 24, 2005 in a private placement, AGHI, ourparent company, issued $88.2 million principal amount of its 10-7/8% seniornotes due 2012 (the “AGHI Notes”) at a $3.2 million original issuediscount.  AGHI completed a registeredexchange of the AGHI Notes under the Securities Act of 1933 on June 8,2005.  The AGHI Notes are unsecuredobligations of AGHI, and AGI and its subsidiaries have not guaranteed paymentof principal or interest on the AGHI Notes. Interest on the AGHI Notes is payable semi-annually on February 15 andAugust 15 commencing August 15, 2005 and the entire $88.2 million principalamount of the AGHI Notes are due in full on February 15, 2012.  For interest payments on and prior toFebruary 15, 2008, AGHI may elect to pay interest on the AGHI Notes in cash orby the issuance of additional notes of the same tenor as the AGHI Notes.  Any additional AGHI Notes issued in paymentof 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 the SeniorCredit Facility and the indenture governing the terms of the AGI Senior Notes(the “AGI Indenture”) under which AGI has issued $200.0 million in 9% seniorsubordinated notes due 2012.  AGHIexpects to issue additional notes of the same tenor as the AGHI Notes through February15, 2008 to pay interest on the AGHI Notes when and as such interest isdue.  After February 15, 2008, AGHI mustrely on dividends from AGI to fund the interest payments due under the AGHINotes.

 

AGHI contributed the net proceeds from the issuance ofthe AGHI Notes, approximately $81.0 million, to AGI and in turn, AGI made anequity contribution to its wholly-owned subsidiary, Camping World, Inc. (“CampingWorld”).  Camping World then made anequity capital contribution in the same amount to its wholly-owned subsidiary,CWI, Inc. (“CWI”).  CWI created a newwholly-owned subsidiary named CWFR Capital Corp., a Delaware corporation (“CWFR”)which is an “unrestricted subsidiary” as defined under the AGHI Notes and theAGI Indenture.  Since CWFR is an unrestrictedsubsidiary, its operations are not restricted by either the AGI Indenture orthe AGHI Notes.  CWI made an equitycapital contribution to CWFR in an equal amount to the capital contributionthat CWI received from Camping World. CWFR used the proceeds from the equity capital contribution to acquire apreferred membership interest in FreedomRoads Holding Company, LLC (“FreedomRoadsHolding”), a Minnesota limited liability company owned 90% by The Stephen AdamsLiving Trust which also indirectly owns 97.4% of the outstanding capital stockof AGHC and indirectly AGHI.

 

The preferred membership interest acquired by CWFR hasa face amount of $88.2 million and is entitled to receive a preferred paymentfrom FreedomRoads Holding at 10-7/8% per annum when and as declared by theBoard of Governors of FreedomRoads from any source legally availabletherefor.  Any portion of the preferredpayment not paid will accumulate and will be compounded semi-annually untilpaid.  FreedomRoads Holding may redeemthe preferred membership interest

 

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upon the payment of $88.2 million plus the accrued andunpaid 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 preferredmembership interest, FreedomRoads Holding cannot make distributions withrespect to membership interests other than (a) distributions with respect tothe preferred membership interest, (b) distributions for the members’ estimatedtax liabilities from earnings of FreedomRoads Holding and (c) distributions inthe aggregate not to exceed 50% of the amount of (i) FreedomRoads Holding’s netprofit for the period from January 1, 2005 through the end of the fiscalquarter next preceding the distribution date less (ii) the aggregate amount oftax distributions made during the period from January 1, 2005 through the endof the fiscal quarter next preceding the distribution date.  CWFR may not sell, pledge or otherwisetransfer the preferred membership interest. The preferred membership interest does not provide CWFR with any votingrights in FreedomRoads Holding.  Thepreferred membership interest FreedomRoads Holding is being carried at cost andis reviewed periodically for impairment.

 

The AGI Credit Facilityand the AGI indenture contains certain restrictive covenants relating to, butnot limited to, mergers, changes in the nature of the business, acquisitions,additional indebtedness, sale of assets and investments, and the payment ofdividends subject to certain limitations and minimum operating covenants.  The Company was in compliance with all debtcovenants at December 31, 2005.

 

The aggregate future maturitiesof long-term debt at December 31, 2005 are as follows (in thousands):     

 

| 2006       |   | $       | 6,136         |   |
|------------|--------|---------|---------------|--------|
| 2007       |   | 3,511   |          |
| 2008       |   | 3,671   |          |
| 2009       |   | 106,236 |          |
| 2010       |   | 446     |          |
| Thereafter |   | 200,000 |          |
| Total      |   | $       |  320,000 |   |

 

6.                                       INCOMETAXES

 

The components of theCompany’s income tax expense from operations for the year ended December 31,consisted of (in thousands):

 
| ** **         | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------|------------|----------|------------|----------|------------|----------|------------|
| Current:           |       |     |       |     |       |     |       |
| Federal            |       | $        | 8,866      |     | $          | 5,090    |       | $ | 8,249 |   |
| State              |       | 1,227    |       | 711      |       | 1,148    |       |
| Deferred           |       | (2,677   | )          | 2,274    |       | (122     | )          |
| Income tax expense |       | $        | 7,416      |     | $          | 8,075    |       | $ | 9,275 |   |

 

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A reconciliation ofincome tax expense from operations to the federal statutory rate for the yearended December 31 is as follows (in thousands):

 
| ** **                                      | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                            |       |     |       |     |       |     |       |
| Income taxes computed at federal statutory rate |       | $        | 6,354      |     | $          | 6,413    |       | $ | 8,633 |   |
| State income taxes - net of federal benefit     |       | 545      |       | 550      |       | 740      |       |
| Permanent difference:                           |       |     |       |     |       |     |       |
| Disposition of  book goodwill                   |       | —   |       | 1,334    |       | —   |       |
| Goodwill written  off                           |       | 1,651    |       | —   |       | —   |       |
| Reduction of  valuation allowance               |       | (1,036   | )          | —   |       | —   |       |
| Other                                           |       | (98      | )          | (222     | )          | (98      | )          |
| Income tax expense                              |       | $        | 7,416      |     | $          | 8,075    |       | $ | 9,275 |   |

 

Deferred income taxesreflect the net tax effects of temporary differences between the carryingamounts of assets and liabilities for financial reporting purposes and theamounts used for income tax purposes and operating loss and tax creditcarryforwards.  Significant itemscomprising the net deferred tax asset at December 31 are (in thousands):

 
| ** **                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|
| **Deferred tax liabilities:**                   |       |     |       |     |       |
| Management Incentive                            |       | $        | (3,254     | )        | $          | (3,254 | ) |
| Accelerated depreciation                        |       | (2,236   | )          | (2,194   | )          |
| Prepaid expenses                                |       | (3,051   | )          | (3,046   | )          |
| Intangible assets                               |       | (1,996   | )          | (1,901   | )          |
| Basis difference on building and land           |       | (11,868  | )          | (13,286  | )          |
| Other                                           |       | (271     | )          | (285     | )          |
|                                            |       | (22,676  | )          | (23,966  | )          |
| **Deferred tax assets:**                        |       |     |       |     |       |
| Intangible assets                               |       | 1,163    |       | 434      |       |
| Deferred revenues                               |       | 8,957    |       | 7,765    |       |
| Accrual for employee benefits and severance     |       | 1,720    |       | 2,895    |       |
| Accrual for deferred phantom stock compensation |       | 2,280    |       | 1,995    |       |
| Charitable contribution carryforward            |       | —   |       | 1,512    |       |
| Claims reserves                                 |       | 2,996    |       | 3,447    |       |
| Reserve for resort cards/points                 |       | 1,162    |       | 1,382    |       |
| Deferred compensation                           |       | 9,704    |       | 9,251    |       |
| Bad debt reserve                                |       | 1,103    |       | 832      |       |
| Other reserves                                  |       | 3,206    |       | 2,427    |       |
|                                            |       | 32,291   |       | 31,940   |       |
|                                            |       |     |       |     |       |
| Valuation allowance                             |       | —   |       | (1,036   | )          |
|                                            |       |     |       |     |       |
| Net deferred tax assets                         |       | $        | 9,615      |     | $          | 6,938 |   |

 

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The Company and itssubsidiaries are parties to a tax-sharing agreement with the Company’s ultimateparent; however, taxes are determined on a separate company basis.  As part of the tax-sharing agreement, AGHC iscompensated for its usable share of separate company federal tax losses.  As such, accrued income taxes on the balancesheet are due AGHC.  The accrued taxesdue AGHI under the tax sharing agreement are reported under other long-termliabilities as they will not be paid within the next 12 months in accordancewith the AGI Credit Facility.  Accruedtaxes due AGHI as of December 31, 2005 was $3.1 million.  At December 31, 2005, the valuation allowancewas eliminated as the Company determined that the deferred tax asset related tothe charitable contribution carryforward would be fully realized.

 

7.                                       COMMITMENTS,CONTINGENCIES

 

*Leases*— The Company holds certain property and equipment under rental agreements andoperating leases which have varying expiration dates.  Future minimum annual fixed rentals underoperating leases having an original term of more than one year as of December31, 2005 are as follows (in thousands):

 

| 2006       |   | $      | 12,606        |   |
|------------|--------|--------|---------------|--------|
| 2007       |   | 11,454 |          |
| 2008       |   | 9,581  |          |
| 2009       |   | 8,795  |          |
| 2010       |   | 8,457  |          |
| Thereafter |   | 86,469 |          |
| Total      |   | $      |  137,362 |   |

 

During 2005, 2004 and2003, respectively, approximately $13.1 million, $12.5 million, and $11.8million of rent expense was charged to costs and expenses.

 

On December 5, 2001, theCompany sold eleven real estate properties to eleven separate wholly-ownedsubsidiaries of AGRP Holding Corp., a wholly-owned subsidiary of the Company’sparent, AGI Holding Corp., for $52.3 million in cash and a notereceivable.  The properties have beenleased back to the Company on a triple net basis.  Both the sales price and lease rates werebased on market rates determined by third party independent appraisers engagedby the mortgage lender and approved by the AGI Senior Credit Facility agent bank.  These leases have an initial term of 25 to 27years with two five-year options at the then current market rent.  The leases are classified as operating leasesin accordance with SFAS No. 13 “Accounting for Leases.”  Land and buildings with a net book valuetotaling $45.8 million have been removed from the balance sheet.  The transaction resulted in a net gain of$6.1 million consisting of a $12.1 million gain on certain properties and a$6.0 million loss on other properties. In accordance with accounting principles generally accepted in the UnitedStates, the $6.0 million loss has been recognized upon the date of sale in thestatement of operations and the $12.1 million gain has been deferred and willbe credited to income as rent expense adjustments over the lease terms.  The average net annual lease payments overthe lives of the leases are $3.4 million.

 

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

 

In September 2004, theCompany’s subsidiary, CWI, Inc., was sued in California state court by PrivacyRights Clearinghouse and Benjamin Greene (the “Plaintiffs”) in a suit allegingthat CWI, Inc. was recording personal identification information from retailcustomers in violation of certain

 

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Californiastatutes. The plaintiff sought injunctive relief preventing CWI, Inc. fromengaging in any act or practice constituting unfair competition under thestatutes and for statutory penalties and damages. CWI, Inc. responded to thesuit and denied that its practices violate the statutes. Without admittingliability or wrongdoing, CWI, Inc. and the Plaintiffs entered into a SettlementAgreement which was given final approval by the court on December 16, 2005. Theterms of the Settlement Agreement were not material.

 

*EmploymentAgreements*— The Company hasemployment agreements with certain officers. The agreements include, amongother things, approximately one year’s severance pay beyond the terminationdate.

 

8.         RELATED-PARTYTRANSACTIONS

 

In conjunction with the saleof real estate properties to an affiliate on December 5, 2001, (see Note 7), theCompany accepted $4.8 million of the purchase price in the form of ten-yearballoon note receivable yielding 11% per annum, with monthly payments ofapproximately $46,000.Such amount is included in Note from Affiliate on the accompanyingbalance sheet.

 

Certain directorsof the Company are partners in partnerships and shareholders of corporationsthat lease facilities to the Company under long-term leases. For the yearsended December 31, 2005, 2004 and 2003, payments under these leases wereapproximately $6.7 million, $7.1 million, and $7.0 million, respectively. Futurecommitments under these leases total approximately $102.2 million. The leasesexpire at various dates from September 2007 through July 2029, subject to theCompany’s right to exercise renewal options.

 

The Company has enteredinto various agreements with FreedomRoads, LLC, which is owned by entitiescontrolled by the Company’s Chairman. These agreements include facility leasesand product marketing and sales agreements. At December 31, 2005, the Companyleased ten properties from FreedomRoads and sub-leased four properties toFreedomRoads. Total payments received under the ten leased properties for 2005 and2004 were approximately $0.7 million and $0.2 million, respectively, and futurecommitments under these leases total approximately $6.6 million. The leasesexpire at various dates from August 2013 through October 2015. For 2005 and2004, lease payments received from FreedomRoads for the four subleased propertieswere approximately $0.7 million and $0.6 million, respectively, and futurepayments to be received under these subleases total approximately $5.3 million.Payments under the product marketing and sales agreements were approximately $3.2million, $3.7 million and $0.1 million for 2005, 2004 and 2003 respectively.

 

In March 2002, theCompany received a royalty payment of $1.5 million from Holiday RV Superstores,Inc., doing business as Recreation USA, (“Recreation USA”). This non-refundablepayment granted Recreation USA a limited non-exclusive license to use the GoodSam trademarks. When the Company entered into the agreement with RecreationUSA, the Chairman beneficially owned, through entities controlled by him,approximately 57% of the then outstanding common stock of Recreation USA aftertaking into account conversion and exercise of his beneficially ownedsecurities in Recreation USA. The Company was recording the royalty paymentinto income in a level amount ratably over the three-year term of the license. Theagreement with Recreation USA terminated in October 2003 and, as a result, theunamortized balance of the royalty agreement was recognized as revenue in thefourth quarter of 2003.

 

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9.         STATEMENTSOF CASH FLOWS

 

Supplemental disclosuresof cash flow information for December 31 (in thousands):

 
| ** **                     | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Cash paid during the year for: |       |     |       |     |       |     |       |
| Interest                       |       | $        | 25,602     |     | $          | 21,236   |       | $ | 18,733 |   |
| Income taxes                   |       | 9,633    |       | 5,552    |       | 9,569    |       |
|                                |            |          |            |          |            |          |            |  |  |  |

 

The Company entered intothe following non-cash investing and financing transactions:

 

**2005:**

 

In May 2005, the Companyassumed $0.5 million of liabilities and issued $1.5 million of debt in the acquisitionof the Powerboat magazine title and related assets from Nordskog Publishing,Inc.

 

In December 2005, theCompany assumed $1.8 million of liabilities and issued $6.0 million of debt inthe acquisition of Royal Productions, Inc.

 

**2004:**

 

In February 2004, theCompany declared and distributed a $4.4 million non-cash dividend consisting ofthe Adams Insurance Holding LLC notes receivable.

 

In December 2004, theCompany assumed $0.4 million in liabilities and issued $0.7 million of purchasedebt in the acquisition of ARU, Inc.

 

**2003:**

 

The Company declared andmade the following non-cash dividend distributions; 1) split-dollar lifeinsurance policies valued at $1.8 million, which approximated the cashsurrender value of the policies, and 2) stock of Camping World RV Sales, Inc.,totaling $1.2 million representing its then net book value which approximatedfair market value.

 

The Company assumed $1.6million of liabilities and issued $1.2 million of purchase debt in theacquisition of the publishing assets of Poole Publications, Inc.

 

10.       BENEFITPLAN

 

The Company sponsors adeferred savings and profit sharing plan (the “401(k) Plan”) qualified underSection 401(a) and 401(k) of the Internal Revenue Codes of 1986, as amended(the “Code”). All employees over age 21 are eligible to join the 401(k) Plan onthe first day of each month following their date of employment. Eligible employeesmay contribute up to 15% of their salary subject to an annual maximumestablished under the Code. In 2005, the Company elected a Safe Harbor MatchingContribution for the employer match and set the employer match, which vestsupon contribution, at an amount equal to 100% of the first 4% of the employee’scontribution. Employees may defer up to 60% of their eligible compensation upto IRS limits. The Company’s contributions to the plan totaled approximately $1.7million, $1.5 million, and $1.3 million for 2005, 2004, and 2003, respectively.

 

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11.       DEFERREDPHANTOM STOCK COMPENSATION

 

The Company has deferredcompensation agreements with certain officers. The agreements provide forpayment to the officers upon their termination, death, disability, or sale of theCompany. Deferred compensation is included in other long-term liabilitiesexcept for amounts expected to be paid in 2006, which have been classified incurrent liabilities. This deferred compensation is subject to vesting under theterms of the individual agreements. Vesting periods range from 20% per yearover a five-year period to immediate vesting upon entering an agreement. TheCompany incurred deferred compensation expense of $2.2 million, $3.0 million, and$0.7 million for 2005, 2004, and 2003, respectively.

 

12.       SEGMENTINFORMATION

 

TheCompany’s three principal lines of business are Membership Services,Publications, and Retail. The Membership Services segment operates the Good SamClub, the Coast to Coast Club, and the President’s Club for RV owners, campersand outdoor vacationers, and the Golf Card Club for golf enthusiasts. ThePublications segment publishes a variety of publications for selected marketsin the recreation and leisure industry, including general circulationperiodicals, club magazines, directories and RV and powersports industry trademagazines. The Retail segment sells specialty retail merchandise and servicesfor RV owners primarily through retail supercenters and mail order catalogs. TheCompany evaluates performance based on profit or loss from operations beforeincome taxes.

 

Thereportable segments are strategic business units that offer different productsand services. They are managed separately because each business requiresdifferent technology, management expertise and marketing strategies. Most ofthe businesses were acquired as a unit, and the management at the time ofacquisition was retained.

 

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TheCompany does not allocate income taxes or unusual items to segments. Financialinformation by reportable business segment is summarized as follows (inthousands):

 
| ** **                                     | ** ** | **Membership  Services** | ** ** | **Publications** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------|------------|--------------------------|------------|------------------|------------|------------|------------|------------------|------------|
| **YEAR  ENDED DECEMBER 31, 2005**              |       |                     |       |             |       |       |       |             |       |
| Revenues from  external customers              |       | $                        | 133,756    |             | $          | 79,122     |       | $                | 272,682    |   | $ | 485,560 |   |
| Gain (loss) on  sale of property and equipment |       | —                   |       | (5               | )          | 7          |       | 2                |       |
| Interest income                                |       | 5,000                    |       | —           |       | 14         |       | 5,014            |       |
| Interest expense                               |       | —                   |       | 273              |       | 10,375     |       | 10,648           |       |
| Depreciation and  amortization                 |       | 3,546                    |       | 2,401            |       | 7,085      |       | 13,032           |       |
| Segment profit                                 |       | 37,685                   |       | 19,894           |       | 660        |       | 58,239           |       |
| Segment assets                                 |       | 162,562                  |       | 89,104           |       | 207,736    |       | 459,402          |       |
| Expenditures for  segment assets               |       | 2,241                    |       | 849              |       | 8,005      |       | 11,095           |       |
|                                           |       |                     |       |             |       |       |       |             |       |
| **YEAR  ENDED DECEMBER 31, 2004**              |       |                     |       |             |       |       |       |             |       |
| Revenues from  external customers              |       | $                        | 131,608    |             | $          | 77,977     |       | $                | 255,094    |   | $ | 464,679 |   |
| Gain on sale of  property and equipment        |       | —                   |       | 13               |       | 22         |       | 35               |       |
| Interest income                                |       | 2,831                    |       | —           |       | 4          |       | 2,835            |       |
| Interest expense                               |       | —                   |       | 674              |       | 10,221     |       | 10,895           |       |
| Depreciation and  amortization                 |       | 3,643                    |       | 1,811            |       | 6,243      |       | 11,697           |       |
| Segment profit                                 |       | 39,822                   |       | 19,881           |       | 269        |       | 59,972           |       |
| Segment assets                                 |       | 170,270                  |       | 75,731           |       | 124,325    |       | 370,326          |       |
| Expenditures for  segment assets               |       | 1,455                    |       | 1,228            |       | 6,091      |       | 8,774            |       |
|                                           |       |                     |       |             |       |       |       |             |       |
| **YEAR  ENDED DECEMBER 31, 2003**              |       |                     |       |             |       |       |       |             |       |
| Revenues from  external customers              |       | $                        | 128,664    |             | $          | 71,436     |       | $                | 225,306    |   | $ | 425,406 |   |
| Gain on sale of  property and equipment        |       | —                   |       | —           |       | 185        |       | 185              |       |
| Interest income                                |       | 2,640                    |       | —           |       | 3          |       | 2,643            |       |
| Interest expense                               |       | —                   |       | 1,138            |       | 9,642      |       | 10,780           |       |
| Depreciation and  amortization                 |       | 3,365                    |       | 725              |       | 4,404      |       | 8,494            |       |
| Segment profit  (loss)                         |       | 41,407                   |       | 18,968           |       | (1,158     | )          | 59,217           |       |
| Segment assets                                 |       | 145,233                  |       | 77,101           |       | 118,450    |       | 340,784          |       |
| Expenditures for  segment assets               |       | 2,003                    |       | 979              |       | 7,567      |       | 10,549           |       |

 

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The following is asummary of the reconciliations of reportable segments to the consolidatedfinancial statements for the years ended December 31, 2005, 2004 and 2003 (inthousands):

 
| ** **                                                   | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Gain on  Sale of Property and Equipment**                  |       |     |       |     |       |     |       |
| Total gain on  sale for reportable segments                  |       | $        | 2          |     | $          | 35       |       | $ | 185 |   |
| Other  non-allocated gain                                    |       | —   |       | 397      |       | 25       |       |
| Total gain on  sale of property and equipment                |       | $        | 2          |     | $          | 432      |       | $ | 210 |   |
|                                                         |       |     |       |     |       |     |       |
| **Interest  Income**                                         |       |     |       |     |       |     |       |
| Total interest  income for reportable segments               |       | $        | 5,014      |     | $          | 2,835    |       | $ | 2,643 |   |
| Elimination of  intersegment interest income                 |       | (4,994   | )          | (2,829   | )          | (2,638   | )          |
| Other  non-allocated interest income                         |       | 1,041    |       | 749      |       | 804      |       |
| Total interest  income                                       |       | $        | 1,061      |     | $          | 755      |       | $ | 809 |   |
|                                                         |       |     |       |     |       |     |       |
| **Interest  Expense**                                        |       |     |       |     |       |     |       |
| Total interest  expense for reportable segments              |       | $        | 10,648     |     | $          | 10,895   |       | $ | 10,780 |   |
| Elimination of  intersegment interest expense                |       | (10,534  | )          | (10,843  | )          | (10,764  | )          |
| Other  non-allocated interest expense                        |       | 25,528   |       | 23,942   |       | 18,916   |       |
| Total interest  expense                                      |       | $        | 25,642     |     | $          | 23,994   |       | $ | 18,932 |   |
|                                                         |       |     |       |     |       |     |       |
| **Depreciation  and Amortization**                           |       |     |       |     |       |     |       |
| Total  depreciation and amortization for reportable segments |       | $        | 13,032     |     | $          | 11,697   |       | $ | 8,494 |   |
| Unallocated  depreciation and amortization expense           |       | 2,497    |       | 2,196    |       | 1,804    |       |
| Total  consolidated depreciation and amortization            |       | $        | 15,529     |     | $          | 13,893   |       | $ | 10,298 |   |
|                                                         |       |     |       |     |       |     |       |
| **Income  From Operations Before Income Taxes**              |       |     |       |     |       |     |       |
| Total profit for  reportable segments                        |       | $        | 58,239     |     | $          | 59,972   |       | $ | 59,217 |   |
| Unallocated  depreciation and amortization expense           |       | (2,497   | )          | (2,196   | )          | (1,804   | )          |
| Unallocated G  & A expense                               |       | (18,641  | )          | (19,633  | )          | (19,571  | )          |
| Unallocated  interest expense, net                           |       | (24,487  | )          | (23,193  | )          | (18,112  | )          |
| Unallocated gain  on sale of property and equipment          |       | —   |       | 397      |       | 25       |       |
| Unallocated debt  restructure expense                        |       | —   |       | (5,035   | )          | (3,218   | )          |
| Elimination of  intersegment interest expense, net           |       | 5,540    |       | 8,014    |       | 8,126    |       |
| Income from  operations before income taxes                  |       | $        | 18,154     |     | $          | 18,326   |       | $ | 24,663 |   |
|                                                         |       |     |       |     |       |     |       |
| **Assets**                                                   |       |     |       |     |       |     |       |
| Total assets for  reportable segments                        |       | $        | 459,402    |     | $          | 370,326  |       | $ | 340,784 |   |
| Capitalized  finance costs not allocated to segments         |       | 9,568    |       | 10,951   |       | 6,313    |       |
| Corporate  unallocated assets                                |       | 16,376   |       | 13,705   |       | 21,198   |       |
| Elimination of  intersegment receivable                      |       | (69,886  | )          | (74,760  | )          | (65,433  | )          |
| Consolidated  total                                          |       | $        | 415,460    |     | $          | 320,222  |       | $ | 302,862 |   |
|                                                         |       |     |       |     |       |     |       |
| **Capital  Expenditures**                                    |       |     |       |     |       |     |       |
| Total  expenditures for assets for reportable segments       |       | $        | 11,095     |     | $          | 8,774    |       | $ | 10,549 |   |
| Other asset  expenditures                                    |       | 276      |       | 95       |       | 261      |       |
| Total capital  expenditures                                  |       | $        | 11,371     |     | $          | 8,869    |       | $ | 10,810 |   |

 

64

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13.       SELECTEDQUARTERLY INFORMATION (UNAUDITED)

 

The following is a summary of selectedquarterly information for the years ended December 31, 2005, 2004 and 2003 (inthousands):

 
| ** **         | ** ** | **March  31,  2005** | ** ** | **June 30,  2005** | ** ** | **September  30,  2005** | ** ** | **December  31,  2005** | ** ** |
|--------------------|------------|----------------------|------------|--------------------|------------|--------------------------|------------|-------------------------|------------|
|               |       |                 |       |               |       |                     |       |                    |       |
| Total revenue      |       | $                    | 108,687    |               | $          | 133,212                  |       | $                       | 124,717    |   | $ | 118,944 |   |
| Gross profit       |       | 42,671               |       | 50,575             |       | 44,627                   |       | 45,918                  |       |
| Net income         |       | 1,898                |       | 5,131              |       | 1,736                    |       | 1,973                   |       |
|               |       |                 |       |               |       |                     |       |                    |       |
| ** **         | ** ** | **March  31,  2004** | ** ** | **June 30,  2004** | ** ** | **September  30,  2004** | ** ** | **December  31,  2004** | ** ** |
|               |       |                 |       |               |       |                     |       |                    |       |
| Total revenue      |       | $                    | 101,282    |               | $          | 127,644                  |       | $                       | 117,613    |   | $ | 118,140 |   |
| Gross profit       |       | 37,746               |       | 47,465             |       | 43,458                   |       | 47,541                  |       |
| Net income  (loss) |       | (182                 | )          | 5,425              |       | 1,851                    |       | 3,157                   |       |
|               |       |                 |       |               |       |                     |       |                    |       |
| ** **         | ** ** | **March  31,  2003** | ** ** | **June 30,  2003** | ** ** | **September  30,  2003** | ** ** | **December  31,  2003** | ** ** |
|               |       |                 |       |               |       |                     |       |                    |       |
| Total revenue      |       | $                    | 92,479     |               | $          | 115,658                  |       | $                       | 110,099    |   | $ | 107,170 |   |
| Gross profit       |       | 36,303               |       | 44,661             |       | 39,940                   |       | 40,473                  |       |
| Net income         |       | 3,099                |       | 5,544              |       | 1,221                    |       | 5,524                   |       |

 

14.       VALUATIONAND QUALIFYING ACCOUNTS

 
| **(in thousands)**                                                         | ** ** | **Balance at  Beginning  of Period** | ** ** | **Additions  Charged to  Costs and  Expenses** | ** ** | **Deductions** | ** ** | **Balance  at  End  of Period** | ** ** |
|----------------------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------------------|------------|----------------|------------|---------------------------------|------------|
|                                                                       |       |                                 |       |                                           |       |           |       |                            |       |
| Description:                                                               |       |                                 |       |                                           |       |           |       |                            |       |
|                                                                       |       |                                 |       |                                           |       |           |       |                            |       |
| Year ended  December 31, 2005:  Allowance for doubtful accounts receivable |       | $                                    | 810        |                                           | $          | 521            |       | $                               | 379        | (a) | $ | 952 |   |
|                                                                       |       |                                 |       |                                           |       |           |       |                            |       |
| Year ended  December 31, 2004:  Allowance for doubtful accounts receivable |       | $                                    | 1,039      |                                           | $          | 585            |       | $                               | 814        | (a) | $ | 810 |   |
|                                                                       |       |                                 |       |                                           |       |           |       |                            |       |
| Year ended  December 31, 2003:  Allowance for doubtful accounts receivable |       | 1,202                                |       | 1,611                                          |       | 1,774          | (a)        | 1,039                           |       |

 

----

(a)   Accounts determined to be uncollectable andcharged against allowance account, net of collection on accounts previouslycharged against allowance account.

 

65

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15.       NOTES OFFERING AND GUARANTOR FINANCIALINFORMATION

 

InFebruary 2004, the Company completed an offering of $200.0 million 9% SeniorSubordinated Notes (“AGI Senior Notes”) due in 2012. Interest is payable on theAGI Senior Notes twice a year on February 15 and August 15, beginning August 15,2004. The Company’s present and future restricted subsidiaries will guaranteethe AGI Senior Notes with unconditional guarantees of payment that will rankjunior in right of payment to their existing and future senior debt, but willrank equal in right of payment to their existing and future senior subordinateddebt.

 

Allof the Company’s subsidiaries have jointly and severally guaranteed theindebtedness under the AGI Senior Notes. Full financial statements of theGuarantors have not been included because, pursuant to their respectiveguarantees, the Guarantors are jointly and severally liable with respect to theAGI Senior Notes.

 

Thefollowing are summarized statements setting forth certain financial informationconcerning the Guarantor Subsidiaries as of and for the year ended December 31,2005 (in thousands).
| ** **                                                    | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|------------|------------|
| ** **                                                    | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **NON-  GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **AGI  CONSOLIDATED** | ** ** |
|                                                          |       |       |       |   |   |   |   |   |   |   |   |
| Cash & cash  equivalents                                  |       | $          | 26,421     |   | $ | (1,643 | ) | $ | — |   | $ | — |   | $ | 24,778 |   |
| Accounts  receivable (net of allowance for doubtful accounts) |       | 317        |       | 96,077 |   | — |   | (69,886 | ) | 26,508 |   |
| Inventories                                                   |       | —     |       | 47,039 |   | — |   | — |   | 47,039 |   |
| Other current  assets                                         |       | 4,769      |       | 11,444 |   | — |   | — |   | 16,213 |   |
| Total current  assets                                         |       | 31,507     |       | 152,917 |   | — |   | (69,886 | ) | 114,538 |   |
|                                                          |       |       |       |   |   |   |   |   |   |   |   |
| Property and  equipment, net                                  |       | 5,680      |       | 24,163 |   | — |   | — |   | 29,843 |   |
| Intangible  assets                                            |       | 8,245      |       | 26,327 |   | — |   | — |   | 34,572 |   |
| Goodwill                                                      |       | 67,584     |       | 76,845 |   | — |   | — |   | 144,429 |   |
| Investment in  subsidiaries                                   |       | 468,270    |       | 81,005 |   | — |   | (549,275 | ) | — |   |
| Affiliate note  and investments                               |       | 44,795     |       | — |   | 81,005 |   | (40,073 | ) | 85,727 |   |
| Other assets                                                  |       | 11,844     |       | (5,493 | ) | — |   | — |   | 6,351 |   |
| Total assets                                                  |       | $          | 637,925    |   | $ | 355,764 |   | $ | 81,005 |   | $ | (659,234 | ) | $ | 415,460 |   |
|                                                          |       |       |       |   |   |   |   |   |   |   |   |
| Accounts payable                                              |       | $          | 985        |   | $ | 11,698 |   | $ | — |   | $ | — |   | $ | 12,683 |   |
| Accrued and  other liabilities                                |       | 18,932     |       | 22,524 |   | — |   | — |   | 41,456 |   |
| Current portion  of long-term debt                            |       | 72,561     |       | 43,534 |   | — |   | (109,959 | ) | 6,136 |   |
| Current portion  of deferred revenue                          |       | 1,592      |       | 59,402 |   | — |   | — |   | 60,994 |   |
| Total current  liabilities                                    |       | 94,070     |       | 137,158 |   |   |   | (109,959 | ) | 121,269 |   |
|                                                          |       |       |       |   |   |   |   |   |   |   |   |
| Deferred revenue                                              |       | 2,785      |       | 35,141 |   | — |   | — |   | 37,926 |   |
| Long-term debt                                                |       | 308,475    |       | 5,389 |   | — |   | — |   | 313,864 |   |
| Other long-term  liabilities                                  |       | 298,960    |       | (290,194 | ) | — |   | — |   | 8,766 |   |
| Total  liabilities                                            |       | 704,290    |       | (112,506 | ) |   |   | (109,959 | ) | 481,825 |   |
|                                                          |       |       |       |   |   |   |   |   |   |   |   |
| Interdivisional  equity                                       |       | —     |       | 468,270 |   | 81,005 |   | (549,275 | ) | — |   |
| Stockholders’  deficit                                   |       | (66,365    | )          | — |   | — |   | — |   | (66,365 | ) |
|                                                          |       |       |       |   |   |   |   |   |   |   |   |
| Total  liabilities & stockholder’s equity            |       | $          | 637,925    |   | $ | 355,764 |   | $ | 81,005 |   | $ | (659,234 | ) | $ | 415,460 |   |
|                                                          |       |       |       |   |   |   |   |   |   |   |   |
| Revenue                                                       |       | $          | 5,432      |   | $ | 480,128 |   | $ | — |   | $ | — |   | $ | 485,560 |   |
| Costs applicable  to revenues                                 |       | (12,995    | )          | (288,774 | ) | — |   | — |   | (301,769 | ) |
| Operating  expenses                                           |       | (20,617    | )          | (120,434 | ) | — |   | — |   | (141,051 | ) |
| Interest income  (expense), net                               |       | (18,947    | )          | (5,634 | ) | — |   | — |   | (24,581 | ) |
| Income from  investment in consolidated subsidiaries          |       | 35,115     |       | — |   | — |   | (35,115 | ) | — |   |
| Other non  operating income (expenses)                        |       | 5,914      |       | (5,919 | ) | — |   | — |   | (5 | ) |
| Income tax  benefit (expense)                                 |       | 16,836     |       | (24,252 | ) | — |   | — |   | (7,416 | ) |
| Net income                                                    |       | $          | 10,738     |   | $ | 35,115 |   | $ | — |   | $ | (35,115 | ) | $ | 10,738 |   |
|                                                          |       |       |       |   |   |   |   |   |   |   |   |
| Cash flows from  operations                                   |       | $          | (16,663    | ) | $ | 33,905 |   | $ | — |   | $ | — |   | $ | 17,242 |   |
| Cash flows used  in investing activities                      |       | (123,159   | )          | (93,897 | ) | (81,005 | ) | 202,083 |   | (95,978 | ) |
| Cash flows  provided by financing activities                  |       | 141,391    |       | 58,637 |   | 81,005 |   | (202,083 | ) | 78,950 |   |
| Cash at  beginning of year                                    |       | 24,852     |       | (288 | ) | — |   | — |   | 24,564 |   |
| Cash at end of  year                                          |       | $          | 26,421     |   | $ | (1,643 | ) | $ | — |   | $ | — |   | $ | 24,778 |   |

 

66

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The following are summarized statements setting forth certain financialinformation concerning the Guarantor Subsidiaries as of and for the year endedDecember 31, 2004 (in thousands).
| ** **                                                    | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|------------|------------|
| ** **                                                    | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **NON-  GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **AGI  CONSOLIDATED** | ** ** |
|                                                          |       |       |       |   |   |   |   |   |   |   |   |
| Cash & cash  equivalents                                  |       | $          | 24,852     |   | $ | (288 | ) | $ | — |   | $ | — |   | $ | 24,564 |   |
| Accounts  receivable (net of allowance for doubtful accounts) |       | 173        |       | 98,815 |   | — |   | (74,760 | ) | 24,228 |   |
| Inventories                                                   |       | 55         |       | 42,408 |   | — |   | — |   | 42,463 |   |
| Other current  assets                                         |       | 5,168      |       | 12,830 |   | — |   | — |   | 17,998 |   |
| Total current  assets                                         |       | 30,248     |       | 153,765 |   | — |   | (74,760 | ) | 109,253 |   |
|                                                          |       |       |       |   |   |   |   |   |   |   |   |
| Property and  equipment, net                                  |       | 6,121      |       | 21,521 |   | — |   | — |   | 27,642 |   |
| Intangible  assets                                            |       | 9,661      |       | 18,055 |   | — |   | — |   | 27,716 |   |
| Goodwill                                                      |       | 67,584     |       | 81,189 |   | — |   | — |   | 148,773 |   |
| Investment in  subsidiaries                                   |       | 451,280    |       | — |   | — |   | (451,280 | ) | — |   |
| Other assets                                                  |       | 13,823     |       | (6,985 | ) | — |   | — |   | 6,838 |   |
| Total assets                                                  |       | $          | 578,717    |   | $ | 267,545 |   | $ | — |   | $ | (526,040 | ) | $ | 320,222 |   |
|                                                          |       |       |       |   |   |   |   |   |   |   |   |
| Accounts payable                                              |       | $          | 422        |   | $ | 16,089 |   | $ | — |   | $ | — |   | $ | 16,511 |   |
| Accrued and  other liabilities                                |       | 21,458     |       | 22,760 |   | — |   | — |   | 44,218 |   |
| Current portion  of long-term debt                            |       | 76,160     |       | 276 |   | — |   | (74,760 | ) | 1,676 |   |
| Current portion  of deferred revenue                          |       | 1,245      |       | 56,416 |   | — |   | — |   | 57,661 |   |
| Total current  liabilities                                    |       | 99,285     |       | 95,541 |   |   |   | (74,760 | ) | 120,066 |   |
|                                                          |       |       |       |   |   |   |   |   |   |   |   |
| Deferred revenue                                              |       | 2,908      |       | 38,561 |   | — |   | — |   | 41,469 |   |
| Long-term debt                                                |       | 311,150    |       | 1,510 |   | — |   | — |   | 312,660 |   |
| Other long-term  liabilities                                  |       | 323,482    |       | (319,347 | ) | — |   | — |   | 4,135 |   |
| Total  liabilities                                            |       | 736,825    |       | (183,735 | ) | — |   | (74,760 | ) | 478,330 |   |
|                                                          |       |       |       |   |   |   |   |   |   |   |   |
| Interdivisional  equity                                       |       | —     |       | 451,280 |   | — |   | (451,280 | ) | — |   |
| Stockholder’s  deficit                                   |       | (158,108   | )          | — |   | — |   | — |   | (158,108 | ) |
|                                                          |       |       |       |   |   |   |   |   |   |   |   |
| Total  liabilities & stockholder’s deficit           |       | $          | 578,717    |   | $ | 267,545 |   | $ | — |   | $ | (526,040 | ) | $ | 320,222 |   |
|                                                          |       |       |       |   |   |   |   |   |   |   |   |
| Revenue                                                       |       | $          | 5,499      |   | $ | 459,180 |   | $ | — |   | $ | — |   | $ | 464,679 |   |
| Costs applicable  to revenues                                 |       | (13,364    | )          | (275,105 | ) | — |   | — |   | (288,469 | ) |
| Operating  expenses                                           |       | (21,816    | )          | (108,214 | ) | — |   | — |   | (130,030 | ) |
| Interest income  (expense), net                               |       | (15,179    | )          | (8,060 | ) | — |   | — |   | (23,239 | ) |
| Income from  investment in consolidated subsidiaries          |       | 34,015     |       | — |   | — |   | (34,015 | ) | — |   |
| Other non  operating income (expenses)                        |       | 2,376      |       | (6,991 | ) | — |   | — |   | (4,615 | ) |
| Income tax  benefit (expense)                                 |       | 18,720     |       | (26,795 | ) | — |   | — |   | (8,075 | ) |
| Net income                                                    |       | $          | 10,251     |   | $ | 34,015 |   | $ | — |   | $ | (34,015 | ) | $ | 10,251 |   |
|                                                          |       |       |       |   |   |   |   |   |   |   |   |
| Cash flows from  operations                                   |       | $          | (15,565    | ) | $ | 53,931 |   | $ | — |   | $ | — |   | $ | 38,366 |   |
| Cash flows used  in investing activities                      |       | (1,435     | )          | (5,704 | ) | — |   | — |   | (7,139 | ) |
| Cash flows (used  in) provided by financing activities        |       | 37,003     |       | (49,781 | ) | — |   | — |   | (12,778 | ) |
| Cash at  beginning of year                                    |       | 4,849      |       | 1,266 |   | — |   | — |   | 6,115 |   |
| Cash at end of  year                                          |       | $          | 24,852     |   | $ | (288 | ) | $ | — |   | $ | — |   | $ | 24,564 |   |

 

67

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The following are summarized statements setting forth certain financialinformation concerning the Guarantor Subsidiaries for the year ended December31, 2003 (in thousands).

 
| ** **                                             | ** ** | **AGI** | ** ** | **GUARANTORS** | ** ** | **NON-  GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **AGI  CONSOLIDATED** | ** ** |
|--------------------------------------------------------|------------|---------|------------|----------------|------------|---------------------|------------|------------------|------------|-----------------------|------------|
| Revenue                                                |       | $       | 7,276      |           | $          | 418,130             |       | $                | —     |                  | $          | — |   | $ | 425,406 |   |
| Costs applicable  to revenues                          |       | (12,885 | )          | (251,144       | )          | —              |       | —           |       | (264,029              | )          |
| Operating  expenses                                    |       | (21,156 | )          | (94,418        | )          | —              |       | —           |       | (115,574              | )          |
| Interest income  (expense), net                        |       | (9,986  | )          | (8,137         | )          | —              |       | —           |       | (18,123               | )          |
| Income from  investment in consolidated subsidiaries   |       | 40,131  |       | —         |       | —              |       | (40,131          | )          | —                |       |
| Other non  operating income (expenses)                 |       | 3,195   |       | (6,212         | )          | —              |       | —           |       | (3,017                | )          |
| Income tax  benefit (expense)                          |       | 8,813   |       | (18,088        | )          | —              |       | —           |       | (9,275                | )          |
| Net income  (loss)                                     |       | $       | 15,388     |           | $          | 40,131              |       | $                | —     |                  | $          | (40,131 | ) | $ | 15,388 |   |
|                                                   |       |    |       |           |       |                |       |             |       |                  |       |
| Cash flows from  operations                            |       | $       | (16,565    | )              | $          | 38,415              |       | $                | —     |                  | $          | — |   | $ | 21,850 |   |
| Cash flows used  in investing activities               |       | (3,831  | )          | (10,676        | )          | —              |       | —           |       | (14,507               | )          |
| Cash flows (used  in) provided by financing activities |       | 25,118  |       | (28,076        | )          | —              |       | —           |       | (2,958                | )          |
| Cash at  beginning of year                             |       | 127     |       | 1,603          |       | —              |       | —           |       | 1,730                 |       |
| Cash at end of  year                                   |       | $       | 4,849      |           | $          | 1,266               |       | $                | —     |                  | $          | — |   | $ | 6,115 |   |

 

68

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**ITEM 9: CHANGES IN ANDDISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

None

 

**ITEM 9A: CONTROLS AND PROCEDURES**

 

Within90 days prior to the filing of this Annual Report on Form 10-K, we carried outan evaluation, under the supervision and with the participation of ourmanagement, including our President and Chief Executive Officer and our SeniorVice President and Chief Financial Officer, of the effectiveness of the designand operation of our disclosure controls and procedures (as defined in Rule13a-15(e) of the Securities Exchange Act of 1934, as amended) as of the end ofthe period covered by this report. Based upon that evaluation, our Presidentand Chief Executive Officer, along with our Senior Vice President and ChiefFinancial Officer, concluded that our disclosure controls and procedures areeffective in timely alerting them to material information relating to ourCompany (including our consolidated subsidiaries) required to be included inour periodic SEC filings. No changes have occurred during the period covered bythis report or since the evaluation date that would have a material effect onthe disclosure controls and procedures.

 

**ITEM 9B: OTHER INFORMATION**

 

None

 

69

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**PARTIII**

** **

**ITEM 10:  DIRECTORS AND EXECUTIVE OFFICERS OF THEREGISTRANT**

 

Ourexecutive officers and directors are as follows:

 
| **Name**             | ** ** | **Age** | ** ** | **Position**                                                     | ** ** |
|----------------------|------------|---------|------------|------------------------------------------------------------------|------------|
|                 |       |    |       |                                                             |       |
| Michael A. Schneider |       | 51      |       | President, Chief  Executive Officer and Director                 |       |
| Mark J. Boggess      |       | 49      |       | President, Chief  Executive Officer of Camping World, Inc.       |       |
| Thomas F. Wolfe      |       | 44      |       | Senior Vice President  and Chief Financial Officer               |       |
| Michael Blumer       |       | 60      |       | Senior Vice President                                            |       |
| Murray S. Coker      |       | 65      |       | Senior Vice President                                            |       |
| Laura A. James       |       | 49      |       | Senior Vice President/  Human Resources and Administration       |       |
| Brent Moody          |       | 44      |       | Senior Vice President/  General Counsel and Business Development |       |
| Prabhuling Patel     |       | 59      |       | Senior Vice President                                            |       |
| Stephen Adams        |       | 68      |       | Chairman of the Board  of Directors                              |       |
| Andris A. Baltins    |       | 60      |       | Director                                                         |       |
| David Frith-Smith    |       | 60      |       | Director                                                         |       |
| J. Kevin Gleason     |       | 54      |       | Director                                                         |       |
| George Pransky       |       | 65      |       | Director                                                         |       |

 

Michael A. Schneiderbecame our President and Chief Executive Officer as of January 1, 2004. Priorto that time, Mr. Schneider had been our Chief Operating Officer since 1996. Priorthereto, Mr. Schneider served as our Senior Vice President and General Counselsince January 1993 and was responsible for administrative areas, development ofnew corporate ventures and portions of the RV publication business and theadvertising and sales departments. Prior to January 1993 and since 1977, Mr.Schneider has held a variety of senior management positions in our publicationbusiness.  Mr. Schneider also serves as adirector of Adams Outdoor Advertising Inc., the managing general partner of AdamsOutdoor Advertising Partnership, which is controlled by Stephen Adams.

 

Mark J. Boggess becamethe President and Chief Executive Officer of our Camping World subsidiary as ofJanuary 1, 2004. Prior to that time, Mr. Boggess had been our Senior VicePresident and Chief Financial Officer since June 1993. From June 1992 throughMay 1993, Mr. Boggess was Vice President and Chief Financial Officer of HyproCorporation, a privately owned manufacturer of fluid transfer pumps. From June1989 through June 1992, Mr. Boggess was Treasurer of Adams CommunicationsCorporation, a holding company controlled by Stephen Adams which ownedtelevision and radio station operations throughout the United States. Mr.Boggess is also an owner of a small percentage interest in FreedomRoadsHolding.

 

Thomas F. Wolfe becameour Senior Vice President and Chief Financial Officer as of January 1, 2004. Priorto that time, Mr. Wolfe had been our Vice President and Controller since 1997. From1991 to 1997, Mr. Wolfe was Vice President of Finance of Convenience ManagementGroup, a privately owned distributor of petroleum products and equipment. From1989 to 1991, Mr. Wolfe was Vice President and Controller of First CityProperties, Inc. Prior to 1989, and since 1983, Mr. Wolfe held a variety ofstaff and management positions at Deloitte & Touche LLP.

 

Michael Blumer has beenour Senior Vice President since January 1998. Prior to 1998 and since 1996, Mr.Blumer served as Chief Information Officer at Primedia, Inc. and prior to thatpost he served as Senior Vice President of Information Technology at TheHamilton Group from 1992 to 1996. Prior to 1992, he also served in informationtechnology management positions at The Franklin Mint, American Express and theFederal Reserve Bank of New York.

 

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Murray S. Coker was ourSenior Vice President-Marketing and oversees the marketing of all of ourproducts, services and clubs. He joined Camping World in 1978 and has served invarious management positions including Vice President-Mail Order, VicePresident-Direct Marketing and Senior Vice President-Marketing. Prior tojoining Camping World, Mr. Coker was a consultant specializing in retailsystems for Management Design Associates and Deloitte & Touche LLP. He wasthe Data Systems Product Line Manager for Pitney Bowes’ Monarch MarketingSystems Division and a Systems Engineer for IBM Corporation. Mr. Coker retiredeffective December 31, 2005.

 

Laura A. James became ourSenior Vice President/ Human Resources and Administration as of January 1, 2004.Prior to that time, Ms. James served as Vice President/ Human Resources andAdministration since 1996. Ms. James also served as interim Vice President/Finance from December 1996 to September 1997. Prior to 1996, Ms. James servedin various management and staff positions at the Company.

 

Brent Moody became ourSenior Vice President/ General Counsel and Business Development as of January1, 2004. He joined Camping World in 2002 and since that time had served CampingWorld as Vice President and General Counsel and Senior Vice President/ GeneralCounsel and Business Development. Prior to that time and since 1998, Mr. Moodywas a shareholder of the law firm of Greenberg Traurig, P.A. From 1996 to 1998,Mr. Moody served as Vice President and Assistant General Counsel forBlockbuster, Inc.

 

Prabhuling Patel wasappointed Senior Vice President of Products & Services as of May 1, 2004.Mr. Patel was the Senior Vice President & General Manager of theoutsourcing business of Message Media, Inc., an email marketing company, from2000 to 2002. Prior to 2000 he was President of the Telecommunications, Energy& Cable Division of Experian, a credit bureau and direct marketing servicescompany. He served in senior executive positions running various businesses atMetromail Corporation which was in the direct marketing services business. Mr.Patel also held a number of executive level positions in marketing, finance,IT, business development, and business strategy at Citigroup, Cigna, HouseholdInternational and Montgomery Ward.

 

Stephen Adams has beenthe Chairman of our Board of Directors since December 1988. Mr. Adams is alsochairman of the board of directors and a 90% owner of FreedomRoads Holding which,through its 100% owned affiliates, operates RV dealerships throughout theUnited States. In addition, Mr. Adams is the chairman of the board of directorsand the controlling shareholder of Adams Outdoor Advertising, Inc., themanaging general partner of Adams Outdoor Advertising Limited Partnership. Mr.Adams also holds a 95% interest in Affinity Bank Holdings, Inc.

 

Andris A. Baltins hasbeen a member of the law firm of Kaplan, Strangis and Kaplan, P.A. since 1979. Mr.Baltins is a member of the board of Polaris Industries, Inc., a manufacturer ofsnowmobiles, all-terrain vehicles, motorcycles and related products, and servesas the Chair of its Corporate Governance and Nominating Committee and is also amember of its Compensation Committee. He also serves as a director of variousprivate and non-profit corporations. Mr. Baltins joined the Board of Directorsin February 2006. Mr. Baltins’ law firm provides legal services to the Companyand its subsidiaries.  Mr. Baltins alsoserves as a director of Adams Outdoor Advertising Inc., the managing generalpartner of Adams Outdoor Advertising Partnership, which is controlled byStephen Adams.

 

David Frith-Smith hasserved as managing partner of Biller, Frith-Smith & Archibald, CertifiedPublic Accountants since 1988. Mr. Frith-Smith was a principal with MaidyBiller Frith-Smith & Brenner, Certified Public Accountants from 1984 to1988, and with Maidy and Lederman, Certified Public Accountants from 1980 to1984. Mr. Frith-Smith has been a member of our Board of Directors sinceNovember 1996. Mr. Frith-Smith is also a director of Adams Outdoor AdvertisingInc., the managing general partner of Adams Outdoor Advertising LimitedPartnership, which is controlled by Stephen Adams, and various private andnon-profit corporations.

 

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J. Kevin Gleason hasserved as the Chief Executive Officer and President of Adams OutdoorAdvertising, LP, an entity controlled by Mr. Adams, since 1991. Prior to thattime, Mr. Gleason was Executive Vice President and General Manager since 1987. Mr.Gleason served as General Manager of Naegele Outdoor Advertising of SouthernCalifornia from 1985 to 1987. He has served as vice chair marketing, andChairman of the Outdoor Advertising Association of America as well as a boardmember of the Traffic Audit Bureau. Mr. Gleason joined the Board of Directorsin October 2005.

 

George Pransky, Ph.D. hasbeen in private practice as co-director of Pransky and Associates in La Conner,Washington since 1988. He is a frequent consultant for government and privateagencies and has been a contract faculty member for a number of educationalinstitutions, including the University of Washington, the University of Oregonand Antioch College. Dr. Pransky has trained management groups in teambuilding, stress elimination and leadership development for twenty-five years. Dr.Pransky joined the Board of Directors in February 2006 and he also serves as adirector of Adams Outdoor Advertising, Inc.

 

Directors are elected forterms of one year or until their successors have been duly elected. There areno family relationships between any of the directors and/or executive officers.

 

**BoardFunctions as Audit Committee**

 

Our securities are not listed on any nationalsecurities exchange and we are not required to maintain a separate auditcommittee of the Board nor are we subject to the audit committee independencerequirements set forth in Rule 10A-3 of the Securities Exchange Act of 1934, asamended. On February 22, 2006, the Board of Directors of the Company disbandedthe Audit Committee and assumed its oversight of the integrity of our financialstatements; our compliance with legal and regulatory requirements; theretention, independence and qualifications of our independent auditor; and theresponsibilities, budget and performance of our independent auditor.

 

**Code ofProfessional Conduct**

 

We have adopted a Code ofProfessional Conduct that applies to our Principal Executive Officer, PrincipalFinancial Officer, Principal Accounting Officer and all other employees. ThisCode of Professional Conduct is posted on our website at www.affinitygroup.comand may be found as follows:

 

•       Fromour main web page, first click on “About AGI,”

 

•       Then,click on “Code of Conduct.”

 

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**ITEM 11:  EXECUTIVE COMPENSATION**

 

**ExecutiveCompensation**

 

The following tableprovides certain summary information concerning the compensation paid by us toour Chief Executive Officer and each of the four other highest compensatedexecutive officers who were officers at December 31, 2005, for the fiscal yearsending December 31, 2005, 2004, and 2003.

 

**SUMMARY COMPENSATION TABLE**

 
| ** **                      | ** ** | ** ** | ** ** | **Annual  Compensation** | ** ** | **Other  Annual** | ** ** | **All  Other**           | ** ** |
|---------------------------------|------------|------------|------------|--------------------------|------------|-------------------|------------|--------------------------|------------|
| **Name and Principal Position** | ** ** | **Year**   | ** ** | **Salary**               | ** ** | **Bonus  (1)**    | ** ** | **Compensation  (1)(2)** | ** ** | **Compensation  (3)** | ** ** |
|                            |       |       |       |                     |       |              |       |                     |       |   |   |
| Michael A. Schneider            |       | 2005       |       | $100,000                 |       | $662,510          |       | $492,702                 | (4)        | $8,485 |   |
| President,                      |       | 2004       |       | 100,000                  |       | 645,080           |       | 492,702                  | (5)        | 8,764 |   |
| Chief Executive  Officer        |       | 2003       |       | 210,000                  |       | 290,055           |       |                     |       | 8,660 |   |
|                            |       |       |       |                     |       |              |       |                     |       |   |   |
| Mark J. Boggess                 |       | 2005       |       | 100,000                  |       | 658,206           |       | 563,870                  | (4)        | 104,676 |   |
| President, Chief  Executive     |       | 2004       |       | 100,000                  |       | 646,521           |       | 563,870                  | (5)        | 8,564 |   |
| Officer of  Camping World       |       | 2003       |       | 155,140                  |       | 362,569           |       |                     |       | 8,580 |   |
|                            |       |       |       |                     |       |              |       |                     |       |   |   |
| Murray S. Coker                 |       | 2005       |       | 203,538                  |       | 204,742           |       | 315,371                  | (4)        | 6,203 |   |
| Senior Vice  President          |       | 2004       |       | 196,000                  |       | 198,990           |       | 315,371                  | (5)        | 9,305 |   |
|                            |       | 2003       |       | 196,000                  |       | 191,436           |       |                     |       | 9,028 |   |
|                            |       |       |       |                     |       |              |       |                     |       |   |   |
| Thomas F. Wolfe                 |       | 2005       |       | 185,000                  |       | 166,039           |       |                     |       | 7,796 |   |
| Senior Vice President           |       | 2004       |       | 181,132                  |       | 167,353           |       |                     |       | 8,364 |   |
| Chief Financial  Officer        |       | 2003       |       | 151,358                  |       | 40,608            |       |                     |       | 7,696 |   |
|                            |       |       |       |                     |       |              |       |                     |       |   |   |
| Peter Klein                     |       | 2005       |       | 210,000                  |       | 100,507           |       |                     |       | 8,400 |   |
| Senior Vice  President          |       | 2004       |       | 218,000                  |       | 96,029            |       |                     |       | 6,668 |   |
| of Camping World                |       | 2003       |       | 192,212                  |       | 64,418            |       |                     |       | 1,991 |   |

 

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(1)       Compensationdefined as “Bonus” and “Other Annual Compensation” is eligible, at the electionof the employee, to be contributed to the AGHC Key Employee Security OptionPlan (“KEYSOP”). See “Agreements with Executive Officers.”

 

(2)       Personalbenefits are the lesser of (i) 10% of total annual salary and bonus(ii) $50,000, except as described in Note (3) below.

 

(3)       Representscompany contributions to 401(k), split dollar life insurance economic benefitand personal use of Company assets. Further, the Company incurred $96,166 ofemployee relocation expense for Mr. Boggess.

 

(4)       Under theterms of the phantom stock agreements, Mr. Schneider received $492,702, Mr.Boggess received $563,870, and Mr. Coker received $315,371 in 2005. Payments toMr. Schneider and Mr. Coker were contributed to the KEYSOP.

 

(5)       Under theterms of the phantom stock agreements, Mr. Schneider received $492,702, Mr.Boggess received $563,870, and Mr. Coker received $315,371 in 2004. Allpayments were contributed to the KEYSOP.

 

We do not have anyoutstanding stock options or restricted stock grants. We have phantom stockagreements and a non-qualified deferred compensation plan for certain of itsofficers. See “Agreements with Executive Officers.”

 

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**Agreements with ExecutiveOfficers**

 

Until December 31, 2003,the Company and Mr. Adams were parties to an amended employment agreementproviding for his employment as the Chairman of our Board of Directors. Thatagreement terminated effective December 31, 2003, following issuance of the AGISenior Notes.

 

Effective January 1999, the Company introduced theKEYSOP for key employees of AGI and its subsidiaries. This non-qualifieddeferred compensation plan allows key employees the option to contributespecific compensation, including bonuses, incentive compensation, and phantomstock payments to the KEYSOP. Contributions to the KEYSOP from AGI employeestotaled $1.3 million, $4.0 million, and $4.6 million in 2005, 2004 and 2003,respectively.

 

InJanuary 1992, we introduced a phantom stock incentive program for key employees.Since that time, certain employees have been granted awards at various interestlevels and over varying vesting periods. The value of the phantom stockinterest is based on the increase in the value of the Company over the basevalue at the award date. In accordance with the formula set forth in theagreements, which formula approximates a multiple of operating profits and isintended to approximate the fair market value of the Company, earned incentivesare paid in three annual installments following the earlier of termination ofemployment, sale of the Company, or five years after the initial grant of thephantom stock interest. The phantom stock agreements also set forth the termsof employment for the executive.

 

As ofDecember 31, 2005, the aggregate accrued liability under the phantom stockincentive program was $6.0 million, of which $0.6 million has been reflected ascurrent in the financial statements. The earned incentives under theseagreements are scheduled to be paid at various times over the next two years. During2005, we incurred deferred executive compensation expense of $2.2 million underthe phantom stock agreements. Phantom stock payments of $1.5 million were madeduring the 2005.

 

Thefollowing table sets forth the current awards outstanding under the Company’sphantom stock incentive program as of December 31, 2005. 

 
| **Officer/Director**                 | ** ** | **Full  Interest** | ** ** | **Vested  Amount** | ** ** |
|--------------------------------------|------------|--------------------|------------|--------------------|------------|
| Michael A.  Schneider                |       | 2.50               | %          | 2.50               | %          |
| Mark J. Boggess                      |       | 2.50               | %          | 2.50               | %          |
| Murray S. Coker                      |       | 1.00               | %          | 1.00               | %          |
| Thomas F. Wolfe                      |       | 0.33               | %          | 0.13               | %          |
| Laura A. James                       |       | 0.10               | %          | 0.04               | %          |
| Prabhuling Patel                     |       | 0.10               | %          | 0.02               | %          |
| Other officers  and key employees:   |       |               |       |               |       |
| Camp Coast to  Coast Inc. subsidiary |       |               | (1)        |               | (1)        |
| Camping World,  Inc. subsidiary      |       |               | (2)        |               | (2)        |

 

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(1)           Thephantom stock interest relates to four executives in our Camp Coast to Coast,Inc. subsidiary. The full interest for each executive ranges from 0.35% of theincrease in that subsidiary’s value to 15.00% of the increase in thatsubsidiary’s value depending upon the level of the increase. The full interestvests in equal portions over a five year period.

 

(2)           Thephantom stock interest relates to four executives in our Camping World, Inc.subsidiary. The full interest for each executive ranges from 1.45% of theincrease in that subsidiary’s value to 2.25% of the increase in that subsidiary’svalue depending upon the level of the increase. The full interest vests inequal portions over a five year period.

 

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Theexecutives’ base salary and annual bonus are determined from time to time bythe Board of Directors. In the event the executives’ employment is terminatedwithout cause, the phantom stock agreements provide for severance benefits ofup to one year’s base salary plus the accrued bonus for the year in which suchtermination occurs.

 

**Compensation Committee Interlockand Insider Participation**

 

The Company’s Board ofDirectors determines the compensation of the executive officers. Michael A.Schneider, President, serves on the Board of Directors.

 

Messrs. Boggess, Cokerand Blumer are partners in various partnerships that lease nine facilitiesunder long-term leases to Camping World. For the years ended December 31, 2005,2004 and 2003, payments under these leases were approximately $3.3 million,$3.7 million, and $3.6 million, respectively. The leases expire betweenSeptember 2007 and December 2020, subject to the right of Camping World toexercise renewal options. We believe that such leases contain lease terms asfavorable as lease terms that would be obtained from independent third parties.

 

OnDecember 5, 2001, the Company sold eleven real estate properties to elevenseparate wholly-owned subsidiaries of AGRP Holding Corp., a wholly-ownedsubsidiary of the Company’s parent, AGI Holding Corp., for $52.3 million incash and a note receivable. The properties have been leased back to the Companyon a triple net basis. Both the sales price and lease rates were based onmarket rates determined by third party independent appraisers engaged by themortgage lender and approved by the Senior Credit Facility agent bank. Theseleases have an initial term of 25 to 27 years with two five-year options at thethen current market rent*.*Paymentsunder these leases were $3.4 million in 2005.

 

**Bonus Plan**

 

Weannually adopt bonus programs for employees. Bonus payments are made based onachievement of specified operating results and/or objectives.

 

**401 (k) Savings and Profit Plan**

 

We sponsor a deferredsavings and profit sharing plan (the “401(k) Plan”) qualified under Section401(a) and 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”).All employees over age 21 who have completed one year of service (minimum of1,000 hours) are eligible to participate in the 401(k) Plan. For the plan year2005, we elected a Safe Harbor Matching Contribution for the employer match andset the employer match, which vests upon contribution, at an amount equal to100% of the first 4% of the employee’s contribution. Employees may defer up to60% of their eligible compensation up to IRS limits.

 

**Other Benefit Plan**

 

Ouremployees receive certain medical and dental benefits during their employment. Oneof our predecessors also provided eligible employees with medical, dental andlife insurance coverage after retirement. The estimated future costs associatedwith such coverage to retirees are reserved as a liability in our consolidatedfinancial statements. Current employees are not provided medical and dentalbenefits upon retirement.

 

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**Director Compensation**

 

We paydirectors who are not employees (Messrs. Baltins, Frith-Smith, Gleason andPransky) director fees of $1,800 per month.

 

**Report on Executive Compensation**

 

Ourexecutive compensation program is tied closely to our performance and aimed atenabling us to attract and retain the best possible executive talent. Accordingly,the Board of Directors seeks to significantly correlate the level of executivecompensation, when taken as a whole, with the level of our performance, and itseeks to compensate its executives in a manner that is reasonably competitivewith that available to executives in comparable companies, including membershipservices companies and other highly leveraged companies with comparableoperating income. These goals are accomplished through the use of a combinationof annual bonus payments and phantom stock grants in conjunction with base compensation.

 

Michael A. Schneiderbecame our President and Chief Executive Officer as of January 1, 2004. Mr.Schneider’s compensation package was determined by the Board based onnegotiations with Mr. Schneider taking into account the compensation packagesof chief executive officers of similarly situated companies and our performanceobjectives. For 2005, Mr. Schneider received a base salary and he received abonus based on his assigned percentage of our operating income and theachievement of specified operating results. In addition, Mr. Schneider has beengranted phantom stock interests in order to provide him with an incentive toenhance our long-term value. See a description of the phantom stock incentiveprogram for key employees under “Agreements with Executive Officers.”  Standard employee medical and dental benefitsand participation in the 401(k) Plan are also available to Mr. Schneider.

 

Our other executiveofficers received base salaries for 2005 which the Board has set at levelswhich are believed by the Board to be reasonably competitive with the salarylevel of executives in comparable companies. The executive officers alsoreceived bonuses based on their respective assigned percentages of ouroperating income or the operations in which the executive is employed. Thepercentage assigned to each executive officer depends upon the level of his orher responsibilities. In addition, the other executive officers receivedphantom stock grants, standard employee medical and dental benefits andparticipation in the 401(k) Plan.

 

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**ITEM 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT**

 

AGI is a wholly-ownedsubsidiary of AGHI. AGHI is a wholly-owned subsidiary of AGI Holding Corp. (“AGHC”),a privately-owned corporation. The following table sets forth, as of December31, 2005, certain information with respect to the beneficial ownership of theCommon Stock of AGHC by each shareholder who is known to us to beneficially ownmore than 5% of the outstanding shares, each executive officer and the currentsole director of AGHC, and all of our executive officers and directors as agroup.

 
| **Name and Address of Beneficial Owner**                       | ** ** | **Number of Shares  of Stock Owned (1)** | ** ** | **Percent of  Common Stock** | ** ** |
|----------------------------------------------------------------|------------|------------------------------------------|------------|------------------------------|------------|
|                                                           |       |                                     |       |                         |       |
| Stephen Adams  2575 Vista Del Mar Drive  Ventura, CA 93001     |       | 1,407.7                                  | (2)        | 97.41                        | %          |
|                                                           |       |                                     |       |                         |       |
| All executive  officers and directors as a group  (15 persons) |       | 1,407.7                                  |       | 97.41                        | %          |

 

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(1)  Except as otherwise indicated, the beneficialowners have sole voting and investment power with respect to the shares in thetable.

 

(2)  Does not include 37.5 shares owned by membersof the Adams’ family who do not reside with him and as to which Mr. Adamsdisclaims beneficial ownership.

 

**ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

 

Certain members of ourBoard of Directors, including the Chairman of the Board, are partners inpartnerships and shareholders of corporations that lease facilities to us underlong-term leases. For the years ended December 31, 2005, 2004 and 2003,payments under these leases were approximately $6.7 million, $7.1 million, and$7.0 million, respectively. Future commitments under these leases totalapproximately $102.2 million. The leases expire at various dates from September2007 through July 2029, subject to our right to exercise renewal options.

 

In connection with oureffort to expand the number of Camping World stores by developing retailalliances with RV dealerships across North America, we have establishedfourteen Camping World stores alongside or within RV dealerships owned throughentities controlled by the Chairman of our Board of Directors, Stephen Adams,and we expect to open additional Camping World stores alongside or within suchRV dealerships in the future. At December 31, 2005, the Company leased tenproperties from FreedomRoads and sub-leased four properties to FreedomRoads. Totalpayments received under these ten leased properties for 2005 and 2004 wereapproximately $0.7 million and $0.2 million, respectively, and future commitmentsunder these leases total approximately $6.6 million. The leases expire atvarious dates from August 2013 through October 2015. For 2005 and 2004, leasepayments received from FreedomRoads for the four subleased properties wereapproximately $0.7 million and $0.6 million, respectively, and future paymentsto be received under these subleases total approximately $5.3 million. Paymentsunder the product marketing and sales agreements were approximately $3.2million, $3.7 million and $0.1 million for 2005, 2004 and 2003 respectively.

 

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On December 5, 2001, wesold eleven real estate properties to eleven separate wholly-owned subsidiariesof AGRP Holding Corp, a wholly-owned subsidiary of our ultimate parent, AGHC,which is owned 97.4% by Mr. Adams, for $52.3 million in cash and a $4.8 millionnote receivable. The properties have been leased back to us on a triple netbasis. These leases are classified as operating leases and the average netannual lease payments over the lives of the leases are $3.4 million. The $4.8million note receivable yields 11% per annum, with monthly payments of $46,000and a ten-year balloon due December 2011.

 

In March 2002, wereceived a royalty payment of $1.5 million from Holiday RV Superstores, Inc.,doing business as Recreation USA, (“Recreation USA”). This non-refundablepayment grants Recreation USA a limited non-exclusive license to use theCompany’s Good Sam trademarks. When the Company entered into the agreement withRecreation USA, our Chairman beneficially owned, through entities controlled byhim, approximately 57% of the then outstanding common stock of Recreation USAafter taking into account conversion and exercise of his beneficially-ownedsecurities in Recreation USA. We recorded the royalty payment into income in alevel amount ratably over the three-year term of the license. The agreementwith Recreation USA was terminated in October 2003 and, as a result, theunamortized balance of the royalty agreement was recognized as revenue in thefourth quarter of 2003.

 

For a description of theemployment, consulting, non-competition, management incentive and phantom stockagreements with the Company and persons serving as an executive officer ordirector of the Company see “Executive Compensation - Agreements with ExecutiveOfficers” and “Executive Compensation - Committee Interlock and InsiderParticipation.”

 

For a description ofleases which our subsidiaries have with partnerships in which a director of ourcompany has a partnership interest, see “Executive Compensation - CompensationCommittee Interlock and Insider Participation.”

 

The law firm of Kaplan,Strangis and Kaplan, P.A. (“KSK”) provides ongoing legal services to theCompany and certain subsidiaries in connection with various matters. Andris A.Baltins, a member of the Board of Directors, is a member of that firm. During2005, KSK received $0.3 million in legal fees from the Company.

 

**ITEM 14:****PRINCIPAL ACCOUNTING FEES ANDSERVICES**

 

The Audit Committee of the Board ofDirectors engaged Ernst & Young LLP as independent auditors to examine ouraccounts for the fiscal year ending December 31, 2005.

 

**Audit Fees**

 

Theaggregate audit fees paid to Ernst & Young LLP for the fiscal years endedDecember 31, 2005, 2004 and 2003, were $309,960, $256,680 and $311,140,respectively. These fees include amounts for the audit of the Company’sconsolidated annual financial statements, stand alone audits of certainsubsidiaries, and the reviews of the consolidated financial statements includedin the Company’s Quarterly Reports on Form 10-Q, including assistance with andreview of documents filed with the SEC.

 

**Audit-RelatedFees**

 

Theaggregate audit-related fees paid to Ernst & Young LLP for the fiscal yearsended December 31, 2005, 2004 and 2003 were $3,400, $17,700 and $0,respectively. These fees related to****specificanalysis of accounting treatments and general assistance with theimplementation of the SEC rules pursuant to the Sarbanes-Oxley Act of 2002.

 

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**TaxFees**

 

Theaggregate fees billed by Ernst & Young LLP for tax services rendered forthe fiscal years ended December 31, 2005, 2004 and 2003 were $99,300, $27,374and $33,848, respectively. The fees paid in each of those years primarilyrelated to tax planning and compliance services.

 

**AllOther Fees**

 

Therewere no other fees paid to Ernst & Young LLP for the years ended December31, 2005, 2004 and 2003.

 

**Pre-ApprovalRequirements**

 

TheBoard of Directors has the sole authority to review in advance and grant anypre-approvals of (i) all auditing services to be provided by the independentauditor, (ii) all significant non-audit services to be provided by theindependent auditors as permitted by Section 10A of the Securities Exchange Actof 1934, and (iii) all fees and the terms of engagement with respect to suchservices. All audit and non-audit services performed by Ernst & Young LLPduring fiscal 2005 were pre-approved pursuant to the procedures outlined above.

 

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**PART IV**

 

**ITEM15:  EXHIBITS, FINANCIAL STATEMENTSCHEDULES**

 

(a) (1)     Consolidatedfinancial statements are included in Item 8 hereto.

 

(a) (2)     Consolidatedfinancial statement schedules are included in Item 8 hereto.

 

(a) (3)     Listingof Exhibits:

 

The exhibits required tobe a part of this report are listed in the Index to Exhibits which follows thesignature page.

 

(b)          Exhibits:

 

Included in Item 15 (a)(3) above.

 

(c)          FinancialStatement Schedules

 

Included in Item 15 (a)(2) above.

 

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**SIGNATURES**

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized, in the City of Ventura, State ofCalifornia on March 3, 2006.

 

 

AFFINITY GROUP, INC.

 

 
| By                      |   /s/ Michael  A. Schneider |   |
|-------------------------|---------------------------------------|--------|
| Michael A. Schneider    |                                  |
| Chief Executive Officer |                                  |
|                         |                                       |        |  |

 

 

Pursuant to therequirements of the Securities Act of 1934, this report has been signed belowby the following persons on behalf of the registrant in the capacities and onthe dates indicated.

 

 
|     /s/  Thomas F. Wolfe |   | Senior Vice President  and                    | March 3, 2006 |
|----------------------------------------------|--------|-----------------------------------------------|---------------|
|   Thomas F.  Wolfe                 |   | Chief Financial Officer                       |          |
|                                         |   | (Principal Financial  and Accounting Officer) |          |
|                                         |   |                                          |          |
|                                         |   |                                          |          |
| *                                            |   | Director                                      | March 3, 2006 |
|   Stephen  Adams                   |   |                                          |          |
|                                         |   |                                          |          |
|                                         |   |                                          |          |
| *                                            |   | Director                                      | March 3, 2006 |
|   Andris A.  Baltins               |   |                                          |          |
|                                         |   |                                          |          |
|                                         |   |                                          |          |
| *                                            |   | Director                                      | March 3, 2006 |
|   David  Frith-Smith               |   |                                          |          |
|                                         |   |                                          |          |
|                                         |   |                                          |          |
| *                                            |   | Director                                      | March 3, 2006 |
|   J. Kevin  Gleason                |   |                                          |          |
|                                         |   |                                          |          |
|                                         |   |                                          |          |
| *                                            |   | Director                                      | March 3, 2006 |
|   George  Pransky                  |   |                                          |          |

 

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| *By:   | /s/ Thomas F. Wolfe                 |   | March 3, 2006 |
|--------|-------------------------------------|--------|---------------|
|   | (Thomas F. Wolfe  Attorney-in-Fact) |   |
|   |                                |

 

 

Thomas F. Wolfe, pursuantto Powers of Attorney executed by each of the officers and directors listedabove whose name is marked by an “*” and filed as an exhibit hereto, by signinghis name hereto does hereby sign and execute this Report of Affinity Group,Inc. on behalf of each of such officers and directors in the capacities inwhich the names of each appear above.

 

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**AFFINITY GROUP, INC.**

 

**EXHIBIT INDEX TO ANNUAL REPORT**

**ON FORM 10-K**

 

**For Fiscal Year Ended December31, 2005**

 
| **Item**                                                                                                                                                                                               | ** ** | **Regulation  S-K Exhibit  Table  Reference** | ** ** | **Sequential  Page No.** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------|
| ** **                                                                                                                                                                                             | ** ** | ** **                                    | ** ** | ** **               |
| Certificate  of Incorporation of Affinity Group, Inc. (1)                                                                                                                                              |       | 3.1                                           |       |                     |
|                                                                                                                                                                                                   |       |                                          |       |                     |
| Bylaws  of Affinity Group, Inc. (1)                                                                                                                                                                    |       | 3.2                                           |       |                     |
|                                                                                                                                                                                                   |       |                                          |       |                     |
| Certificate  of Ownership and Merger (1)                                                                                                                                                               |       | 3.3                                           |       |                     |
|                                                                                                                                                                                                   |       |                                          |       |                     |
| Indenture  (including form of 9% Senior Subordinated Notes due 2012) dated as of  February 18, 2004 among Affinity Group, Inc., the Guarantors named therein  and The Bank of New York, as Trustee (1) |       | 4.5                                           |       |                     |
|                                                                                                                                                                                                   |       |                                          |       |                     |
| Registration  Rights Agreement dated as of February 18, 2004 among Affinity Group, Inc.,  the Guarantors named herein and CIBC World Markets Corp., as Initial  Purchaser (1)                          |       | 4.6                                           |       |                     |
|                                                                                                                                                                                                   |       |                                          |       |                     |
| Tax  Sharing Agreement among Affinity Group Holding, Inc., Affinity Group, Inc.  and its subsidiaries, as amended (1)                                                                                  |       | 10.1                                          |       |                     |
|                                                                                                                                                                                                   |       |                                          |       |                     |
| Form  of Phantom Stock Agreement between certain executives and Affinity Group,  Inc. (1)                                                                                                              |       | 10.2                                          |       |                     |
|                                                                                                                                                                                                   |       |                                          |       |                     |
| Form  of Phantom Stock Agreements between certain executives and CWI, Inc. (1)                                                                                                                         |       | 10.3                                          |       |                     |
|                                                                                                                                                                                                   |       |                                          |       |                     |
| Form  of Phantom Stock Agreements between certain executives and Camp Coast to  Coast, Inc. (1)                                                                                                        |       | 10.4                                          |       |                     |
|                                                                                                                                                                                                   |       |                                          |       |                     |
| Working  Agreements and Service Agreements with National General Insurance Contract,  as amended (1)                                                                                                   |       | 10.6                                          |       |                     |
|                                                                                                                                                                                                   |       |                                          |       |                     |
| 401(k)  Savings and Investment Plan (1)                                                                                                                                                                |       | 10.7                                          |       |                     |
|                                                                                                                                                                                                   |       |                                          |       |                     |
| Form  of Indemnification Agreement for persons consenting to serve as directors (1)                                                                                                                    |       | 10.8                                          |       |                     |
|                                                                                                                                                                                                   |       |                                          |       |                     |
| Unsecured  Promissory Note of AGRP Holding Corp., dated December 5, 2001 (1)                                                                                                                           |       | 10.9                                          |       |                     |
|                                                                                                                                                                                                   |       |                                          |       |                     |
| Amended  and Restated Marketing Agreement, dated March 15, 2002 by and between Camping  World, Inc. and National General Insurance Company (1)                                                         |       | 10.10                                         |       |                     |

 

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| **Item**                                                                                                                                                                                                                                                                                                                                                                                             | ** ** | **Regulation  S-K Exhibit  Table  Reference** | ** ** | **Sequential  Page No.** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| Amended  and Restated Credit Agreement dated as of June 24, 2003 among Affinity Group,  Inc., the guarantors party thereto, the lenders party thereto, Canadian  Imperial Bank of Commerce, as syndication agent, Fleet National Bank, as  administrative agent, and General Electric Capital Corporation, as  documentation agent (1)                                                               |       | 10.11                                         |       |                     |
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| Senior  Secured Floating Rate Note Purchase Agreement dated as of June 24, 2003 among  Affinity Group, Inc., the guarantors party thereto, the noteholders party  thereto, Canadian Imperial Bank of Commerce, as syndication agent, Fleet  National Bank, as administrative agent and General Electric Capital  Corporation, as documentation agent (1)                                             |       | 10.12                                         |       |                     |
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| First  Amendment to Credit Agreement dated as of February 18, 2004 among Affinity  Group, Inc., the guarantors party thereto, the lenders party thereto,  Canadian Imperial Bank of Commerce, as syndication agent, Canadian Imperial  Bank of Commerce, as administrative agent and successor to Fleet National  Bank, and General Electric Capital Corporation, as documentation agent (1)         |       | 10.13                                         |       |                     |
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| First  Amendment to Note Purchase Agreement dated as of February 18, 2004 among  Affinity Group, Inc., the guarantors party thereto, the lenders party  thereto, Canadian Imperial Bank of Commerce, as syndication agent, Canadian  Imperial Bank of Commerce, as administrative agent and successor to Fleet  National Bank, and General Electric Capital Corporation, as documentation  agent (1) |       | 10.14                                         |       |                     |
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| Second  Amendment to Credit Agreement dated as of June 30, 2004 among Affinity Group,  Inc., the guarantors party thereto, the lenders party thereto, Canadian  Imperial Bank of Commerce, as syndication agent, Canadian Imperial Bank of  Commerce, as administrative agent and successor to Fleet National Bank, and  General Electric Capital Corporation, as documentation agent (2)            |       | 10.15                                         |       |                     |
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| Second  Amendment to Note Purchase Agreement dated as of June 30, 2004 among Affinity  Group, Inc., the guarantors party thereto, the lenders party thereto,  Canadian Imperial Bank of Commerce, as syndication agent, Canadian Imperial  Bank of Commerce, as administrative agent and successor to Fleet National  Bank, and General Electric Capital Corporation, as documentation agent (2)     |       | 10.16                                         |       |                     |
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| Third  Amendment to Credit Agreement dated as of November 12, 2004 among Affinity  Group, Inc., the guarantors party thereto, the lenders party thereto,  Canadian Imperial Bank of Commerce, as syndication agent, Canadian Imperial  Bank of Commerce, as administrative agent and successor to Fleet National  Bank, and General Electric Capital Corporation, as documentation agent (4)         |       | 10.17                                         |       |                     |

 

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| **Item**                                                                                                                                                                                                                                                                                                                                                                                             | ** ** | **Regulation  S-K Exhibit  Table  Reference** | ** ** | **Sequential  Page No.** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| Third  Amendment to Note Purchase Agreement dated as of November 12, 2004 among  Affinity Group, Inc., the guarantors party thereto, the lenders party  thereto, Canadian Imperial Bank of Commerce, as syndication agent, Canadian  Imperial Bank of Commerce, as administrative agent and successor to Fleet  National Bank, and General Electric Capital Corporation, as documentation  agent (4) |       | 10.18                                         |       |                     |
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| Agreement  with Cross Country Motor Club, Inc. dated September 7, 2004 (3)                                                                                                                                                                                                                                                                                                                           |       | 10.19                                         |       |                     |
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| Lease  Agreement for distribution center in Franklin, Kentucky (5)                                                                                                                                                                                                                                                                                                                                   |       | 10.20                                         |       |                     |
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| Fourth  Amendment to Credit Agreement dated March 24, 2005 (6)                                                                                                                                                                                                                                                                                                                                       |       | 10.21                                         |       |                     |
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| Fourth  Amendment to Note Purchase Agreement dated March 24, 2005 (6)                                                                                                                                                                                                                                                                                                                                |       | 10.22                                         |       |                     |
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| Preferred  Membership Unit Subscription Agreement dated March 24, 2005 between  FreedomRoads Holding, LLC and CWFR Capital Corp. (6)                                                                                                                                                                                                                                                                 |       | 10.23                                         |       |                     |
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| Fifth  Amendment to Credit Agreement dated November 13, 2005 among Affinity Group,  Inc, the guarantors party hereto, the lenders party thereto, Canadian  Imperial Bank of Commerce, as syndication agent, Canadian Imperial Bank of  Commerce as administrative agent, and General Electric Capital Corporation as  documentation agent. (7)                                                       |       | 10.24                                         |       |                     |
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| Second  Amendment to Tax Sharing Agreement among Affinity Group Holding, Inc.,  Affinity Group, Inc. and its subsidiaries                                                                                                                                                                                                                                                                            |       | 10.25                                         |       | 87                       |
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| Subsidiaries  of the Registrant                                                                                                                                                                                                                                                                                                                                                                      |       | 21                                            |       |                     |
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| Powers  of Attorney                                                                                                                                                                                                                                                                                                                                                                                  |       | 24.1                                          |       |                     |
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| Certification  of President and Chief Executive Officer                                                                                                                                                                                                                                                                                                                                              |       | 31.1                                          |       |                     |
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| Certification  of Senior Vice President and Chief Financial Officer                                                                                                                                                                                                                                                                                                                                  |       | 31.2                                          |       |                     |
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| Statement  Pursuant to 18 U.S.C. Section 1350                                                                                                                                                                                                                                                                                                                                                        |       | 32.1                                          |       |                     |
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| Statement  Pursuant to 18 U.S.C. Section 1350                                                                                                                                                                                                                                                                                                                                                        |       | 32.2                                          |       |                     |
|                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                          |       |                     |
| Affinity  Group Code of Professional Conduct (2)                                                                                                                                                                                                                                                                                                                                                     |       | 99.1                                          |       |                     |

 

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(1)   Filed with the Company’sRegistration Statement No. 333-113982 and incorporated by reference herein.

 

(2)   Filed with the Company’sReport on Form 10-Q for the quarter ended June 30, 2004 and incorporated byreference herein.

 

(3)   Filed with the Company’sReport on Form 8-K dated September 9, 2004 and incorporated by referenceherein.

 

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(4)   Filed with the Company’sReport on Form 8-K dated November 16, 2004 and incorporated by referenceherein.

 

(5)   Filed with the Company’sReport on Form 10-K dated December 31, 2004 and incorporated by referenceherein.

 

(6)   Filed with the Company’sReport on Form 8-K dated March 25, 2005 and incorporated by reference herein.

 

(7)   Filed with the Company’sReport on Form 8-K dated November 13, 2005 and incorporated by referenceherein.

 

A copy of any of theseexhibits will be furnished at a reasonable cost to any person upon receipt fromsuch person of a written request for such exhibit. Such request should be sentto Affinity Group, Inc., 2575 Vista Del Mar Drive, Ventura, CA 93001,Attention:  Chief Financial Officer.

 

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