** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-K**

| **(Mark One)**                                                                                                                                                                                        |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                  |   |
| **ý**                                                                                                                                                                                            | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                  |   |
| **For  the fiscal year ended December 31, 2002      OR**                                                                                                                          |
|                                                                                                                                                                                                  |   |
| **o**                                                                                                                                                                                                 | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                  |   |
| **For  the transition period from               to               ** |
|                                                                                                                                                                                                  |
| **Commission  File Number   333-26389**                                                                                                                                                     |

 

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**AFFINITY GROUP HOLDING, INC.**

(Exact name of registrantas specified in its charter)

 

| **Delaware**                                            |   | **59-2922099**                                             |
|---------------------------------------------------------|--------|------------------------------------------------------------|
| (State of incorporation  or organization)               |   | (I.R.S. Employer  Identification No.)                      |
|                                                    |   |                                                       |
| **64  Inverness Drive East  Englewood, CO  80112** |   | **(303)  792-7284**                                        |
| (Address of principal  executive offices)               |   | (Registrant’s telephone  number including area code.) |

 

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| SECURITIES REGISTERED  PURSUANT TO SECTION 12 (b) OF THE ACT:   **NONE** |
|-------------------------------------------------------------------------------|
| SECURITIES REGISTERED  PURSUANT TO SECTION 12 (g) OF THE ACT:                 |
| **11%  Senior Notes Due 2007**                                                |

 

Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15 (d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the Registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.

 

YES  ý        NO o

 

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date.

 

| **Class**                     |   | **Outstanding  as of  March 21, 2003** |
|-------------------------------|--------|----------------------------------------|
| Common stock, $.01 par  value |   | 100                                    |

 

**DOCUMENTS INCORPORATED BY REFERENCE: Documents Referenced onExhibit Index**

 

 

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**PART I**

 

**ITEM1:  BUSINESS**

 

 

**General**

 

Exceptwhere the context indicates otherwise, the term “Company”, or “AGHI” meansAffinity Group Holding, Inc. and its predecessors and subsidiaries.

 

The Company is a member-based direct marketingorganization with complementary retail outlets across the country.  The Company’s club members form a receptiveaudience to which it sells products, services, merchandise and publicationstargeted to the recreational interests of club members.  The Company’s three principal lines ofbusiness are (i) club memberships and related products, services and clubmagazines, (ii) specialty retail merchandise distributed primarily throughits Camping World retail supercenters, mail order catalogs and the Internet,and (iii) subscription magazines and other publications includingdirectories.  The Company’saffinity groups are principally comprised ofrecreational vehicle owners, campers, outdoor recreationists and, to a lesserextent, golfers.  See Footnote 12in the Notes to Consolidated Financial Statements for financial informationabout the Company’s segments.

 

AtDecember 31, 2002, there were approximately 1.8 million dues paying membersenrolled in the Company’s clubs, remaining level with 2001.  The paid circulation per issue of theCompany’s general circulation magazines is estimated at approximately 934,000with an aggregate readership estimated at 5.1 million at December 31,2002.  The Company believes its clubmembers have favorable demographic characteristics and comparatively highrenewal rates.  Total revenues of theCompany were $431.1 million for the year ended December 31, 2002, compared to$405.4 million for the year ended December 31, 2001, representing a 6.4%increase.

 

 

**Business Strategy**

 

The Company’s business strategy is to increase (i) the enrollment ofits clubs through internal growth and acquisitions, (ii) the sales of itsproducts and services to club members and the general public through improvingand expanding its distribution channels and by developing and enhancing itsproduct and service offerings, and (iii) the circulation of its publications byintroducing new magazines and acquiring publications which are complementary tothe Company’s recreational market niche. The Company also seeks to realize operational efficiencies through theintegration of acquired businesses.

 

*Enhance Club Membership Enrollment*

 

The Company seeks to increase the number of its club members throughmaximizing renewals by establishing an optimal mix of channels for solicitingnew members and re-acquiring inactive members. These channels include an internet presence through RV.Net.  Management believes that the participationlevels and renewal rates of club members reflect the benefits derived frommembership.  In order to maintain highparticipation rates in its clubs, the Company continuously evaluates membersatisfaction and actively responds to changing member preferences through theenhancement or introduction of new membership benefits including products andservices.  The Company also usesalternative channels for acquiring club members.  This is achieved through the use of two separate call centers,promotion in the publication titles it owns, through the national

 

1

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network of Camping World supercenters, mail order catalogs, and theInternet.

 

*Acquire and Develop Other AffinityGroups*

 

The Companybelieves that the experience it has accumulated in managing its existingrecreational affinity groups is applicable to the management of otherrecreational interest organizations.  Asa result, the Company conducts ongoing evaluations for developing or acquiringaffinity groups for which it can build membership enrollment and to which itcan market products and services.

 

*IncreaseSales of Products and Services*

 

The Company seeks to increase the sale of itsproducts and services due to their profitability and the favorable impact suchprograms have on club membership growth and retention.  Management continues to pursue thesubstantial opportunity which exists in marketing its clubs and ancillaryproducts and services through the national network of Camping Worldsupercenters and mail order catalogs. This cross-club potential is exemplified by the significant percentageof Good Sam Club members which currently subscribe to one or more of theCompany’s products and services, such as the emergency road service program andthe extended vehicle warranty program. Management also believes that the Good Sam Club members who are notcurrently members of Camping World’s President’s Club represent a focused groupof customers to which it will market Camping World’s RV accessorymerchandise.  The Company regularlystudies the feasibility of introducing new products and services.

 

Management also believes a substantial opportunity exists to expand thenumber of Camping World stores by developing retail partnerships with RVdealerships across North America.  Byestablishing Camping World stores alongside or within existing independentdealerships, an expanded number of customers are provided with access to thevast array of products and services available under the Affinity Group umbrellaand traffic is increased for our dealer partners.

 

*ImproveOperating Performance*

 

The Company seeks to achieve operating efficiencies by selectivelyacquiring and developing recreational affinity groups which enable the Companyto increase membership enrollment and to realize cost savings.  The Company also seeks to enhance itsimportance with third party providers of products and services by maintaininghigh membership enrollment levels in such programs, thereby increasing the feesit receives from such vendors.

 

*ExpandNiche Recreational Publications*

 

The Company seeks to expand its presence as a dominant publisher inselect recreational niches through the introduction of new magazine formats andthe acquisition of other publications in its market or in complementaryrecreational market niches.  Publicationsin complementary niches may also provide the Company with the opportunity tolaunch new membership clubs, to market its products and services to members ofnew clubs and to develop other products and services which meet the specialneeds of such members.  The Companybelieves overall circulation of its magazines is an important factor indetermining the amount of revenues it can obtain from advertisers.

 

**RVIndustry**

 

The use of recreational vehicles (“RVs”) and the demand for clubmemberships and related products

 

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and services may be influenced by a number of factors including generaleconomic conditions, the availability and price of propane and gasoline, andthe total number of RVs.  The Company believesthat both the installed base of RVs and the type of RV owned (full servicevehicles excluding van conversions) are the most important factors affectingthe demand for its membership clubs, merchandise, products and services.  Based on the most recent survey conducted in2001 by the National Survey of the RV Consumer of the University of Michigan(the “Survey”), the number of households owning RVs is projected to increasefrom 6.9 million in 2001 to nearly 8.0 million in 2010.  The Survey also indicates that thepercentage of households owning RVs during this period will rise slightly from7.6% to 7.8%.

 

According to the Survey, the average RV owner is 49 years old.  RV ownership also increases with agereaching its highest percentage level among those 55 to 64 years old.  Households in this age group are projectedto increase from 14.3 million in 2001 to 20.7 million in 2010.  RV ownership also is concentrated in thewestern United States, an area in which the population growth rate continues tobe greater than the national average. The Survey also indicates that RV ownership is associated with higherthan average annual household income, which among RV owners was approximately$56,000 per annum as compared to the national average of $42,000 per annum.

 

The average age and annual household income of the Company’s clubmembers in 2001 were 57 years and $57,000, respectively, based on member surveydata compiled by the Company.  TheCompany believes that the demographic profile of its typical club member,coupled with a demographic trend towards an aging population will have afavorable impact on RV ownership and the demand for club memberships andrelated products and services.

 

**Membership Clubs**

 

The Company operates the Good Sam Club, Coast to Coast Club, andCamping World’s President’s Club for RV owners, campers and outdoorvacationers, and the Golf Card Club for golf enthusiasts.  The membership clubs form a receptiveaudience to which the Company markets its products and services.

 

Thefollowing table sets forth the number of members at December 31, 2002, annualmembership dues and average annual renewal rates during the period of 1998 to2002 for each club:

 
| **Membership Club**   |   | **Number of  Members at  December 31, 2002(1)** |   | **Annual  Fee(2)**       |   | **Average  Renewal  Rate(3)** |   |
|-----------------------|--------|-------------------------------------------------|--------|--------------------------|--------|-------------------------------|--------|
| Good Sam Club         |   | 960,600                                         |   | $  12 - $   25 |   | 70                            | %      |
|                  |   |                                            |   |                     |   |                          |   |
| Coast to Coast Club   |   | 139,800                                         |   | $  80 - $   90 |   | 71                            | %      |
|                  |   |                                            |   |                     |   |                          |   |
| President’s Club |   | 626,000                                         |   | $  15 - $   20 |   | 67                            | %      |
|                  |   |                                            |   |                     |   |                          |   |
| Golf Card Club        |   | 79,400                                          |   | $  49 - $   65 |   | 64                            | %      |

 

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(1)               Also Includesmulti-year and lifetime members.

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

(3)               Excludes membershaving lifetime memberships.

 

In addition to regular memberships, the Company also sells multi-yearmemberships.  Management believes thatmulti-year memberships provide several advantages, including the up-frontreceipt of dues in cash, reduced membership costs and a strengthened membercommitment.

 

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Beginning in 1992, the Company began selling lifetime memberships forthe Good Sam Club.  As of December 31,2002, the average price for a lifetime membership was $330 with 121,413 membersregistered.  Based on an actuarialanalysis of the lifetime members, the Company expects the average length of alifetime membership to be 18 years.

 

*GoodSam Club*

 

The Good Sam Club,founded in 1966, is a membership organization for owners of recreationvehicles.  The Good Sam Club is thelargest RV club in North America with approximately 960,600 member families andover 1,900 local chapters as of December 31, 2002.  The average renewal rate for Good Sam Club members wasapproximately 70% during the period 1998 through 2002.  The Company****has focused on sellinghigher margin multi-year memberships which, among other advantages, reduces thecost of membership renewal.  At December31, 2002, the average length of time for participation in the Good Sam Club wasalmost 7 years with most club members purchasing annual memberships.

 

Membership fees range from $12 to $25, subject to the term and type(acquisition or renewal).  The benefitsof club memberships include: discounts for overnight stays at approximately1,650 participating RV parks and campgrounds; discounts on the purchase ofsupplies and accessories for recreation vehicles at nearly 100 RV servicecenters; a free annual subscription to *Highways*, the club’s regular newsmagazine; discounts on other Company publications; trip routing andmail-forwarding; and access to products and services developed for clubmembers.  Based on typical usagepatterns, the Company estimates that Good Sam Club members realize estimatedannual savings from discounts of $158.

 

TheGood Sam Club establishes quality standards for RV parks and campgroundsparticipating in its discount program. Campgrounds and parks participating in the Good Sam program benefit fromincreased occupancy and sales of camping related products.  The Company believes it has establishedconsiderable penetration of those for-profit RV parks and campgrounds whichmeet its quality standards for participation in the discount program.

 

Thefollowing table lists the number of club members and RV parks and campgroundsfrom 1998 through 2002 at which discounts for members were available atDecember 31st of the respective year:

 
|                                                            |   | **Year Ended  December 31** |   |
|-----------------------------------------------------------------|--------|-----------------------------|--------|
|                                                            |   | **2002**                    |   | **2001** |   | **2000** |   | **1999** |   | **1998** |   |
|                                                            |   |                        |   |   |   |   |   |   |   |   |   |
| Number of Good Sam Members (1)                                  |   | 960,600                     |   | 946,800 |   | 949,600 |   | 970,100 |   | 936,200 |   |
|                                                            |   |                        |   |   |   |   |   |   |   |   |   |
| Lifetime members included above                                 |   | 121,400                     |   | 119,000 |   | 114,800 |   | 109,900 |   | 102,800 |   |
|                                                            |   |                        |   |   |   |   |   |   |   |   |   |
| Number of RV campgrounds offering discounts to Good Sam members |   | 1,650                       |   | 1,650 |   | 1,747 |   | 1,775 |   | 1,682 |   |

 

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(1)               A member consistsof a household.

 

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*Coastto Coast*

 

The Coast to Coast Club operates the largest reciprocal use network ofprivate RV resorts in North America. The Company offers a series of membership benefits depending uponpricing and program type under the Coast to Coast name.  Members of Coast to Coast belong to aprivate RV resort owned and operated by parties unrelated to the Company.  Club members may use the participatingresorts in the Coast to Coast network on a reservation or space availablebasis.  At December 31, 2002, there wereover 139,800 member families in the Coast to Coast Club.  Approximately 383 private RV resortsnationwide participated in the Coast to Coast reciprocal use programs as wellas a network of about 572 open to the public affiliated campgrounds.  These private resorts are designed primarilyfor RV owners, but typically provide camping or lodging facilities, comprisedof RVs, cabins, park models, and condominiums. For an initial membership fee plus annual maintenance fees, both paid bythe customer to the resort, the private resorts provide an RV site with water,sewer and electrical hook-ups and recreational amenities, such as swimming,tennis or fishing, or proximity to theme parks or other recreationalactivities.  The Company has establishedquality criteria for resorts to join and remain in the Coast to Coast networks.

 

For standardannual renewal dues from $79.95 for a single year membership to $189.95 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 toCoast Directory*providing information on the participating resorts;discounts on other Company publications; access to discount hotels and travelservices; and access to ancillary products and services developed for clubmembers.

 

The Company believes that resorts participating in the Coast to Coastnetworks view access to reciprocating member resorts as an incentive for theircustomers to join their resort.  Becausea majority of Coast to Coast club members own RVs, access to participatingresorts throughout North America can be an important complement to local resortmembership.  Based on typical usepatterns, the Company estimates that Coast to Coast members realize estimatedannual savings from these discounts of over $200 from discounted overnight stayaccommodations at participating resorts. The average annual renewal rate for members of the Coast to Coast Clubafter the initial one-year membership (which is generally paid by the memberresort not the club member) was approximately 71% during the period 1998through 2002.

 

The following table sets forth the number of members in Coast to CoastClub and resorts participating in the reciprocal use program, and the number ofpublic resorts extending discounts to Coast to Coast members at December 31stof the respective year:

 
|                                             |   | **Year Ended  December 31** |   |
|--------------------------------------------------|--------|-----------------------------|--------|
|                                             |   | **2002**                    |   | **2001** |   | **2000** |   | **1999** |   | **1998** |   |
|                                             |   |                        |   |   |   |   |   |   |   |   |   |
| Number of member families in Coast to Coast Club |   | 139,800                     |   | 157,200 |   | 178,100 |   | 194,600 |   | 229,900 |   |
|                                             |   |                        |   |   |   |   |   |   |   |   |   |
| Participating private resorts                    |   | 383                         |   | 360 |   | 360 |   | 400 |   | 369 |   |
| Participating public resorts                     |   | 572                         |   | 624 |   | 590 |   | 529 |   | 571 |   |

 

Membershipin the Coast to Coast Club declined 11.1% from 2001 to 2002, and 39.2% from1998 to 2002.  Changing travel patterns,and an increase in RV production and sales for 2003 and beyond, are positiveindicators for growth in this sector of the travel and leisure industry.  With the advent of mixing park models andcertain types of manufactured homes in traditional membership parks, currentparticipating resorts are selling to more non-RV’ers with positive results.

 

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*President’sClub*

 

Camping World’s President’s Club program, which was established in 1986,has grown to 626,000 members. President’s Club memberships may initially be obtained for one, two orthree years at a cost of $20, $35 or $50, respectively.  The average life (including renewals) of aclub membership is three years and approximately 88% are enrolled for oneyear.  President’s Club members receivea 10% discount on the purchase of all of Camping World’s merchandise andinstallation fees and also receive special mailings, including newsletters andflyers offering selected products and services at special prices.

 

Thefollowing table lists the number of President’s Club members and number ofretail stores at year-end for 1998 through 2002 for the respective year:

 
|                                               |   | **Year Ended  December 31** |   |
|----------------------------------------------------|--------|-----------------------------|--------|
|                                               |   | **2002**                    |   | **2001** |   | **2000** |   | **1999** |   | **1998** |   |
|                                               |   |                        |   |   |   |   |   |   |   |   |   |
| Camping World’s President’s Club Members |   | 626,000                     |   | 596,500 |   | 581,700 |   | 560,200 |   | 524,300 |   |
|                                               |   |                        |   |   |   |   |   |   |   |   |   |
| Number of stores (1)                               |   | 30                          |   | 30 |   | 30 |   | 30 |   | 29 |   |

 

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(1)  Includes supercenters and one 1,800 squarefoot retail showroom located within the Bakersfield, California distributioncenter.

 

*Golf Card Club*

 

The Golf Card Club, founded in 1974, had approximately 79,400 membersat December 31, 2002.  The majorattraction for membership is the financial savings which members receive whenplaying at one of over 3,800 participating golf courses located throughout theUS and Canada. The annual membership fee varies with the length and type(single or double) of membership.  TheCompany believes that the participating golf courses providing playingprivileges to club members represent the largest number of golf coursesparticipating in a discount program in North America.  None of the participating golf courses are owned or operated bythe Company.

 

Members of the Golf Card Club receive the following benefits:  (i) minimum of two rounds annually of freeor discounted golf at over 3,800 participating golf courses, (ii) discountedvacation packages at 225 “Stay and Play” resorts, (iii) car rental discountsfrom National and Alamo, (iv) annual subscription to *Golf Traveler* memberpublication, published four times per year, (v) Annual Directory of AffiliatedCourses and Resorts, (vi) one-year Quest membership (hotel discount card),(vii) access to 150 local Grasshopper Clubs for tournaments and socialactivities, (viii) opportunity to play in Member-Guest Tournaments, and (ix)chance to test (and keep) select golf products.

 

Daily-fee, semi-private and privately-owned golf coursesparticipate in the Golf Card program. The program is attractive to participating courses because it buildstraffic and helps fill empty tee times during off-peak hours.  In addition, participating courses receivepromotion of their golf course in Golf Traveler member publication, the AnnualDirectory, and the club website www.golfcard.com.  Members also purchase other merchandise or services whenexercising their playing privileges.  Inthis manner, the Golf Card members tend to provide incremental revenue to thegolf courses.  Based on surveys conductedby the Company, members realize savings on green fees, ranging from $150 to$250 annually, which significantly exceed the cost of membership.

 

The standard annual membership fee is $59 for a single membership and$99 for a double membership.  Multi-yearmemberships range from a single two-year for $118 to a three-year double

 

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of $267.  The average renewalrate for Golf Card Club members at December 31, 2002 was approximately 64% forthe period 1998 to 2002.

 

The following table lists the number of Golf Card members,participating golf courses and “Stay and Play” resorts at December 31st of eachrespective year:

 
|                                             |   | **Year Ended  December 31** |   |
|--------------------------------------------------|--------|-----------------------------|--------|
|                                             |   | **2002**                    |   | **2001** |   | **2000** |   | **1999** |   | **1998** |   |
|                                             |   |                        |   |   |   |   |   |   |   |   |   |
| Number of Members in the Golf Card Club (1)      |   | 79,400                      |   | 82,300 |   | 93,900 |   | 93,600 |   | 111,000 |   |
|                                             |   |                        |   |   |   |   |   |   |   |   |   |
| Number of Participating Golf Courses             |   | 3,800                       |   | 3,300 |   | 3,300 |   | 3,300 |   | 3,400 |   |
|                                             |   |                        |   |   |   |   |   |   |   |   |   |
| Number of “Stay and Play” Golf Resorts |   | 225                         |   | 241 |   | 251 |   | 264 |   | 300 |   |

 

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(1)  A single membership countsas one member and a double membership as two members.

 

Thedecline in membership reflects increased competition from local discountprograms.  During 2002, Golf Cardimplemented new direct mail marketing collateral which lifted the acquisitionresponse rate by 147%, and the result was a 60% increase in revenue per newmember added versus a year ago.

 

**MembershipProducts and Services**

 

TheCompany’s 1.8 million club members form a receptive audience to which it sellsproducts and services targeted to the recreational interests of its clubmembers.  The Company promotes productsand services which either address special needs arising in the activities ofthe club members or appeal generally to persons with the demographiccharacteristics of club members.  Thetwo most established products are the emergency road service (“ERS”) and thevehicle insurance programs.  Most of theCompany’s products and services are provided by third parties who pay theCompany a marketing fee, with the exception of ERS where the Company assumesthe risk of incurred claims.

 

*EmergencyRoad Service  (ERS)*

 

TheCompany promotes various emergency road service products to its existingmembership programs, as well as to non-club members.  The ERS programs provide towing and roadside assistance forsubscribers with annual dues ranging from $79.95 to $99.95.  The Company developed ERS initially for GoodSam Club members in 1984 and currently 26% of the Good Sam Club membership isenrolled in the Good Sam ERS program. The Company believes it is important to target the diversified marketniches with identifiable products that offer a full range of benefits.  The Company currently markets these productsthrough direct mail, advertising in publications, campground directories, spaceads, Internet and telemarketing.

 

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The table below sets forth the total enrollment in the various ERSprograms as of December 31, for each year indicated:

 
|           |   | **Year Ended  December 31** |   |
|----------------|--------|-----------------------------|--------|
|           |   | **2002**                    |   | **2001** |   | **2000** |   | **1999** |   | **1998** |   |
|           |   |                        |   |   |   |   |   |   |   |   |   |
| ERS Enrollment |   | 348,400                     |   | 345,100 |   | 341,600 |   | 331,700 |   | 329,900 |   |

 

For thefifth year in a row, enrollment in the various ERS programs has grown throughpromotional and marketing efforts which have attracted new members and improvedrenewal rates.  Combined enrollment inthe programs has increased 3,300 members or approximately 1% over 2001.

 

*VehicleInsurance Programs*

 

The Company offers two vehicle insurance programs.  The Vehicle Insurance Program (“VIP”) ismarketed primarily to the Good Sam Club and Coast to Coast clubs.  The Motor Vehicle Program (“MVP”) ismarketed to President’s Club members. These programs offer cost-effective collision and liability insurancesuitable to the demographic characteristics and vehicle usage patterns of itsvarious club members.  At December 31,2002, the two programs had approximately 230,600 members, which represented a16.6%, 2.9 % and 8.0% penetration, respectively, of the Good Sam Club, Coast toCoast clubs, and President’s Club. During the period 1998 to 2002, the average annual renewal rate ofmembers participating in these insurance programs was approximately 87%.  The Company’s marketing fee revenue is basedon the amount of written premiums and the insurance provider assumes all claimrisks.

 

Thetable below sets forth the total number of policies in force, the dollar amountof written premiums paid to insurance providers, and the marketing feesgenerated for each year indicated:

 
|                                                    |   | **Year Ended  December 31** |   |
|---------------------------------------------------------|--------|-----------------------------|--------|
|                                                    |   | **2002**                    |   | **2001** |   | **2000** |   | **1999** |   | **1998** |   |
|                                                    |   |                        |   |   |   |   |   |   |   |   |   |
| Total policies in force                                 |   | 230,600                     |   | 234,600 |   | 231,200 |   | 235,100 |   | 246,500 |   |
|                                                    |   |                        |   |   |   |   |   |   |   |   |   |
| Written premiums paid to insurance providers (millions) |   | $                           | 249.2  |   | $ | 240.4 |   | $ | 231.3 |   | $ | 236.3 |   | $ | 252.9 |   |
|                                                    |   |                        |   |   |   |   |   |   |   |   |   |
| Marketing fees (millions)                               |   | $                           | 19.1   |   | $ | 18.0 |   | $ | 19.2 |   | $ | 20.8 |   | $ | 16.5 |   |

 

Managementbelieves the decrease in total policies for the period 2001 to 2002 is theresult of lower renewal rates caused by higher insurance rates.

 

*Other Products and Services*

 

Other products andservices marketed to club members include credit cards, vehicle financing,supplemental health and life insurance, financial services and extended vehiclewarranties.  Most of these services areprovided to club members by third parties who pay the Company a marketing fee.

 

The RV financing programis administered by Ganis Credit Corporation (“Ganis”).  The number of Ganis RV loans to theCompany’s club members decreased by 16% from 2001 to 2002 primarily due to a lessaggressive competitive stance on offered interest rates for the first half of2002 combined with a smaller incremental interest rate reduction versus prioryear.

 

In 1996 the Companylaunched the Continued Service Plan, a private label extended vehicle warrantyprogram for RV’s.  Total marketing feesfor 2002 increased 40% over 2001, for a total of $11.0 million.

 

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The program had 22,700policies in force as of December 31, 2002. Sales of new policies are derived from direct mail marketing, Companymagazine print ads, Internet and E-mail solicitations, and retail kiosks inCamping World stores.  Renewing policiesrepresent 35% of the total sales in 2002.

 

In addition, the Company is evaluating other products and services thatclub members may find attractive.  Whenintroducing new products and services, the Company concentrates on products andservices provided by third parties, which it can market without significantcapital investment by the Company, and for which it receives a marketing feefrom the service provider based on sales volume.  The Company seeks to utilize the purchasing power of its clubmembers to obtain products and services at attractive prices.

 

 

**Publications**

 

The Company produces and distributes a variety of publications forselect markets in the recreation and leisure industry, including generalcirculation periodicals, club magazines, directories, and RV industry trademagazines.  Revenues are recognized fromthe sale of advertising, subscriptions and direct sales of some of thepublications.  The Company believes thatthe focused audience of each publication is an important factor in attractingadvertisers.

 

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The following chart sets forth the circulation and frequency of theCompany’s publications:

 
|                                                     |   |                  |         |                                       |   |
|----------------------------------------------------------|--------|-----------------------|--------------|--------------------------------------------|--------|
| **Publication**                                          |   | **2002  Circulation** |         | **Number of  Issues  Published Each Year** |   |
|                                                     |   |                  |         |                                       |   |
| **PAID CIRCULATION MAGAZINES:**                          |   |                  |         |                                       |   |
| American Rider                                           |   | 61,879                |  (1)    | 8                                          |   |
| ATV Sport                                                |   | 63,410                |  (1)    | 6                                          |   |
| Bowhunting World                                         |   | 77,220                |  (1)    | 9                                          |   |
| MotorHome                                                |   | 146,799               |  (1)    | 12                                         |   |
| REV                                                      |   | 51,423                |  (1)    | 4                                          |   |
| Rider                                                    |   | 119,280               |  (1)    | 12                                         |   |
| SnowGoer                                                 |   | 69,126                |  (1)    | 6                                          |   |
| Snow Week                                                |   | 19,371                |  (1)    | 16                                         |   |
| Trailer Life                                             |   | 284,427               |  (1)    | 12                                         |   |
| Woman Rider                                              |   | 41,230                |  (1)    | 4                                          |   |
|                                                     |   |                  |         |                                       |   |
| **CONTROLLED CIRCULATION - Business:**                   |   |                  |         |                                       |   |
| Archery Business                                         |   | 11,000                |  (2)    | 7                                          |   |
| Campground Management                                    |   | 11,700                |  (2)    | 12                                         |   |
| PowerSports Business                                     |   | 11,000                |  (2)    | 16                                         |   |
| PowerSports Business Directory                           |   | 6,114                 |  (2)    | 4                                          |   |
| RV Business                                              |   | 19,275                |  (2)    | 12                                         |   |
| Boating Industry                                         |   | 23,193                |  (2)    | 6                                          |   |
|                                                     |   |                  |         |                                       |   |
| **CONTROLLED CIRCULATION - Consumer:**                   |   |                  |         |                                       |   |
| ATV Magazine                                             |   | 234,600               |  (3)    | 6                                          |   |
| Cruising Rider                                           |   | 124,679               |  (3)    | 4                                          |   |
| Snowmobile                                               |   | 491,813               |  (3)    | 3                                          |   |
| Watercraft World                                         |   | 147,597               |  (3)    | 6                                          |   |
|                                                     |   |                  |         |                                       |   |
| **FREE DISTRIBUTION:**                                   |   |                  |         |                                       |   |
| Thunder Press- North                                     |   | 26,000                |  (4)    | 12                                         |   |
| Thunder Press- East                                      |   | 23,000                |  (4)    | 12                                         |   |
| Thunder Press- West                                      |   | 46,000                |  (4)    | 12                                         |   |
| Woodall Specials                                         |   | 119,000               |  (4)(5) | 2                                          |   |
| Woodall’s Regional News Tabloids                    |   | 192,746               |  (4)(5) | 12                                         |   |
|                                                     |   |                  |         |                                       |   |
| **ANNUALS:**                                             |   |                  |         |                                       |   |
|                                                     |   |                  |         |                                       |   |
| Trailer Life Campground/RV Park & Services Directory |   | 243,231               |  (1)    | 1                                          |   |
| Trailer Life’s RV Buyers Guide                      |   | 108,081               |  (1)    | 1                                          |   |
| World Snowmobile Association                             |   | 52,906                |  (4)    | 1                                          |   |
| Woodall Buyer’s Guide                               |   | 68,272                |  (1)    | 1                                          |   |
| Woodall Campground Directory                             |   | 295,160               |  (1)    | 1                                          |   |
| Woodall Tenting Directory                                |   | 27,031                |  (1)    | 1                                          |   |
| Woodall Go & Rent... Rent & Go                   |   | 85,000                |  (4)    | 1                                          |   |
|                                                     |   |                  |         |                                       |   |
| **CLUB MAGAZINES:**                                      |   |                  |         |                                       |   |
| Coast to Coast Magazine                                  |   | 162,554               |  (6)    | 8                                          |   |
| Golf Traveler                                            |   | 83,573                |  (6)(7) | 6                                          |   |
| Highways                                                 |   | 954,999               |  (6)    | 11                                         |   |
| RV View                                                  |   | 607,584               |  (6)    | 5                                          |   |

 

----

(1)  Paid circulation, mayinclude supplemental qualified controlled

(2)  Trade publication distributedto industry-specific groups.

(3)  Qualified and limited paid.

(4)  Includes limited paid.

(5)  Distribution to RV outlets,including campgrounds and dealerships.

(6)  Limited to club members and promotionalcopies.  The price is included in themembership fee.

(7)  Only one magazine is issued when two membersare from the same household.

 

10

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*Paid Circulation Magazines*

 

*AmericanRider*, introduced in November 1993, is targeted to owners andoperators of Harley-Davidson motorcycles.

 

*ATVSport* was introduced May 1998 and targets recreational andracing sport quad riders.

 

*BowhuntingWorld* is the archeryequipment authority which provides information on new equipment reviews andmaintenance techniques, and features articles which discuss ethical hunting,hunting rights, and pertinent legislative issues.

* *

*MotorHome*is a monthly periodical for owners and prospective buyers of motorhomes whichhas been published since 1968 with a paid circulation of approximately 147,000in 2001.  *MotorHome* features articleson subjects such as product tests, travel and tourist attractions.

 

*REV*magazineis written for people who ride off-road motorcycles for fun andrecreation.  Published quarterly, *Rev*magazine covers the lifestyle, motorcycles, and accessories that make“off-roading” America’s fastest-growing family sport.  From destinations and riding techniques to aftermarket productevaluations and bike tests, *Rev* magazine is about the way most peoplelike to ride: for fun!

 

*Rider*is a monthly 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 the sport’s highly activeparticipants and provides detailed equipment and product critiques andmaintenance tips.

 

*Snow Week* is the central source of information for thecompetition and high-performance snowmobiling market segment.  The publication provides timely, year-roundarticles on racing, performance enhancing products, technical assistance, newproduct introductions, and general industry information.

 

*TrailerLife*, initially published in 1941, is the leading consumermagazine for the RV industry with a paid circulation of approximately 284,000in 2002.  *Trailer Life* featuresarticles on subjects including product tests, travel and tourist attractions.

 

###### *Woman Rider*was introduced in 2000 and filled an important void in motorcyclepublications.  Readers learn about newproducts from the female point of view and discover more about the lifestyle ofmotorcycling.

 

 

*Controlled Circulation Magazines-Business*

 

The Company publishes the following trade magazines:

 

*ArcheryBusiness* is the leadingtrade publication for archery dealers and presents a mix of industry news andtrends, product reviews and sales tips designed to improve financialperformance of archery product dealers.

 

*BoatingIndustry*is the leading source of news and information fordealers, manufacturers, aftermarket vendors and other professionals in themarine industries through its bi-monthly magazine and daily web site.

 

11

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*CampgroundManagement* is the leading trade magazine for the campgroundindustry.

 

*PowerSports Business*is an industry trade magazine introduced inJanuary 1998 which combines previously issued *Snowmobile Business* and *WatercraftBusiness* with a motorcycle and ATV business section.  Distribution is to dealers servicing theseindustries, which in numerous cases have combined operations to service morethan one of these segments.

 

*PowersportsDirectories* represent supplier directories for each of theATV, snowmobile and watercraft markets. These directories feature hundreds of manufacturers and suppliers ofparts, services, apparel and much more- complete with detailed companyinformation.

 

*RVBusiness* is the leading trade magazine covering industry newsand trends for RV dealers, manufacturers, suppliers, associations and others.

 

 

*Controlled Circulation Magazines-Consumer*

 

*ATV Magazine’s* first issue was published inOctober 1995.  The publication isdesigned to reach large numbers of active ATV owners with comprehensive productinformation during the peak periods when equipment is purchased.

 

*CruisingRider* was introduced in March 1998 and targets cruisermotorcycle owners and buyers.

 

*Snowmobile* magazine delivers broad-based editorial andsnowmobile-related information to its audience of active snowmobileenthusiasts.  The publication includesreviews of new machines, clothing and accessories, and articles on responsibleriding practices, snowmobiling vacation destinations and special events, andserves as the front-end medium for all snowmobile-related productpromotions.

 

*WatercraftWorld* is targeted to avidpersonal watercraft enthusiasts and provides detailed critiques of watercraft, in-depth gear and accessory evaluations, technical tips and racinginformation.  *PWC Magazine*was combinedwith *WatercraftWorld*in 2002.

 

 

*Free Distribution Publications*

 

*Thunder Press*newspapersare published monthly in three separate editions to reach the country’smotorcycling public.  Thunder press isavailable primarily through motorcycle dealers.  This tell-it-like-it-is magazine is designed for the ultra-activemotorcycle enthusiast who feels passionate about the lifestyle.

 

Woodall’s Specials are annual publications gearedaround specific events, such as the beginning of the camping season and thebeginning of the snowbird season.  Theeditorial content is aimed at season events and the ads are largely fromregional RV dealers who are having sales specials.

 

Woodall’s Regional News Tabloids publications aredesigned to appeal to the prospective or first-time RV owner.  Stories in these publications cover areacampgrounds and RV dealerships, as well as new vehicles on the market and newproducts within the industry.  Thepublications are primarily distributed at campgrounds and RV parks, as well asat RV shows and state welcome centers.

 

12

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*Annual Publications*

 

*TrailerLife Campground/ RV Park & Services Directory*, initiallypublished in 1972, is an annually updated directory which provides informationon and ratings for approximately 12,250 public and private campgrounds, and1,330 RV service centers, including over 900 tourist attractions in NorthAmerica along with color maps of the areas covered.  In 2002, approximately 243,000 directories were distributed.  The publication features Good Sam Parks thatoffer discounts on overnight camping fees for the Company’s club members.  This directory is sold by direct mail toGood Sam Club members, at RV dealerships and in bookstores.  In 2000, the Company began issuing a versionof the directory on cd-rom.

 

*Trailer Life’s RV Buyers Guide*, issued annually, features more than 400listings with photos, floor plans and specifications on new RVs includingtravel trailers, fifth-wheel trailers, folding camping trailers, motorhomes andpickup campers.  The publication is soldat newsstands and by mail order from magazine advertisements.

 

*World Snowmobile Association (“WSA”) Snowcross Yearbook*is mailed to the subscribers of Snow Goerand Snow Week magazines and is available at WSA racing events across thecountry.  Snowmobile racing enthusiastsdepend on this yearbook for information on upcoming events.

 

Woodall*CampgroundDirectory,* initially published in 1948, is an annual consumerdirectory offered in both national and regional editions.  In 2002, approximately 295,000 directorieswere distributed.  The Woodall directoryis primarily distributed through book stores.

 

*Woodall Tenting Directory*is an annual directory providing information on bothgovernment and privately-owned campgrounds and the outdoor activities andattractions that are available near them. In 2002, approximately 27,000 directories were distributed, primarilythrough newsstands.

 

*Woodall Go & Rent... Rent & Go* is an annual catalog providinginformation on where to find on-site lodging and cabin rentals at RV Parks& Campgrounds and “Over-the-Road” RV Rentals, as well as fully equippedcampsites throughout the U.S.A. and Canada. This book features “turn-key” camping experiences for those who want totry camping, rent a cabin, or rent a fully-equipped campsite.  In 2002, approximately 85,000 catalogs weredistributed.

 

*Club or Trade Magazines and Books*

 

Each of the Company’s membership clubs has its own publication whichprovides information on club activities and events, feature stories and otherarticles.  The Company publishes *Highways*for the Good Sam Club, *Coast to Coast Magazine* for the Coast toCoast clubs, *The Golf Traveler* for the Golf Card Club, and*RV View*for Camping World’s President’s Club. The Company also periodically publishes books targeted for its clubmembership which address the RV lifestyle.

 

 

**Retail**

 

Camping World is a national specialty retailer of merchandise andservices for RV owners.  The 30 CampingWorld retail locations, which are located in 18 states, accounted forapproximately 69% of the merchandise revenues for the year ended December 31,2002 while approximately 23% were derived from catalog and Internet sales andapproximately 8% were derived from fees or non-merchandise revenues.

 

The Company believes that Camping World’s leading position in the RVaccessory industry results from

 

13

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a high level of name recognition, an effective triple channeldistribution strategy (store, catalog, and Internet), and a commitment to offera broad selection of specialized RV products and services at competitive pricescombined with technical assistance and on-site installation.  Camping World’s supercenters offer over8,000 SKUs, approximately 80% of which are not regularly available in generalmerchandise stores.  In addition,general merchandise stores do not provide installation or repair services forRV products, which are available at Camping World’s supercenters.  Products sold by Camping World includespecialty-sized refrigerators, housewares and other appliances, bedding andfurniture, generators and hydraulic leveling systems, awnings, folding boats,chairs, ladders, cleaning and maintenance, bicycles, hitch-towing, sanitation,automotive electronics and lifestyle products. Further, kiosks have been installed at numerous locations to market suchproducts and services as vehicle insurance, extended warranty and emergencyroad service.  Camping Worldsupercenters are strategically located in areas where many RV owners live or inproximity to destinations frequented by RV users.  Camping World’s supercenters are designed to provide one-stopshopping by combining broad product selection, technical assistance and on-siteinstallation services.

 

Camping World sources its products fromapproximately 800 vendors.  CampingWorld attends regional, national and international trade shows to determine theproducts it will offer.  The purchasingactivities of Camping World are focused on RV parts and accessories, electronics,housewares, hardware, automotive, crafts, clothing, home furnishings, gifts,camping and sporting goods.  CampingWorld has developed an automated “plan-o-gram” system to provide merchandisingplans to each supercenter and a minimum/maximum inventory system for itsoperations to improve fulfillment rates on key items.  Camping World believes that the volume of merchandise itpurchases and its ability to buy direct from manufacturers together with theutilization of its transportation fleet and contract carriers enables CampingWorld 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 itsvendors.

 

In the fourth quarter of 2002 Camping Worldcompleted the first phase of a system-wide re-imaging and visual merchandisinginitiative.  The retail supercentershave been reset to enhance the customers shopping experience as well as tomaximize merchandise category offerings. The company has expanded its product offering by introducing campinggear, salty snacks, a greater variety of pet supplies and housewares, while atthe same time further stream-lined its less active product offerings in otherareas.  In the first quarter of 2003 thecompany plans to rollout phase two of the re-imaging and visual merchandiseinitiative.  The second phase willinclude 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 second phase will also include new resource centers staffed withprofessionals offering insurance products, extended warranties, roadsideservice, club memberships, and RV financing. Finally, store dress, promotional signage and directional signage arebeing added to further enhance the customers shopping experience at CampingWorld’s supercenters.

 

 

**MailOrder Operations and Internet**

 

Camping World initiated its catalog operations in 1967.  Camping World currently has a proprietarymailing list of approximately 2.5 million RV owners, all of whom have made apurchase or requested a catalog from Camping World within the prior 60months.  Camping World maintains adatabase of these names, which includes information such as order frequency,size of order, date of most recent order and type of merchandisepurchased.  Camping World analyzes itsdatabase to determine those customers most likely to order from Camping World’scatalogs.  As a result, Camping World isable to target catalog mailings more effectively than direct marketers ofcatalogs offering general merchandise. Camping World continually expands its proprietary mailing list throughin-store subscriptions and requests for catalogs in response to advertisementsin regional publications directed to RV owners.  In addition, Camping World rents mailing lists of RV owners fromthird parties.

 

14

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During 2002, Camping World distributed 11.5million catalogs, of which 9.4 million were mailed in 14 separate mailings, andthe remaining 2.0 million catalogs were distributed in supercenters, atcampgrounds, and as package inserts.  In2002, Camping World processed approximately 484,000 catalog orders at an averagenet order size of $129, excluding postage and handling charges.  Camping World distributes nine high quality,full-color catalogs each year: the master, a spring, late summer, holiday, twosale editions, and three prospecting catalogs. Camping World also distributes specialty catalogs directed to targetedcustomers in order to develop market niches.

 

The Company maintains thirty Internet web sites,which are accessible through “RV.net,” and are experiencing significantgrowth.  In 2000, the Company’s cluboperations commenced a low-cost marketing strategy, e-mail membershipacquisition campaigns.  Members added in2002 under these programs represented approximately 9.0% of all new clubmembers.   E-mail acquisition campaignsand Internet online revenues total approximately $16.4 million in 2002, anincrease of 61% over prior year.

 

** **

**Marketing**

 

Marketingof club memberships and related products and services is through direct mail,e-mail, inserts, ride-alongs, space advertisements, promotional events, pointof sale, member-get-a-member campaigns, and telemarketing.  Direct response marketing efforts accountfor approximately 62% of new enrollments with the remaining 38% derived fromother sources.  The Company uses avariety of commercially available mailing lists of RV owners in its direct mailefforts.  Currently, the most widelyused list databases are provided by three commercial list compilers, and directresponse lists are from RV industry participants, RV consumer surveys, andproprietary in-house lists.

 

The Publications segment solicits advertisements through its internalsales force and by paying commissions to advertising agencies and independentcontractors who place advertisements. Many advertisers are repeat customers with whom the Company has longstanding relationships.

 

The Merchandise segment solicits customers through mail order catalogs,direct mail retail flyers, advertisements in national and regional industrypublications, vendor co-op advertising programs, promotional events, President’sClub direct mailings and personal solicitations and referrals. Camping World’sprincipal marketing strategy is to capitalize on its broad name recognitionamong RV owners.

 

TheInternet is proving to be a significant, low-cost source for new club members,subscriptions and other ancillary product sales.  The Company’s thirty web pages, which are accessible through“RV.net,” are experiencing tremendous growth. E-mail acquisition campaigns and Internet online revenues totaledapproximately $16.4 million in 2002, up 61% or $10.2 million from 2001.  In addition, e-commerce user sessionsincreased 56% to 24.9 million in 2002 versus 16.0 million in 2001.

 

 

**Operations**

 

The Company’scustomer service operations are located in Denver, Colorado and Bowling Green,Kentucky.  The primary focus of thesegroups is to manage the customers’ expectations and relationship with theorganization. Approximately fifty percent of the calls into these centersoriginate 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.

 

A Catalog Management System wasimplemented in August 2002 that produces on-line inventory information, orderacknowledgement, shipment confirmation, and more which was not previouslyavailable for on-line orders.  The 2002implementation of this system is expected to yield improved

 

15

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customer satisfaction and reducecost.

 

Camping World’s catalog and Internet operations, located at itsheadquarters in Bowling Green, Kentucky, are supported by the customer contactcenter in the same location.  Orders areusually processed and shipped within 24 hours of receipt.  On average, these member serviceoperations process approximately 7,800 telephone calls daily.

 

Fulfillmentoperations involve the processing of orders and checks principally received bymail.  Certain fulfillment operationsare performed by third parties.  TheCompany’s publication operations develop the layout for publications andoutsource printing to third parties.

 

Camping World’s supercenters generally range in size from approximately12,000 to 59,000 square feet. Approximately 40% of each supercenter is devoted to a retail salesfloor, a customer service area, and a technical information counter; 40% iscomprised of the installation facility which contains 4 to 16 drive-throughinstallation bays; and 20% is allocated to office and warehouse space.  Large parking areas provide sufficient spaceand facilitate maneuvering of RVs.  Bycombining broad product selection, technical assistance and installation andrepair services, Camping World’s supercenters provide one-stop shopping for RVowners.  Camping World maintainstoll-free telephone numbers for customers to schedule installation and repairappointments.  All supercenters are openseven days a week.

 

Camping World intends to continue the controlled, limited expansion ofits supercenter store network while at the same time develop dealerpartnerships across North America by establishing Camping World storesalongside or within existing, independent dealerships.  This marketing strategy will provide anexpanded number of customers with access to the vast array of products andservices that the Company offers and generate traffic for our dealer partnersby marketing locally, regionally and nationally its extensive parts andaccessories business.

 

 

**InformationSupport Services**

 

The Company utilizes integrated computer systems to support itsmembership club and publishing operations. A database containing all customer activity across the Company’s variousbusinesses and programs has been integrated into the Company’s web sites andcall centers.  Comprehensive informationon each member, including a profile of the purchasing activities of members, isavailable to customer service representatives when responding to memberrequests, and when sales representatives market the Company’s products andservices.  The Company employspublishing software for publication makeup and content and for advertising tosupport its publications operations.  Awide-area network facilitates communication within and between the Company’soffices.  The Company also utilizesinformation technology, including list segmentation and merge and purgeprograms, to select prospects for direct mail solicitations and other directmarketing efforts.

 

Camping World’s management information systems and electronic dataprocessing 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 the information fromCamping World’s on-line distribution centers, Camping World compilescomprehensive data, including detailed sales volume and inventory informationby product, merchandise transfers and receipts, special orders, supply ordersand returns of product purchases to vendors. In conjunction with its nightly polling, Camping World’s centralcomputer sends price changes to registers at the point of sale.  The registers capture President’s Clubmember numbers and associated sales and references to specific promotionalcampaigns.

 

16

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Management monitors the performance of each supercenter and mail orderoperation to evaluate inventory levels, determine markdowns and analyze grossprofit margins by product.

 

CampingWorld’s catalog operations also utilize a computerized management systemallowing on-line desktop access to information which previously required manualretrieval.  Screen prompts which provideproduct, promotional, and revenue potential information have allowed CampingWorld to maintain high service levels during seasonal sales peaks.

 

 

**Regulation**

 

The Company’s operations are subject to varying degrees of federal,state and local regulation. Specifically, the Company’s outbound telemarketing, direct mail, andemergency road service programs, as well as certain services provided by thirdparties, including insurance, RV Financing, and extended warranty, arecurrently subject to certain regulation, and may be subjected to increasedregulation in the future.  The Companydoes not believe that such federal, state and local regulations currently havea material impact on its operations. However, new regulatory efforts impacting the Company’s operations maybe proposed from time to time in the future at the federal, state and locallevel.  There can be no assurance thatsuch regulatory efforts will not have a material adverse effect on theCompany’s ability to operate its businesses or on its results of operations.

 

 

**Competition**

 

In general, the Company’s membership clubs, retail and catalogoperations and publications compete with numerous organizations in therecreation industry for disposable income spent on leisure activities.  By offering significant membership benefitsat a reasonable cost and actively marketing to club members, the Companybelieves that it has been able to maintain a loyal following for its membershiporganizations as evidenced by the high renewal rates of the Company’smembership clubs.  The products andservices marketed by the Company compete with similar products and servicesoffered by other providers.  However,management believes that the Company is able to use the large volume ofpurchases by its club members to secure attractive pricing for the products andservices marketed by the Company.

 

 

**Employees**

 

As of December 31, 2002, the Company had 1,459 full-time and 168part-time or seasonal employees, including 7 executives, 1,005 employees inretail operations, 357 employees in administrative and club operations, 202employees in publishing and advertising sales, 10 employees in resort servicesand 46 employees in marketing.  Noemployees are covered by a collective bargaining agreement.  The Company believes that its employeerelations are good.

 

 

**Trademarksand Copyrights**

 

The Company owns a variety of registered trademarks and service marksfor the names of its clubs, magazines and other publications.  The Company also owns the copyrights tocertain articles in its publications. The Company believes that its trademark and copyrights have significantvalue and are important to its marketing efforts.

 

17

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**ITEM 2:  PROPERTIES**

 

The table below sets forth certain information concerning the Company’sproperties.  The leased propertiesgenerally provide for fixed monthly rentals with annual escalation clauses.

 
|                                                                                                      |   | **Square  Feet** |       | **Acres** |       | **Owned/  Leased** |       | **Lease  Expiration** |       |
|-----------------------------------------------------------------------------------------------------------|--------|------------------|------------|-----------|------------|--------------------|------------|-----------------------|------------|
| **Corporate Headquarters:**                                                                               |   |             | ** ** |      | ** ** |               | ** ** |                  | ** ** |
|                                                                                                      |   |             |       |      |       |               |       |                  |       |
| Ventura, CA                                                                                               |   | 74,100           |       |      |       | Leased             |       | 2029                  |       |
|                                                                                                      |   |             |       |      |       |               |       |                  |       |
| **Other Office Facilities:**                                                                              |   |             |       |      |       |               |       |                  |       |
|                                                                                                      |   |             |       |      |       |               |       |                  |       |
| Denver,  Colorado (for its customer service, warehousing fulfillment, and information  system functions). |   | 60,000           |       |      |       | Leased             |       | 2029                  |       |
| Bowling Green, Kentucky (for its retail administrative  headquarters and mail order operations)           |   | 31,278           |       |      |       | Leased             |       | 2029                  | ** ** |
| **Bowling Green Headquarters  Annex**                                                                     |   | **4,100**        | ** ** |      |       | **Leased**         | ** ** | **2003**              | ** ** |
| **Seattle, Washington (regional  publication sales office)**                                              |   | **912**          | ** ** |      |       | Leased             | ** ** | **2004**              | ** ** |
| **Elkhart, Indiana (regional  publication sales office)**                                                 |   | **4,076**        | ** ** |      |       | Leased             | ** ** | **2004**              | ** ** |
| **Maple Grove, Minnesota**(Ehlert Publications Group, Inc. Headquarters)                                  |   | **17,496**       | ** ** |      |       | Leased             | ** ** | **2005**              | ** ** |
|                                                                                                      |   |             |       |      |       |               |       |                  |       |
| **Distribution Centers:**                                                                                 |   |             |       |      |       |               |       |                  |       |
|                                                                                                      |   |             |       |      |       |               |       |                  |       |
| Bowling  Green, Kentucky                                                                                  |   | 104,000          |       | 6.780     |       | Leased             |       | 2010                  |       |
| Bakersfield,  California (includes an 1,800 square foot retail showroom)                                  |   | 85,747           |       | 14.827    |       | Leased             |       | 2027                  |       |
|                                                                                                      |   |             |       |      |       |               |       |                  |       |
| **Camping World Supercenter Locations:**                                                                  |   |             |       |      |       |               |       |                  |       |
|                                                                                                      |   |             |       |      |       |               |       |                  |       |
| Tucson, AZ                                                                                                |   | 12,145           |       | 2.000     |       | Leased             |       | 2018                  |       |
| Mesa, AZ                                                                                                  |   | 27,500           |       | 3.140     |       | Leased             |       | 2010                  |       |
| La Mirada, CA                                                                                             |   | 33,479           |       | 5.501     |       | Leased             |       | 2027                  |       |
| San Marcos, CA                                                                                            |   | 25,522           |       | 2.212     |       | Leased             |       | 2027                  |       |
| Fairfield, CA                                                                                             |   | 43,434           |       | 3.780     |       | Leased             |       | 2020                  |       |
| Rocklin, CA                                                                                               |   | 29,085           |       | 4.647     |       | Leased             |       | 2037                  |       |
| San Bernardino, CA                                                                                        |   | 18,126           |       | 1.665     |       | Leased             |       | 2012                  |       |
| San Martin, CA                                                                                            |   | 29,486           |       | 5.000     |       | Leased             |       | 2023                  |       |
| Valencia, CA                                                                                              |   | 64,410           |       | 9.231     |       | Leased             |       | 2027                  |       |
| Denver, CO                                                                                                |   | 27,085           |       | 4.132     |       | Leased             |       | 2037                  |       |
| Ft. Myers, FL                                                                                             |   | 22,886           |       | 4.217     |       | Leased             |       | 2012                  |       |
| Kissimmee, FL                                                                                             |   | 58,382           |       | 6.043     |       | Leased             |       | 2027                  |       |
| Tampa, FL                                                                                                 |   | 40,334           |       | 3.711     |       | Leased             |       | 2026                  |       |
| Bolingbrook, IL                                                                                           |   | 25,126           |       | 5.299     |       | Leased             |       | 2035                  |       |
| Bowling Green, KY                                                                                         |   | 37,615           |       | 2.750     |       | Leased             |       | 2027                  |       |
| Belleville, MI                                                                                            |   | 44,248           |       | 7.260     |       | Leased             |       | 2027                  |       |
| Rogers, MN                                                                                                |   | 24,700           |       | 6.303     |       | Leased             |       | 2025                  |       |
| Bridgeport, NJ                                                                                            |   | 24,581           |       | 6.920     |       | Leased             |       | 2031                  |       |
| Henderson, NV                                                                                             |   | 25,850           |       | 4.400     |       | Leased             |       | 2025                  |       |
| Brunswick, OH                                                                                             |   | 23,233           |       | 4.087     |       | Leased             |       | 2038                  |       |

 

18

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|              |   | **Square  Feet** |   | **Acres** |   | **Owned/  Leased** |   | **Lease  Expiration** |   |
|-------------------|--------|------------------|--------|-----------|--------|--------------------|--------|-----------------------|--------|
| Wilsonville, OR   |   | 32,850           |   | 4.653     |   | Leased             |   | 2016                  |   |
| Myrtle Beach, SC  |   | 38,962           |   | 5.410     |   | Leased             |   | 2027                  |   |
| Nashville, TN     |   | 34,478           |   | 3.238     |   | Leased             |   | 2027                  |   |
| Denton, TX        |   | 22,984           |   | 6.887     |   | Leased             |   | 2037                  |   |
| New Braunfels, TX |   | 43,397           |   | 19.100    |   | Leased             |   | 2035                  |   |
| Mission, TX       |   | 23,094           |   | 3.430     |   | Leased             |   | 2015                  |   |
| Draper, UT        |   | 27,675           |   | 8.031     |   | Leased             |   | 2026                  |   |
| Manassas, VA      |   | 16,348           |   | 1.880     |   | Leased             |   | 2018                  |   |
| Fife, WA          |   | 35,659           |   | 5.840     |   | Leased             |   | 2032                  |   |

 

The Company also leases a body shop of 10,500square feet on approximately 0.7 acres in Denver, Colorado, a body shop of12,000 square feet on approximately 1.9 acres in Bellville, Michigan and othermiscellaneous office equipment.  Inaddition, the Company owns 12.439 acres of unimproved land adjacent to the NewBraunfels, Texas Camping World Supercenter.

 

 

**ITEM 3:  LEGAL PROCEEDINGS**

 

From time to time, the Company is involved in litigation arising in thenormal course of business operations.

 

In January 1998, certain of the Company’ssubsidiaries were sued in California state court in connection with thetermination of the participation by the plaintiffs in the Camp Coast to Coastreciprocal use program for RV resorts. In October 2000, the trial court entered judgment in favor of theCompany’s subsidiaries and subsequently awarded them a total of $3.88 millionfor their legal fees and costs.  Theplaintiffs have appealed the judgment in favor of the Company’s subsidiaries aswell as the award of attorney fees.  InFebruary, 2003, the plaintiffs’ appeals were denied and the judgment in favorof the Company’s subsidiaries was affirmed.

 

The Insurance Commissioner of the state ofCalifornia, by order dated April 23, 2002, directed GSS Enterprises, Inc.(“GSS”), one of the Company’s subsidiaries, to cease and desist from engagingin certain insurance and motor club services without requisite licensing,advising such subsidiary that the Commissioner may impose certain fines if GSSfails to be licensed.  The orderprovides GSS the right to a hearing on the matter.  The order issued by the Insurance Commissioner of the state ofCalifornia applies only to operations of GSS within the state ofCalifornia.  If sustained, the ordercould materially limit certain activities of GSS within the state ofCalifornia.  GSS operates in all 50states, a majority of which have regulations comparable to those of the stateof California.  To the Company’sknowledge, there is no similar pending investigation by any other state.  The Company and the Department of Insuranceof the state of California are in the process of seeking to resolve the ceaseand desist order through clarifications in the Company’s marketing materialsand clarifications of applicable California laws.

 

 

**ITEM4:  SUBMISSION OF MATTER TO A VOTE OFSECURITY HOLDERS**

 

None.

 

19

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**PART II**

 

 

**ITEM5:  MARKET FOR THE REGISTRANT’S COMMONEQUITY AND RELATED STOCKHOLDER MATTERS**

 

Not Applicable

 

20

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**ITEM6:  SELECTED FINANCIAL DATA**

 

Theselected financial data of the Company for each of the five years endedDecember 31 are derived from the audited consolidated financial statements ofthe Company.  The selected financialdata of the Company should be read in conjunction with “Management’s Discussionand Analysis of Financial Condition and Results of Operations” and theCompany’s Consolidated Financial Statements and the notes thereto includedelsewhere herein.

 
|                                                                                                                  |   | **Years  Ended December 31,** |    |
|-----------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|---------|
|                                                                                                                  |   | **(dollars in  thousands)**   |    |
| **Statement  of Operations Data:**                                                                                    |   | **2002**                      |    | **2001** |   | **2000** |   | **1999** |   | **1998** |   |
| REVENUES:                                                                                                             |   |                          |    |   |   |   |   |   |   |   |   |
| Membership services                                                                                                   |   | $                             | 124,546 |   | $ | 119,958 |   | $ | 121,393 |   | $ | 120,410 |   | $ | 116,325 |   |
| Publications                                                                                                          |   | 66,654                        |    | 65,150 |   | 68,519 |   | 61,554 |   | 60,354 |   |
| Retail                                                                                                                |   | 239,922                       |    | 220,264 |   | 215,160 |   | 204,732 |   | 186,835 |   |
|                                                                                                                  |   | 431,122                       |    | 405,372 |   | 405,072 |   | 386,696 |   | 363,514 |   |
|                                                                                                                  |   |                          |    |   |   |   |   |   |   |   |   |
| COSTS APPLICABLE TO REVENUES:                                                                                         |   |                          |    |   |   |   |   |   |   |   |   |
| Membership services                                                                                                   |   | 74,097                        |    | 72,944 |   | 77,625 |   | 73,283 |   | 71,460 |   |
| Publications                                                                                                          |   | 45,351                        |    | 46,175 |   | 46,298 |   | 40,915 |   | 42,703 |   |
| Retail                                                                                                                |   | 158,265                       |    | 148,244 |   | 143,018 |   | 135,510 |   | 125,298 |   |
|                                                                                                                  |   | 277,713                       |    | 267,363 |   | 266,941 |   | 249,708 |   | 239,461 |   |
|                                                                                                                  |   |                          |    |   |   |   |   |   |   |   |   |
| GROSS PROFIT                                                                                                          |   | 153,409                       |    | 138,009 |   | 138,131 |   | 136,988 |   | 124,053 |   |
|                                                                                                                  |   |                          |    |   |   |   |   |   |   |   |   |
| OPERATING EXPENSES:                                                                                                   |   |                          |    |   |   |   |   |   |   |   |   |
| Selling, general and administrative                                                                                   |   | 101,608                       |    | 86,050 |   | 85,513 |   | 80,670 |   | 73,227 |   |
| Restructuring  charge                                                                                            |   | 2,269                         |    | — |   | — |   | — |   | — |   |
| Depreciation and amortization                                                                                         |   | 9,893                         |    | 16,404 |   | 16,885 |   | 16,216 |   | 14,868 |   |
|                                                                                                                  |   | 113,770                       |    | 102,454 |   | 102,398 |   | 96,886 |   | 88,095 |   |
|                                                                                                                  |   |                          |    |   |   |   |   |   |   |   |   |
| INCOME FROM OPERATIONS                                                                                                |   | 39,639                        |    | 35,555 |   | 35,733 |   | 40,102 |   | 35,958 |   |
|                                                                                                                  |   |                          |    |   |   |   |   |   |   |   |   |
| NON-OPERATING ITEMS:                                                                                                  |   |                          |    |   |   |   |   |   |   |   |   |
| Interest expense, net                                                                                                 |   | (16,862                       | )       | (24,234 | ) | (27,735 | ) | (28,543 | ) | (31,823 | ) |
| Other non-operating (expense) income, net                                                                             |   | (44                           | )       | (6,574 | ) | 5 |   | (1,215 | ) | 2,501 |   |
|                                                                                                                  |   | (16,906                       | )       | (30,808 | ) | (27,730 | ) | (29,758 | ) | (29,322 | ) |
| INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES, EXTRAORDINARY  ITEM AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE |   | 22,733                        |    | 4,747 |   | 8,003 |   | 10,344 |   | 6,636 |   |
|                                                                                                                  |   |                          |    |   |   |   |   |   |   |   |   |
| INCOME TAX EXPENSE                                                                                                    |   | (9,032                        | )       | (4,137 | ) | (4,700 | ) | (5,641 | ) | (4,422 | ) |
|                                                                                                                  |   |                          |    |   |   |   |   |   |   |   |   |
| INCOME FROM CONTINUING OPERATIONS   BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE         |   | 13,701                        |    | 610 |   | 3,303 |   | 4,703 |   | 2,214 |   |
|                                                                                                                  |   |                          |    |   |   |   |   |   |   |   |   |
| DISCONTINUED OPERATIONS:                                                                                              |   |                          |    |   |   |   |   |   |   |   |   |
| Gain (loss) from discontinued operations, net of applicable income taxes                                              |   | —                        |    | — |   | — |   | 1,018 |   | (1,935 | ) |
| Gain (loss) on disposal, net of applicable income taxes                                                               |   | —                        |    | — |   | — |   | 757 |   | (54 | ) |
| INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING  CHANGE                                          |   | 13,701                        |    | 610 |   | 3,303 |   | 6,478 |   | 225 |   |
|                                                                                                                  |   |                          |    |   |   |   |   |   |   |   |   |
| EXTRAORDINARY ITEM:                                                                                                   |   |                          |    |   |   |   |   |   |   |   |   |
| Loss on early extinguishment of debt, net of applicable current  income tax benefit                                   |   | —                        |    | (44 | ) | — |   | — |   | (5,135 | ) |
| CUMULATIVE EFFECT OF ACCOUNTING CHANGE                                                                                |   | (1,742                        | )       | — |   | — |   | — |   | (124 | ) |
|                                                                                                                  |   |                          |    |   |   |   |   |   |   |   |   |
| NET INCOME (LOSS)                                                                                                     |   | $                             | 11,959  |   | $ | 566 |   | $ | 3,303 |   | $ | 6,478 |   | $ | (5,034 | ) |

 

21

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|                                |   | **December  31,**           |    |
|-------------------------------------|--------|-----------------------------|---------|
|                                |   | **(dollars in  thousands)** |    |
|                                |   | **2002**                    |    | **2001** |   | **2000** |   | **1999** |   | **1998** |   |
| Balance Sheet Data (at period end): |   |                        |    |   |   |   |   |   |   |   |   |
| Working capital (deficiency)        |   | $                           | (39,820 | ) | $ | (55,585 | ) | $ | (51,796 | ) | $ | (47,010 | ) | $ | (42,111 | ) |
| Total assets                        |   | 302,636                     |    | 318,640 |   | 371,827 |   | 377,267 |   | 496,169 |   |
| Deferred revenues and gains (1)     |   | 94,475                      |    | 96,162 |   | 89,968 |   | 90,610 |   | 88,671 |   |
| Total debt                          |   | 223,001                     |    | 228,316 |   | 285,486 |   | 293,558 |   | 305,467 |   |
| Total stockholder’s deficit    |   | (87,548                     | )       | (76,349 | ) | (76,915 | ) | (74,468 | ) | (80,946 | ) |
|                                     |        |                             |         |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1) Deferred revenues represent cash received by the Company in advanceof the recognition of revenues in accordance with accounting principlesgenerally accepted in the United States. Deferred revenues primarily reflect club membership dues, annual ERSfees, advances on third party credit card fee revenues and publicationsubscriptions.  These revenues arerecognized at the time the goods or services are provided or over themembership period, which averages approximately 18 months.  The deferred revenue balance for 2002 and2001 also include deferred gains of $11.8 million and $12.1 million,respectively, from the real estate sale-leaseback transactions which occurredin December 2001.

 

22

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**ITEM 7:MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

 

The following tables set forth the components of the statements ofoperations for the years ended December 31, 2002, 2001, and 2000 as apercentage of total revenues, and the comparison of those components fromperiod to period.  The followingdiscussion is based on the Company’s Consolidated Financial Statements includedelsewhere herein.  The Company’srevenues are derived principally from membership services, including clubmembership dues and marketing fees paid to the Company for services provided bythird parties, from publications, including subscriptions and advertising, andfrom retail sales.

 

23

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**AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES**

 

**TABLE FORPERCENTAGE COMPARISONS OF TOTAL REVENUES**

**FOR THEYEARS ENDED DECEMBER 31, 2002, 2001 AND 2000**

 
|                                                                                                        |   | **Percentage  of  Total Revenues** |   | **Percentage  Increase/  (Decrease)** |   |
|-------------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|---------------------------------------|--------|
|                                                                                                        |   | **2002**                           |   | **2001**                              |   | **2000** |   | **Year 2002over 2001** |   | **Year 2001over 2000** |   |
|                                                                                                        |   |                               |   |                                  |   |   |   |   |   |   |   |
| REVENUES:                                                                                                   |   |                               |   |                                  |   |   |   |   |   |   |   |
| Membership  services                                                                                        |   | 28.9                               | %      | 29.6                                  | %      | 30.0 | % | 3.8 | % | (1.2 | )% |
| Publications                                                                                                |   | 15.5                               | %      | 16.1                                  | %      | 16.9 | % | 2.3 | % | (4.9 | )% |
| Retail                                                                                                      |   | 55.6                               | %      | 54.3                                  | %      | 53.1 | % | 8.9 | % | 2.4 | % |
|                                                                                                        |   | 100.0                              | %      | 100.0                                 | %      | 100.0 | % | 6.4 | % | 0.1 | % |
|                                                                                                        |   |                               |   |                                  |   |   |   |   |   |   |   |
| COSTS APPLICABLE  TO REVENUES:                                                                              |   |                               |   |                                  |   |   |   |   |   |   |   |
| Membership  services                                                                                        |   | 17.2                               | %      | 18.0                                  | %      | 19.2 | % | 1.6 | % | (6.0 | )% |
| Publications                                                                                                |   | 10.5                               | %      | 11.4                                  | %      | 11.4 | % | (1.8 | )% | (0.3 | )% |
| Retail                                                                                                      |   | 36.7                               | %      | 36.6                                  | %      | 35.3 | % | 6.8 | % | 3.7 | % |
|                                                                                                        |   | 64.4                               | %      | 66.0                                  | %      | 65.9 | % | 3.9 | % | 0.2 | % |
|                                                                                                        |   |                               |   |                                  |   |   |   |   |   |   |   |
| GROSS PROFIT                                                                                                |   | 35.6                               | %      | 34.0                                  | %      | 34.1 | % | 11.2 | % | (0.1 | )% |
|                                                                                                        |   |                               |   |                                  |   |   |   |   |   |   |   |
| OPERATING  EXPENSES:                                                                                        |   |                               |   |                                  |   |   |   |   |   |   |   |
| Selling, general  and administrative                                                                        |   | 23.6                               | %      | 21.2                                  | %      | 21.1 | % | 18.1 | % | 0.6 | % |
| Restructuring  charge                                                                                       |   | 0.5                                | %      | —                                |   | — |   | — |   | — |   |
| Depreciation and  amortization                                                                              |   | 2.3                                | %      | 4.0                                   | %      | 4.2 | % | (39.7 | )% | (2.8 | )% |
|                                                                                                        |   | 26.4                               | %      | 25.2                                  | %      | 25.3 | % | 11.0 | % | 0.1 | % |
|                                                                                                        |   |                               |   |                                  |   |   |   |   |   |   |   |
| INCOME FROM  OPERATIONS                                                                                     |   | 9.2                                | %      | 8.8                                   | %      | 8.8 | % | 11.5 | % | (0.5 | )% |
|                                                                                                        |   |                               |   |                                  |   |   |   |   |   |   |   |
| NON-OPERATING  ITEMS:                                                                                       |   |                               |   |                                  |   |   |   |   |   |   |   |
| Interest  expense, net                                                                                      |   | (3.9                               | )%     | (6.0                                  | )%     | (6.8 | )% | (30.4 | )% | (12.6 | )% |
| Other  non-operating (expense) income, net                                                                  |   | —                             |   | (1.6                                  | )%     | — |   | (99.3 | )% | 100.0 | % |
|                                                                                                        |   | (3.9                               | )%     | (7.6                                  | )%     | (6.8 | )% | (45.1 | )% | 11.1 | % |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF  ACCOUNTING CHANGE |   | 5.3                                | %      | 1.2                                   | %      | 2.0 | % | 378.9 | % | (40.7 | )% |
|                                                                                                        |   |                               |   |                                  |   |   |   |   |   |   |   |
| INCOME TAX  EXPENSE                                                                                         |   | (2.1                               | )%     | (1.0                                  | )%     | (1.2 | )% | 118.3 | % | (12.0 | )% |
| INCOME FROM  OPERATIONS BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING  CHANGE              |   | 3.2                                | %      | 0.2                                   | %      | 0.8 | % | 2146.1 | % | (81.5 | )% |
|                                                                                                        |   |                               |   |                                  |   |   |   |   |   |   |   |
| EXTRAORDINARY  ITEM:                                                                                        |   |                               |   |                                  |   |   |   |   |   |   |   |
| Loss on early  extinguishment of debt, net of applicable current income tax benefit                         |   | —                             |   | (0.1                                  | )%     | — |   | (100.0 | )% | — |   |
| CUMULATIVE  EFFECT OF ACCOUNTING CHANGE                                                                     |   | (0.4                               | )%     | —                                |   | — |   | — |   | — |   |
|                                                                                                        |   |                               |   |                                  |   |   |   |   |   |   |   |
| NET INCOME                                                                                                  |   | 2.8                                | %      | 0.1                                   | %      | 0.8 | % | 2012.9 | % | (82.9 | )% |

 

24

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**Year Ended December 31, 2002 Compared with Year EndedDecember 31, 2001**

 

*Revenues*

 

Revenues of $431.1 million for 2002 increased by approximately $25.8million or 6.4% from the comparable period in 2001.

 

Membership services revenues for 2002 of $124.5 million increased byapproximately $4.6 million or 3.8% compared to $120.0 million for 2001.  This revenue increase is largelyattributable to a marketing fee increase of $3.3 million from the extendedvehicle warranty program due to increased renewal rates on existing contractsand continued sales of the one-year warranty products, $0.9 million of feeincome recognized on sales of vehicle insurance products, and $0.9 million fromemergency road service products, partially offset by a $0.5 million reductionin marketing fees from the sale of health and life insurance products.  In addition, membership services revenuedecreased $1.3 million in the Coast to Coast Club due to reduced enrollment,which was substantially offset by increases in other club revenues.

 

Publications revenues for 2002 of $66.7 million increased by $1.5million or 2.3% from $65.2 million for 2001. This increase was primarily attributable to the addition of *REV*,a new all-terrain vehicle title, and additional advertising and subscriptionrevenue from the motorcycle and other all-terrain vehicle titles, partiallyoffset by one less issue of Snowmobile in 2002.

 

Retail revenue for 2002 of $239.9 million increased $19.7 million or8.9% over 2001.  This increase consistedof an $18.7 million increase in Camping World merchandise sales revenues and a$1.0 million increase in recreational vehicle sales.  The increase in Camping World merchandise sales resulted from asame store sales increase of 9.8% increase, or an aggregate $13.5 millionincrease in store merchandise sales. The remaining variance was attributable to a $2.3 million increase inmail order revenue and a $2.9 million revenue increase for installation fees,service work and supply sales.

 

*CostsApplicable to Revenues*

 

Costs applicable to revenues totaled $277.7 million in 2002, anincrease of $10.4 million or 3.9% over 2001.

 

Membershipservices costs and expenses increased by approximately $1.2 million or 1.6% to$74.1 million for 2002 compared to $72.9 million in 2001.  This increase was primarily associated with$1.4 million of increased expenses from the extended vehicle warranty programas a result of increased revenue, $0.8 million of Coast to Coast club expensesprimarily associated with prior period legal defense insurance reimbursementsrecovered in 2001, and $0.7 million of increased costs associated with feeincome from vehicle insurance product sales. Partially offsetting these increases were expense decreases of $1.0million associated with the RVSEARCH website, and $0.7 million associated withthe RVtoday television program.

 

Publication costs and expenses of $45.4 million for 2002 decreased $0.8million or 1.8% compared to 2001.  Thisnet decrease was attributable to reduced production and marketing expenses forvarious publications, partially offset by costs associated with the new *REV*title and increased production and circulation costs for the motorcycle group.

 

Retailcosts applicable to revenues increased $10.0 million or 6.8% to $158.3 millionprimarily due to a $9.7 million increase in merchandise costs which wasprimarily attributable to the 8.9% increase in merchandise sales.  The retail gross profit margin increased by$9.6 million, to 34.0% in 2002 from

 

25

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32.7%in 2001 primarily due to higher net labor rates charged on installation salesand a shift to higher margin products.

 

*OperatingExpenses*

 

Selling, general and administrative expenses of $101.6million for 2002 were $15.6 million or 18.1% over 2001.  The increased selling, general andadministrative expenses resulted primarily from increased retail selling,general and administrative expenses of $6.6 million, an increase of $3.2million in real estate rental expense associated with the sales-leasebacktransactions that occurred in December 2001, a $5.4 million increase indeferred executive compensation and $0.4 million from other general andadministrative expenses.  Depreciationand amortization expenses of $9.9 million were $6.5 million lower than in2001.  This decrease was primarilyattributable to a $5.1 million reduction in amortization due to thediscontinuance of goodwill amortization per SFAS No. 142 “Goodwill and OtherIntangible Assets” (“SFAS 142”) implemented January 1, 2002, and reduceddepreciation due to the real estate sold in the 2001 sales-leasebacktransactions.  The Company incurred a$2.3 million restructuring charge which was primarily attributable to amanagement change in the retail segment. As of December 31, 2002, approximately $0.6 million of restructuringcharges remained unpaid.

 

*Incomefrom Operations*

 

Income from operations of $39.6 million for 2002 increased by $4.1million or 11.5% compared to 2001. Increased gross profit for the retail, membership services, andpublications operations of $9.7 million, $3.4 million and $2.3 million,respectively, were partially offset by increased operating expenses of $11.3million.

 

*Non-OperatingItems*

 

Net non-operating items for 2002 were $16.9 million compared to $30.8million for 2001.  This $13.9 milliondecrease was primarily due to a $7.4 million reduction in net interest expenseas a result of lower interest rates applied to a lower average outstanding debtbalance, combined with a $6.5 million net non-operating loss associated withthe sales of real estate recorded in 2001.

 

*Incomefrom Operations before Income Taxes, Extraordinary Item and Cumulative Effectof Accounting Change*

 

Income from operations before income taxes, extraordinary item andcumulative effect of accounting change for 2002 was $22.7 million compared to$4.7 million for 2001.  This increasewas due to the increases in income from operations reflected above combinedwith reduced interest expense and the loss recorded in 2001 on the real estatesales-leaseback transactions.

 

*IncomeTaxes*

 

Income taxes for 2002 of $9.0 million increased $4.9 million from2001.  The effective income tax ratesare higher than statutory rates due primarily to state income taxes.

 

*Incomebefore Extraordinary Item and Cumulative Effect of Accounting Change*

 

Income before extraordinary item and cumulative effect of accountingchange for 2002 was $13.7 million compared to $0.6 million for 2001.  This increase was due to the increase inincome from operations and decreased non-operating expenses.

 

26

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*Cumulative Effect of AccountingChange*

 

In accordance with the transition provisions of SFAS No. 142, Goodwilland Other Intangible Assets, the Company recorded a one-time non-cash charge ofapproximately $1.7 million to reduce the carrying value of the goodwillassociated solely with the Golf Card Club, which is included within theMembership Services segment.  Thischarge is non-operational in nature and is reflected as a cumulative effect ofan accounting change in the accompanying Consolidated Statement of Operations.

 

*NetIncome*

 

The net income for 2002 was $12.0 million compared with $0.6 millionfor 2001.  This $11.4 million increaseresulted from a $13.1 million increase in income from operations for 2002partially offset by the cumulative effect of an accounting change.

 

 

**Year Ended December 31, 2001 Comparedwith Year Ended December 31, 2000**

 

*Revenues*

 

Revenues of $405.4 million for 2001 increased by approximately $0.3million or 0.1% from the comparable period in 2000.

 

Membership services revenues for 2001 of $120.0 million decreased byapproximately $1.4 million or 1.2% compared to $121.4 million for 2000.  This revenue decrease is largelyattributable to a $3.6 million reduction in Coast to Coast Club membershiprevenue, a $1.4 million decrease in marketing fee income recognized on sales ofvehicle insurance products, and $0.8 million in reduced member eventsrevenue.  These reductions werepartially offset by a $2.0 million increase in extended vehicle warrantyprogram revenue, a $1.7 million increase in marketing fee income from the saleof RV financing products and a $0.7 million increase in advertising revenuefrom the new RVtoday television program.

 

Publications revenues for 2001 of $65.1 million decreased by $3.4million or 4.9% from $68.5 million for 2000. This decrease is attributable to a $1.8 million reduction in advertisingrevenue associated with the recreational vehicle magazines, a $1.0 millionreduction in annual directory and related product sales, and a $0.6 millionreduction in single-copy book sales.

 

Retail revenue for 2001 of $220.3 million increased $5.1 million or2.4% over 2000.  This increase consistedof revenues of $4.7 million related to the March 2000 asset acquisition ofCamping World RV Sales, Inc. (“CWRV”) and a $0.4 million increase in CampingWorld merchandise sales.  The increasein Camping World merchandise sales is attributable to a $1.0 million revenueincrease for installation fees, service work and supply sales, offset by a $0.3million decrease in mail order revenue and a $0.3 million or 0.3% decrease insame store sales over 2000.

 

*CostsApplicable to Revenues*

 

Costs applicable to revenues totaled $267.4 million in 2001, anincrease of $0.4 million or 0.2% over 2000.

 

Membershipservices costs and expenses decreased by approximately $4.7 million or 6.0% to$72.9 million for 2001 compared to $77.6 million in 2000.  This decrease was primarily associated with$2.1 million of legal defense costs recognized in 2000 in conjunction with theTravel America, Inc., et al lawsuit dismissed in October 2000, plus associatedinsurance reimbursements of $1.5 million in 2001,

 

27

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and $1.8 million of reduced marketing and program costs in the Coast toCoast Club.  In addition, emergency roadservice claims costs decreased $0.7 million, President’s Club and kioskexpenses decreased $0.5 million, member events expenses decreased $0.5 million,and overhead expenses declined $0.3 million, partially offset by a $1.6 millionexpense increase associated with the commencement of the RVtoday televisionprogram and $1.1 million increase in administration and marketing costsassociated with the extended vehicle warranty program.

 

Publication costs and expenses of $46.2 million for 2001 decreased $0.1million or 0.3% compared to 2000.  Thisdecrease was primarily due to $0.3 million of savings realized with theimplementation of an in-house prepress production process and reduced papercosts, and $0.6 million of reduced costs associated with lower single copy booksales, partially offset by an $0.8 million increase in annual directoryproduction, marketing and overhead expenses.

 

Retail costs applicable to revenues increased $5.2 million or 3.7% to$148.2 million due to a $4.3 million expense increase associated with CWRV, anda $0.9 million increase in merchandise costs which was primarily attributableto the 0.2% increase in merchandise sales and a slight decrease in merchandisegross profit margin.  The retail grossprofit margin decreased by $0.1 million, to 32.7% in 2001 from 33.5% in 2000primarily due to the lower margins realized on the sale of RV vehicles inaddition to increased shipping costs associated with merchandise sales.

 

*OperatingExpenses*

 

Selling, general and administrative expenses of $86.1 million for 2001were $0.5 million or 0.6% over 2000. This increase was the result of a $1.2 million increase in retail leaseexpenses as a result of the sale-leaseback transactions that occurred inDecember 2000, partially offset by reduced retail selling, general and administrativeexpenses of $0.7 million.  Depreciationand amortization expenses of $16.4 million were $0.5 million lower than in2000.  This variance was principallyassociated with reduced depreciation expense attributable to reduced capitalexpenditures over the past two years.

 

*Incomefrom Operations*

 

Income from operations of $35.5 million for 2001 decreased by $0.2million or 0.5% compared to 2000. Reduced gross profit for the publicationsoperations and retail operations of $3.2 million and $0.1 million, respectively,and reduced operating expenses of $0.1 million were partially offset byincreased gross profit from membership services of $3.2 million.

 

*Non-OperatingItems*

 

Net non-operating items for 2001 were $30.8 million compared toapproximately $27.7 million for 2000. This $3.1 million increase was primarily the result of a $6.0 millionnet loss recorded on the sale of real estate related to the sale-leasebacktransactions that occurred in December 2001, partially offset by a $3.5 millionreduction in net interest expense as a result of lower interest rates appliedto a lower average outstanding debt balance.

 

*Incomefrom Operations before Income Taxes and Extraordinary Item*

 

Income from operations before income taxes and extraordinary item for2001 was $4.7 million compared to $8.0 million for 2000.  This decrease was due to the decreases inincome from operations reflected above combined with the loss recorded on thereal estate sale-leaseback transaction and reduced interest expense.

 

*IncomeTaxes*

 

Income taxes for 2001 of $4.1 million decreased $0.6 million from2000.  The effective income tax ratesare higher than statutory rates due primarily to the amortization ofnon-deductible goodwill.

 

28

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*Income fromOperations*

 

Income from operations for 2001 was $0.6 million compared to $3.3million for 2000.  This decrease was dueto the decrease in income from operations and increased non-operating expenses.

 

*Extraordinary Item*

 

The Company paid off the existing mortgage debt on one of theproperties involved in the sale-leaseback transaction.  This resulted in a prepayment penalty of$71,000.  The income tax benefit thatrelated to this early debt extinguishment totaled $27,000.

 

*NetIncome*

 

The net income for 2001 was $0.6 million compared with $3.3 million for2000.  This $2.7 million decreaseresulted from a $2.7 million decrease in income from operations for 2001 over2000.

 

**Liquidityand Capital Resources**

 

AGHI is a holding company whose primary asset is the capital stock ofAffinity Group (“AGI”).  AGI, and itssubsidiaries, provide the operating cash flow necessary to service its debt aswell as that of AGHI.

 

The Company has historically operated with aworking capital deficit.  The workingcapital deficit as of December 31, 2002 and 2001 was $39.8 million and $55.6million, respectively.  The primaryreason for the working capital deficit is the deferred revenue and gainsreported under current liabilities which were $54.8 million and $54.9 millionas of December 31, 2002 and 2001, respectively.  Deferred revenue is primarily comprised of cash collected forclub memberships in advance which is deferred and recognized as revenue overthe life of the membership.  The Companyuses this deferred membership revenue to lower its long-term borrowings.  The Company generated net cash**from operations of $17.3 million and $19.1 million, in 2002 and 2001, respectively.  Management believes that funds generated byoperations together with available borrowings under its revolving credit linewill be sufficient to meet all of its debt service requirements and capitalrequirements over the next twelve months.

 

The following table reflects the Company’scontractual obligations and commercial commitments at December 31, 2002, inthousands.

 

|                          |   | **Payents  Due by Period** |    |
|-------------------------------|--------|----------------------------|---------|
| **(in thousands)**            |   | **Total**                  |    | **Less than  1 year** |   | **Years  2-3** |   | **Years  4-5** |   | **More than  5 years** |   |
|                          |   |                       |    |   |   |   |   |   |   |   |   |
| Long-term debt                |   | $                          | 223,001 |   | $ | 8,053 |   | $ | 84,948 |   | $ | 130,000 |   | $ | — |   |
| Operating lease  obligations  |   | 139,592                    |    | 11,096 |   | 22,079 |   | 18,598 |   | 87,819 |   |
| Deferred  compensation        |   | 7,600                      |    | 1,400 |   | 2,800 |   | 3,400 |   |   |   |
|                          |   |                       |    |   |   |   |   |   |   |   |   |
| Other commercial  commitments |   |                       |    |   |   |   |   |   |   |   |   |
| Lines of credit               |   | 59                         |    | 59 |   | — |   | — |   | — |   |
| Standby letters  of credit    |   | 5,481                      |    | 2,965 |   | 2,516 |   | — |   | — |   |
| Subtotal                      |   | 5,540                      |    | 3,024 |   | 2,516 |   | — |   | — |   |
|                          |   |                       |    |   |   |   |   |   |   |   |   |
| Grand total                   |   | $                          | 375,733 |   | $ | 23,573 |   | $ | 112,343 |   | $ | 151,998 |   | $ | 87,819 |   |

 

29

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The Company has two primary debt obligations.  On April 2, 1997, AGHI issued a total of $130.0 million of 11.0%senior notes maturing on April 1, 2007 (“AGHI Senior Notes”).  On November 13, 1998, AGI entered into a$200.0 million revolving credit and term loan facility (“AGI Credit Facility”)consisting of two term loans (“Term A” and “Term B”) aggregating $130.0 millionand a revolving credit facility of $70.0 million which was increased to $74.5million in December 2001.  The intereston borrowings under the AGI Credit Facility is at variable rates based on theratio of total cash flow to outstanding indebtedness (as defined).  Interest rates float with prime and theLondon Interbank Offered Rates (“LIBOR”), plus an applicable margin rangingfrom 1.75% to 4.125% over the stated rates. As of December 31, 2002, the average interest rates on the term loansand revolving credit facility were 5.17% and 4.67%, respectively, and permittedborrowings under the undrawn revolving line were $10.4 million.  AGI also pays a commitment fee of 0.5% perannum on the unused amount of the revolving credit line.  As of December 31, 2002, $11.2 million and$22.9 million were outstanding under the Term A and B loans, respectively.  Re-borrowings under the Term Loans are notpermitted.  The term loans haveaggregate quarterly scheduled payments of $1.9 million in 2003.  The revolving credit facility matures onDecember 31, 2004, and the Term A and Term B loans mature on June 30, 2004 andDecember 31, 2005, respectively.  Thefunds available under the AGI Revolving Credit line may be utilized for borrowingsor letters of credit; however, a maximum of $12.5 million may be allocated tosuch letters of credit.  As of December31, 2002, the Company had letters of credit in the amount of $5.5 millionoutstanding.  The AGI Credit Facility issecured by virtually all the assets and a pledge of the stock of AGI.

 

On December 5, 2001, the Company sold eleven real estate properties toeleven separate wholly-owned subsidiaries of AGRP Holding Corp., a wholly-ownedsubsidiary of the Company’s parent, AGI Holding Corp. (“AGHC”), for $52.3million in cash and a note receivable. The properties have been leased back to the Company or its subsidiarieson a triple net basis.  Both the salesprice and lease rates were based on market rates determined by third party independentappraisers engaged by the mortgage lender and approved by the AGI CreditFacility agent bank.  The cash proceedsof $47.5 million were used to payoff $2.1 million of existing mortgagefinancing and the balance, $45.4 million, paid down the AGI Credit FacilityTerm A and B loans by $19.4 million and $26.0 million, respectively.  The balance of the purchase price, $4.8million, is represented by a note receivable yielding 11% per annum, withmonthly payments of $46,000 and a ten-year balloon.

 

Concurrent with the above real estate transaction, the Company amendedthe AGI Credit Facility to allow for the release of the above real estate,increase the revolving credit commitment from $70 million to $74.5 million,adjust the amortization of the Term A loans, amend the pricing schedule andre-set certain financial covenants.

 

The AGI Credit Facility allows for, among other things, thedistribution of payments by AGI to AGHI to service the semi-annual interest dueon the AGHI Senior Notes and the annual amounts due under the Camping WorldManagement Incentive Agreements.  Suchdistributions are subject to AGI’s compliance with certain restrictivecovenants, including, but not limited to, an interest coverage ratio, fixedcharge coverage ratio, minimum operating cash flow, and limitations on capitalexpenditures and total indebtedness.  Inaddition, the AGI Credit Facility prohibits the distribution by itswholly-owned subsidiary, AGI, of any excess cash flow, as defined, until totalleverage is less than 4.75 to 1.  TheCompany generated no excess cash flow, as defined, in 2002.

 

In connection with the December 2001 sale-leaseback transactions,Affinity Group Thrift Holding Corporation (“AGTHC”), a wholly-owned subsidiaryof the Company and an “unrestricted” subsidiary under the terms of theindenture governing the AGHI Senior Notes, sold a $15.0 million participationin the Affinity Bank Holdings, Inc. Capital Note held by AGTHC to an affiliateof Mr. Adams, the Company’s Chairman. AGTHC used the net proceeds of this sale to purchase a $14.5 millionCapital Note of AGRP Holding Corp.  TheCapital Note accrues interest at the rate of 11% per annum until

 

30

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maturity on December 5, 2011. Interest is payable from time to time as declared by the board ofdirectors of AGRP Holding Corp. Interest not paid will accumulate and will be compounded annually untilpaid.

 

At various dates throughout 2002, AGTHC distributed $23.2 million innon-cash dividends through the Company to AGHC, its parent company.  These dividends consisted of the net balanceof the Affinity Bank Holdings, Inc. Capital Note and a 100% participation in the AGRP Capital Note which hadnet book values of $7.1 million and $16.1 million, respectively.

 

The AGHI indenture pursuant to which the AGHI Senior Notes were issuedcontains certain restrictive covenants relating to, but not limited to,mergers, changes in the nature of the business, acquisitions, additionalindebtedness, sale of assets, investments, and the payment of dividends subjectto certain limitations and minimum operating covenants.  The Company was in compliance with all debtcovenants at December 31, 2002.

 

During 2002, payments under the terms of the phantom stock agreementswith key executives totaled $1.5 million. Phantom stock payments of $1.4 million are scheduled to**bemade during 2003.

 

Capital expenditures for 2002 totaled $10.7 million compared to capitalexpenditures of $4.5 million in 2001. Capital expenditures are anticipated to be approximately $14.7 millionfor 2003, primarily for new Camping World stores and equipment, informationtechnology and databases enhancements computer hardware upgrades andreplacements, and computer software upgrades and enhancements.

 

**FactorsAffecting Future Performance**

 

Although increases in operating costs could adversely affect theCompany’s operations, management does not believe that inflation has had amaterial effect on operating profit during the past several years.  However, fuel shortages and substantialincreases in propane and gasoline costs could have a significant impact on theCompany’s travel-related membership services and publications revenues.  Historically such events have caused declinesin advertisements but have not significantly affected club membershipenrollment.  The Company is unable topredict at what point fluctuating fuel prices may begin to adversely impactrevenues or cash flow.  The Companybelieves it will be able to partially offset any cost increases with priceincreases to its members and certain cost reducing measures.

 

**Seasonality**

 

The Company’s cash flow is highest in the summer months due to theseasonal nature of the retail segment, membership renewals and advertisingprepayments for the annual directories.

 

**CriticalAccounting Policies**

 

*General*

 

The Company’s discussion and analysis of its financial condition andresults of operations are based upon the Company’s consolidated financialstatements, which have been prepared in accordance with accounting principlesgenerally accepted in the United States. The preparation of these financial statements requires the Company 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,the Company evaluates its estimates, including those related to membershipprograms and incentives, bad debts, inventories, intangible assets, employeehealth insurance benefits,

 

31

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income taxes, restructuring, and contingencies and litigation.  The Company bases its 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 these estimates under different assumptionsor conditions.

 

The Company believes the following critical accounting policies affectits more significant judgments and estimates used in the preparation of itsconsolidated financial statements.

 

*Revenue Recognition*

 

Some of the membership revenue is generated from lifetime memberships.  The revenue and expense associated withthese memberships are deferred and amortized over an 18-year period, which isthe actuarially determined estimated fulfillment period.  Recognized revenues and profit are subjectto revisions as the membership progresses to completion.  Revisions to membership period estimateswould change the amount of income and expense amortized in future accountingperiods.

 

*Accounts Receivable*

 

The Company estimates the collectibility of its trade receivables.  A considerable amount of judgment isrequired in assessing the ultimate realization of these receivables includingthe current credit-worthiness of each customer.  Changes in required reserves have been recorded in recent periodsand may occur in the future due to the market environment.

 

*Inventory*

 

TheCompany states inventories at the lower of cost or market.  In assessing the ultimate realization ofinventories, the Company is required to make judgments as to future demandrequirements and compare that with the current or committed inventorylevels.  The Company has recordedchanges in required reserves in recent periods due to changes in strategicdirection, such as discontinuances of product lines as well as changes in marketconditions due to changes in demand requirements.  It is possible that changes in required inventory reserves maycontinue to occur in the future due to the market conditions.

 

*Restructuring*

 

In 2002, the Company****recorded reserves in connection with therestructuring program primarily within the retail segment of the Company.  These reserves include estimates pertainingto employee separation costs and the settlements of contractual obligationsresulting from our actions.  Althoughthe Company does not anticipate significant changes, the actual costs maydiffer from these estimates.

 

 

**ITEM7A:  QUANTITATIVE AND QUALITATIVEDISCLOSURE ABOUT MARKET RISK**

 

The Company is exposed to market risks relating to fluctuations ininterest rates.  The Company’s objectiveof financial risk management is to minimize the negative impact of interestrate fluctuations on the Company’s earnings and cash flows.  Interest rate risk is managed through theuse of a combination of fixed and variable interest debt as well as the periodicuse of interest rate collar contracts.

 

32

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The following analysispresents the sensitivity to the earnings of the Company if these changesoccurred at December 31, 2002.  Therange of changes chosen for this analysis reflects the Company’s view ofchanges which are reasonably possible over a one-year period.  These forward-looking disclosures areselective in nature and only address the potential impacts from financialinstruments.  They do not include otherpotential effects which could impact the Company’s business as a result ofthese interest rate fluctuations.

 

*Interest Rate Sensitivity Analysis*

 

At December 31, 2002, the Company had debt, excluding capital leases,totaling $223.0 million, comprised of $92.7 million of variable rate debt and$130.3 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 $0.9 million.

 

*Credit Risk*

 

The Company is exposed to credit risk on accounts receivable.  The Company provides credit to customers inthe ordinary course of business and performs ongoing credit evaluations.  Concentrations of credit risk with respectto trade receivables are limited due to the number of customers comprising theCompany’s customer base.  The Companycurrently believes its allowance for doubtful accounts is sufficient to covercustomer credit risks.

 

**New Accounting Standards**

 

*BusinessCombinations and Goodwill* - SFAS No. 141, BusinessCombinations, and No. 142, Goodwill and Other Intangible Assets, were recentlyissued.  The Company adopted thesestandards effective January 1, 2002. The statements, among other things, require the use of purchaseaccounting for business combinations, discontinues amortization of Goodwill,and requires an annual assessment of goodwill for impairment.  The effect of these standards was thediscontinuance of goodwill amortization, which was $5.1 million in 2001, andthe recordation of a one-time non-cash charge of approximately $1.7 million toreduce the carrying value of its goodwill.

 

*Accountingfor Asset Retirement Obligations* - SFAS No. 143 was issued inJune 2001.  SFAS No. 143 establishesaccounting standards for recognition and measurement of a liability for anasset retirement obligation and the associated asset retirement cost.  This statement is effective for financialstatements issued for fiscal years beginning after June 15, 2002.  The Company adopted this standard on January1, 2003.  As the Company currently doesnot have any legal obligations associated with the retirement of long-livedassets within the scope of SFAS No. 143, the potential future impact of thisstatement is not known.

 

*Accountingfor the Impairment or Disposal of Long-Lived Assets* - SFASNo. 144 was issued in August 2001.  Thisstatement addresses financial accounting and reporting of long-lived assets andfor long-lived assets to be disposed of. The provisions of this statement are effective for financial statementsissued for fiscal years beginning after December 15, 2001, and interim periodswithin those fiscal years.  The Companyadopted in this statement on January 1, 2002. The adoption of SFAS No. 144 had no significant impact on the Company’sfinancial statements.

 

**Disclosure Regarding Forward LookingStatements**

 

This filing contains statements that are “forward looking statements,”and includes, among other things, discussions of the Company’s businessstrategy and expectations concerning market position, future operations,margins, profitability, liquidity and capital resources, as well as statementsconcerning the integrations of acquired operations and the achievement offinancial benefits and operational efficiencies in connection withacquisitions.  Forward lookingstatements are included in “Business— General,” “Business— Business Strategy,“Business— RV Industry,” “Business— Operations,” “Business— Competition,”“Legal Proceedings,” and in “Management’s Discussion and Analysis of FinancialCondition and Results of Operations.” Although the Company believes that the

 

33

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expectations reflected in such forward looking statements arereasonable, it can give no assurance that such expectations will prove to havebeen correct.  Generally, thesestatements relate to business plans or strategies, projected or anticipatedbenefits or other consequences of such plans or strategies, number of acquisitionsand projected or anticipated benefits from acquisitions made by or to be madeby the Company, or projections involving anticipated revenues, expenses,earnings, levels of capital expenditures or other aspects of operatingresults.  All phases of the operationsof the Company are subject to a number of uncertainties, risks and otherinfluences, including consumer spending, fuel prices, general economicconditions, regulatory changes and competition, many of which are outside thecontrol of the Company, any one of which, or a combination of which, couldmaterially affect the results of the Company’s operations and whether theforward looking statements made by the Company ultimately prove to be accurate.

 

34

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**ITEM8:  FINANCIAL STATEMENTS ANDSUPPLEMENTAL DATA**

 

 

**Index to Financial Statements**

 
|                                                                                                         |   | **Page** |
|--------------------------------------------------------------------------------------------------------------|--------|----------|
|                                                                                                         |   |     |
| Reports of Independent Public Accountants                                                                    |   | 36       |
|                                                                                                         |   |     |
| Consolidated Balance Sheets  as of December 31, 2002 and 2001                                                |   | 38       |
|                                                                                                         |   |     |
| Consolidated  Statements of Operations for the years ended December 31, 2002, 2001 and 2000                  |   | 39       |
|                                                                                                         |   |     |
| Consolidated  Statements of Stockholder’s Deficit for the years ended December 31, 2002, 2001  and 2000 |   | 40       |
|                                                                                                         |   |     |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000                  |   | 41       |
|                                                                                                         |   |     |
| Notes to  Consolidated Financial Statements                                                                  |   | 42       |

 

All other financialstatement schedules not listed have been omitted since the required informationis included in the consolidated financial statements, the notes thereto, is notapplicable, or not required.

 

 

35

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**REPORT****OF INDEPENDENT AUDITORS**

 

Board of Directors

Affinity Group Holding, Inc.:

 

We have auditedthe accompanying consolidated balance sheet of Affinity Group Holding, Inc. andsubsidiaries as of December 31, 2002 and the related consolidated statements ofoperations, stockholder’s deficit and cash flows for the year then ended.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audit.  Thefinancial statements of Affinity Group Holding, Inc. as of December 31, 2001,and for each of the two years in the period ended December 31, 2001, wereaudited by other auditors who have ceased operations.  Those auditors expressed an unqualified opinion on thosefinancial statements in their report dated February 18, 2002.

 

We conducted our audit in accordance with auditingstandards generally accepted in the United States. Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audit provides a reasonable basis for our opinion.

 

In our opinion,the 2002 financial statements referred to above present fairly, in all materialrespects, the consolidated financial position of Affinity Group Holding, Inc.and subsidiaries at December 31, 2002, and the consolidated results of theiroperations and their cash flows for the year then ended in conformity withaccounting principles generally accepted in the United States.

 

As discussed in Note 1 to the consolidated financial statements,Affinity Group Holding, Inc. changed its method of accounting for goodwill andother intangible assets in accordance with Statement of Financial AccountingStandards No. 142 in 2002.

 

As discussed above, the consolidated financial statements of AffinityGroup Holding, Inc. as of December 30, 2001 and for each of the two years inthe period ended December 30, 2001 were audited by other auditors who haveceased operations.  As described in Note3, these financial statements have been revised to include the transitionaldisclosures required by Statement of Financial Accounting Standards No. 142,which was adopted by Affinity Group Holding, Inc. as of January 1, 2002.  Our audit procedures with respect to thedisclosures in Note 3 with respect to 2001 and 2000 included (a) agreeing thepreviously reported net income to the previously issued financial statementsand the adjustments to reported net income representing amortization expenserecognized in those periods related to goodwill which is no longer beingamortized as a result of initially applying Statement of Financial AccountingStandards No. 142 to Affinity Group Holding, Inc.’s underlying records obtainedfrom management, and (b) testing the mathematical accuracy of thereconciliation of adjusted net income to reported net income. In our opinion,the disclosures for 2001 and 2000 in Note 3 are appropriate.  However, we were not engaged to audit,review, or apply any procedures to the 2001 and 2000 financial statements ofAffinity Group Holding, Inc. other than with respect to such disclosures and,accordingly, we do not express an opinion or any other form of assurance on the2001 and 2000 financial statements taken as a whole.

 

 
| /s/ Ernst & Young LLP  |   |
|----------------------------|--------|
|                       |
|                       |
| Woodland Hills, California |
| February 13, 2003          |

 

36

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[THIS REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSENLLP.  THE REPORT HAS NOT BEEN RE-ISSUEDBY ARTHUR ANDERSON LLP NOR HAS ARTHUR ANDERSEN PROVIDED A CONSENT TO THEINCLUSION OF ITS REPORT IN THIS FORM 10-K.]

 

 

**REPORTOF INDEPENDENT PUBLIC ACCOUNTANTS**

 

 

Board of Directors

Affinity Group Holding, Inc. and Subsidiaries:

 

 

We have audited the accompanying consolidated balance sheets ofAffinity Group Holding, Inc. (a Delaware corporation and wholly-ownedsubsidiary of AGI Holding Corp.) and Subsidiaries as of December 31, 2001 and2000, and the related consolidated statements of operations, stockholder’sdeficit, and cash flows for each of the three years in the period endedDecember 31, 2001.  These financialstatements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these financial statements based on our audits.

 

We conducted our audits in accordance with auditing standards generallyaccepted in the United States.  Thosestandards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation.  We believe that ouraudits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above presentfairly, in all material respects, the financial position of Affinity GroupHolding, Inc. and Subsidiaries as of December 31, 2001 and 2000, and theresults of their operations and their cash flows for each of the three years inthe period ended December 31, 2001 in conformity with accounting principlesgenerally accepted in the United States.

 

 
| /s/ ARTHUR ANDERSEN LLP |   |
|-------------------------|--------|
|                    |
| Los Angeles, California |
| February 18, 2002       |

 

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**AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

**DECEMBER31, 2002 AND 2001 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)**

 
|                                                                                            |   | **2002** |    | **2001** |   |
|-------------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| **ASSETS**                                                                                      |   |     |    |     |   |
| CURRENT ASSETS:                                                                                 |   |     |    |     |   |
| Cash and cash equivalents                                                                       |   | $        | 1,730   |     | $      | 3,180 |   |
| Accounts receivable, less allowance for doubtful accounts of $1,202  in 2002 and $1,587 in 2001 |   | 25,082   |    | 20,636   |   |
| Inventories                                                                                     |   | 31,806   |    | 32,065   |   |
| Prepaid expenses and other assets                                                               |   | 9,307    |    | 10,281   |   |
| Deferred tax assets                                                                             |   | 5,596    |    | 4,985    |   |
| Total current assets                                                                            |   | 73,521   |    | 71,147   |   |
|                                                                                            |   |     |    |     |   |
| PROPERTY AND EQUIPMENT, net                                                                     |   | 22,935   |    | 18,277   |   |
| NOTES FROM AFFILIATES                                                                           |   | 8,911    |    | 30,128   |   |
| INTANGIBLE ASSETS, net                                                                          |   | 20,830   |    | 23,683   |   |
| GOODWILL, net                                                                                   |   | 151,210  |    | 152,952  |   |
| DEFERRED TAX ASSETS                                                                             |   | 20,885   |    | 18,703   |   |
| OTHER ASSETS                                                                                    |   | 4,344    |    | 3,750    |   |
|                                                                                            |   | $        | 302,636 |     | $      | 318,640 |   |
| **LIABILITIES AND STOCKHOLDER’S DEFICIT**                                                  |   |     |    |     |   |
| CURRENT LIABILITIES:                                                                            |   |     |    |     |   |
| Accounts payable                                                                                |   | $        | 11,048  |     | $      | 17,554 |   |
| Accrued interest                                                                                |   | 3,900    |    | 4,565    |   |
| Accrued income taxes                                                                            |   | 3,014    |    | 2,212    |   |
| Accrued liabilities                                                                             |   | 31,276   |    | 30,059   |   |
| Deferred revenues and gains                                                                     |   | 54,827   |    | 54,872   |   |
| Deferred tax liabilities                                                                        |   | 1,223    |    | 1,281    |   |
| Current portion of long-term debt                                                               |   | 8,053    |    | 16,189   |   |
| Total current liabilities                                                                       |   | 113,341  |    | 126,732  |   |
|                                                                                            |   |     |    |     |   |
| DEFERRED REVENUES AND GAINS                                                                     |   | 39,648   |    | 41,290   |   |
| LONG-TERM DEBT, net of current portion                                                          |   | 214,948  |    | 212,127  |   |
| DEFERRED TAX LIABILITIES                                                                        |   | 15,453   |    | 11,737   |   |
| OTHER LONG-TERM LIABILITIES                                                                     |   | 6,794    |    | 3,103    |   |
|                                                                                            |   | 390,184  |    | 394,989  |   |
|                                                                                            |   |     |    |     |   |
| COMMITMENTS AND CONTINGENCIES                                                                   |   | —   |    | —   |   |
|                                                                                            |   |     |    |     |   |
| STOCKHOLDER’S DEFICIT:                                                                     |   |     |    |     |   |
| Common stock, $.01 par value, 1,000 shares authorized, 100 shares  issued and outstanding       |   | 1        |    | 1        |   |
| Additional paid-in capital                                                                      |   | 2,021    |    | 12,021   |   |
| Accumulated deficit                                                                             |   | (89,570  | )       | (88,371  | )      |
| Total stockholder’s deficit                                                                |   | (87,548  | )       | (76,349  | )      |
|                                                                                            |   | $        | 302,636 |     | $      | 318,640 |   |

 

See notes to consolidated financialstatements.

 

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**AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**FOR THEYEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (IN THOUSANDS)**

 
|                                                                                                       |   | **2002** |    | **2001** |   | **2000** |   |
|------------------------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| REVENUES:                                                                                                  |   |     |    |     |   |     |   |
| Membership services                                                                                        |   | $        | 124,546 |     | $      | 119,958  |   | $ | 121,393 |   |
| Publications                                                                                               |   | 66,654   |    | 65,150   |   | 68,519   |   |
| Retail                                                                                                     |   | 239,922  |    | 220,264  |   | 215,160  |   |
|                                                                                                       |   | 431,122  |    | 405,372  |   | 405,072  |   |
|                                                                                                       |   |     |    |     |   |     |   |
| COSTS APPLICABLE TO REVENUES:                                                                              |   |     |    |     |   |     |   |
| Membership services                                                                                        |   | 74,097   |    | 72,944   |   | 77,625   |   |
| Publications                                                                                               |   | 45,351   |    | 46,175   |   | 46,298   |   |
| Retail                                                                                                     |   | 158,265  |    | 148,244  |   | 143,018  |   |
|                                                                                                       |   | 277,713  |    | 267,363  |   | 266,941  |   |
|                                                                                                       |   |     |    |     |   |     |   |
| GROSS PROFIT                                                                                               |   | 153,409  |    | 138,009  |   | 138,131  |   |
|                                                                                                       |   |     |    |     |   |     |   |
| OPERATING EXPENSES:                                                                                        |   |     |    |     |   |     |   |
| Selling, general and administrative                                                                        |   | 101,608  |    | 86,050   |   | 85,513   |   |
| Restructuring charge                                                                                       |   | 2,269    |    | —   |   | —   |   |
| Depreciation and amortization                                                                              |   | 9,893    |    | 16,404   |   | 16,885   |   |
|                                                                                                       |   | 113,770  |    | 102,454  |   | 102,398  |   |
|                                                                                                       |   |     |    |     |   |     |   |
| INCOME FROM OPERATIONS                                                                                     |   | 39,639   |    | 35,555   |   | 35,733   |   |
|                                                                                                       |   |     |    |     |   |     |   |
| NON-OPERATING ITEMS:                                                                                       |   |     |    |     |   |     |   |
| Interest expense, net                                                                                      |   | (16,862  | )       | (24,234  | )      | (27,735  | )      |
| Other non-operating income (expense), net                                                                  |   | (44      | )       | (6,574   | )      | 5        |   |
|                                                                                                       |   | (16,906  | )       | (30,808  | )      | (27,730  | )      |
|                                                                                                       |   |     |    |     |   |     |   |
| INCOME FROM OPERATIONS BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND  CUMULATIVE EFFECT OF ACCOUNTING CHANGE |   |     |    |     |   |     |   |
|                                                                                                       | 22,733 |     | 4,747   |     | 8,003  |     |
|                                                                                                       |   |     |    |     |   |     |   |
| INCOME TAX EXPENSE                                                                                         |   | (9,032   | )       | (4,137   | )      | (4,700   | )      |
|                                                                                                       |   |     |    |     |   |     |   |
| INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING  CHANGE                               |   | 13,701   |    | 610      |   | 3,303    |   |
|                                                                                                       |   |     |    |     |   |     |   |
| EXTRAORDINARY ITEM:                                                                                        |   |     |    |     |   |     |   |
| Loss on early extinguishment of debt, net of applicable current  income tax benefit of $27                 |   | —   |    | (44      | )      | —   |   |
| CUMULATIVE EFFECT OF ACCOUNTING CHANGE                                                                     |   | (1,742   | )       |     |   |     |   |
|                                                                                                       |   |     |    |     |   |     |   |
| NET INCOME                                                                                                 |   | $        | 11,959  |     | $      | 566      |   | $ | 3,303 |   |

 

See notes to consolidated financial statements.

 

39

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

 

**CONSOLIDATEDSTATEMENTS OF STOCKHOLDER’S DEFICIT**

**FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000**

**(IN THOUSANDS, EXCEPT SHARE AMOUNTS)**

 
|                          |   |              |       |        |       | **Additional**  |       |        |       |      |       |
|-------------------------------|--------|-------------------|------------|-------------|------------|-----------------|------------|-------------|------------|-----------|------------|
|                          |   | **Common  Stock** |       | **Paid-in** |       | **Accumulated** |       |        |       |
|                          |   | **Shares**        |       | **Amount**  |       | **Capital**     |       | **Deficit** |       | **Total** |       |
|                          |   |              | ** ** |        | ** ** |            | ** ** |        | ** ** |      | ** ** |
| BALANCES AT JANUARY 1, 2000   |   | 100               |       | $           | 1          |            | $          | 12,021      |       | $         | (86,490    | ) | $ | (74,468 | ) |
|                          |   |              |       |        |       |            |       |        |       |      |       |
| Dividend                      |   |              |       |        |       |            |       | (5,750      | )          | (5,750    | )          |
| Net income                    |   |              |       |        |       |            |       | 3,303       |       | 3,303     |       |
| BALANCES AT DECEMBER 31, 2000 |   | 100               |       | 1           |       | 12,021          |       | (88,937     | )          | (76,915   | )          |
|                          |   |              |       |        |       |            |       |        |       |      |       |
| Net income                    |   |              |       |        |       |            |       | 566         |       | 566       |       |
| BALANCES AT DECEMBER 31, 2001 |   | 100               |       | 1           |       | 12,021          |       | (88,371     | )          | (76,349   | )          |
|                          |   |              |       |        |       |            |       |        |       |      |       |
| Dividends                     |   |              |       |        |       | (10,000         | )          | (13,158     | )          | (23,158   | )          |
| Net income                    |   |              |       |        |       |            |       | 11,959      |       | 11,959    |       |
| BALANCES AT DECEMBER 31, 2002 |   | 100               |       | $           | 1          |            | $          | 2,021       |       | $         | (89,570    | ) | $ | (87,548 | ) |

 

See notes to consolidated financial statements.

 

40

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

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000(IN THOUSANDS)**

 
|                                                                               |   | **2002** |   | **2001** |   | **2000** |   |
|------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                                              |   |     |   |     |   |     |   |
| Net income                                                                         |   | $        | 11,959 |     | $      | 566      |   | $ | 3,303 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |   |     |   |     |   |     |   |
| Cumulative effect of accounting change                                             |   | 1,742    |   | —   |   | —   |   |
| Deferred tax provision (benefit)                                                   |   | 865      |   | (2,615   | )      | (3,557   | )      |
| Depreciation and amortization                                                      |   | 9,893    |   | 16,404   |   | 16,885   |   |
| Provision for losses on accounts receivable                                        |   | 1,319    |   | 1,904    |   | 1,563    |   |
| Deferred compensation                                                              |   | 5,700    |   | 300      |   | —   |   |
| Loss (gain) on sale of property and equipment                                      |   | 40       |   | 6,047    |   | (9       | )      |
| Loss on sale of notes receivable participation                                     |   | —   |   | 522      |   | —   |   |
| Extraordinary item - loss on early extinguishment of debt                          |   | —   |   | 71       |   | —   |   |
| Changes in operating assets and liabilities (net of purchased  businesses):        |   |     |   |     |   |     |   |
| Accounts receivable                                                                |   | (5,765   | )      | 1,853    |   | (4,859   | )      |
| Inventories                                                                        |   | 259      |   | 1,709    |   | 857      |   |
| Prepaid expenses and other assets                                                  |   | 389      |   | 826      |   | (316     | )      |
| Accounts payable                                                                   |   | (6,506   | )      | (155     | )      | (1,599   | )      |
| Accrued and other liabilities                                                      |   | (733     | )      | (2,487   | )      | 7,378    |   |
| Deferred revenues and gains                                                        |   | (1,817   | )      | (5,873   | )      | (713     | )      |
| Net cash provided by operating activities                                          |   | 17,345   |   | 19,072   |   | 18,933   |   |
|                                                                               |   |     |   |     |   |     |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                              |   |     |   |     |   |     |   |
| Capital expenditures                                                               |   | (10,710  | )      | (4,454   | )      | (9,397   | )      |
| Net proceeds from sale of property and equipment                                   |   | 25       |   | 46,300   |   | 7,547    |   |
| Increase in intangible assets                                                      |   | (171     | )      | (2,048   | )      | (9       | )      |
| Loans receivable                                                                   |   | (1,941   | )      | (1,905   | )      | (945     | )      |
| Acquisitions, net of cash received                                                 |   | (683     | )      | —   |   | (2,262   | )      |
| Net cash provided by (used in) investing activities                                |   | (13,480  | )      | 37,893   |   | (5,066   | )      |
|                                                                               |   |     |   |     |   |     |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                              |   |     |   |     |   |     |   |
| Dividends paid                                                                     |   | —   |   | —   |   | (5,750   | )      |
| Borrowings on long-term debt                                                       |   | 130,654  |   | 99,630   |   | 99,322   |   |
| Principal payments of long-term debt                                               |   | (135,969 | )      | (156,871 | )      | (108,194 | )      |
| Net cash used in financing activities                                              |   | (5,315   | )      | (57,241  | )      | (14,622  | )      |
|                                                                               |   |     |   |     |   |     |   |
| NET DECREASE IN CASH AND CASH EQUIVALENTS                                          |   | (1,450   | )      | (276     | )      | (755     | )      |
|                                                                               |   |     |   |     |   |     |   |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                     |   | 3,180    |   | 3,456    |   | 4,211    |   |
|                                                                               |   |     |   |     |   |     |   |
| CASH AND CASH EQUIVALENTS AT END OF YEAR                                           |   | $        | 1,730  |     | $      | 3,180    |   | $ | 3,456 |   |

 

See notes to consolidated financial statements.

 

41

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**AFFINITY GROUP HOLDING, INC. ANDSUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**YEARS ENDED DECEMBER 31, 2002, 2001AND 2000**

 

1.                             SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

 

*Principlesof Consolidation* - The consolidated financial statementsinclude the accounts of Affinity Group Holding, Inc. (“AGHI”), its wholly-ownedsubsidiary, Affinity Group, Inc. (“AGI”), and AGI’s subsidiaries (collectivelythe Company).  AGHI was formed inNovember 1996 and all of the stock of AGI was contributed to AGHI from itsparent, AGI Holding Corp. (“AGHC”), formerly Affinity Group Holding, Inc., uponformation.  All significant intercompanytransactions and balances have been eliminated.

 

*Descriptionof the Business* - The Company is a membership based directmarketing company which sells club memberships, products, services, andpublications to selected affinity groups primarily in North America.  The Company markets club memberships,merchandise and services to RV owners, and camping and golf enthusiasts.  The Company also publishes magazines,directories and books.

 

*Useof 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.

 

*Cashand Cash Equivalents* - The Company considers all short-term,highly liquid investments purchased with a maturity date of three months orless to be cash equivalents.  Thecarrying amount approximates fair value because of the short maturity of theseinstruments.

 

*Concentrationof Credit Risk -*The Company is potentially subject toconcentrations of credit risk in accounts receivable.  Concentrations of credit risk with respect to accounts receivableis limited due to the large number of customers and their geographicaldispersion.

 

*Inventories*- Inventories are stated at lower of cost or market.  Effective July 1, 2002, the Company changedits inventory costing method from Last-in, Last-out (“LIFO”) to First-in,First-out (“FIFO”).  This accountingchange had no material impact on the financial statements.  The FIFO values approximate the currentmarket cost.  Inventories consist ofretail travel and leisure specialty merchandise.

* *

*Propertyand Equipment* - Property and equipment are recorded atcost.  Depreciation of property andequipment is provided using the straight-line method over the followingestimated useful lives of the assets:

 

|                     |   | **Years** |   |
|--------------------------|--------|-----------|--------|
| Leasehold  improvements  |   | 3-39      |   |
| Furniture and  equipment |   | 3-12      |   |
| Software                 |   | 3-5       |   |

 

42

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Leasehold improvements are amortized over their usefullives or the remaining term of the respective lease, whichever is shorter.

 

*Goodwilland Other Intangible Assets*-Goodwill arising from acquisitions was amortized on a straight-line basis overa period of 40 years through December 31, 2001.  Effective January 1, 2002, goodwill is no longer amortized but isinstead reviewed at least annually for impairment, and more often whenimpairment indicators are present. Finite lived intangible assets are amortized over the following lives:

 

|                                          |   | **Years** |   |
|-----------------------------------------------|--------|-----------|--------|
| Membership and customer lists                 |   | 3-10      |   |
| Resort and golf course agreements             |   | 4         |   |
| Noncompete and deferred consulting agreements |   | 3-15      |   |

 

Deferred financing costs are amortized over the livesof the related debt agreements.

 

*Long-termDebt* - The fair value of the Company’s long-term debt isestimated based on the quoted market prices for the same or similar issues oron the current rates offered for debt of the same or similar remainingmaturities.  The fair value of theCompany’s long-term debt was $224.3 million as of December 31, 2002.

 

*RevenueRecognition - *Merchandiserevenue is recognized when products are sold in the retail stores, shipped formail and Internet orders or when services are provided to customers.* *Membership and Emergency RoadService (“ERS”) revenues are deferred and recognized over the life of themembership.  Advances on third partycredit card fee revenues are deferred and recognized based primarily onincreases in credit card receivables held by third parties.  Good Sam Club lifetime membership revenuesand expenses are deferred and recognized over 18 years which is the actuariallydetermined fulfillment period. Promotional expenses, consisting primarily of direct mail advertising,are deferred and expensed over the period of expected future benefit.  Renewal expenses are expensed at the timerelated materials are mailed.  ERS claimexpenses are recognized when incurred.

 

*PublicationsRevenue and Expense - *Newsstandsales of publications and related expenses are recorded at the time ofdelivery, net of estimated provision for returns.  Subscription sales of publications are reflected in income overthe lives of the subscriptions.  The relatedselling expenses 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.

 

*Shippingand Handling Fees and Costs*-**Thecompany reports shipping and handling costs billed to customers as a componentof revenues and related costs are reported as a component of cost applicable torevenues.

 

*Restructuring Charge -*The Company incurred a $2.3 million restructuring chargewhich was primarily attributable to a management restructuring in the retailsegment.  As of December 31, 2002,approximately $0.6 million of restructuring charges remained unpaid.

 

*Accountingfor Derivative Instruments and Hedging Activities*- Effective January 1, 2001, the Company adoptedStatement of Financial Accounting Standards (“SFAS”) No. 133, which establishesaccounting and reporting standards for derivative instruments, includingcertain

 

43

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derivative instruments embeddedin other contracts and for hedging activities. All derivatives, whether designated in hedging relationships or not, arerequired to be recorded on the balance sheet at fair value.  If the derivative is designated as a fairvalue hedge, the changes in the fair value of the derivative and of the hedgeditem attributable to the hedged risk are recognized in earnings.  If the derivative is designated as a cashflow hedge, the effective portions of changes in the fair value of thederivative are recorded in other comprehensive income (“OCI”) and arerecognized in the income statement when the hedged item affects earnings.  Ineffective portions of changes in the fairvalue of cash flow hedges are recognized in earnings.

 

The adoption of SFAS 133 onJanuary 1, 2001 had no significant impact on the Company’s financialstatements.  The Company periodicallyuses derivative instruments to manage exposures to interest rate risks.  As of December 31, 2002, the Company had noderivative instruments in place.  TheCompany’s objectives for holding derivatives are to minimize the risks usingthe most effective methods to eliminate or reduce the impacts of these exposures.

 

*Accountingfor Asset Retirement Obligations* - SFAS No. 143 was issued inJune 2001.  SFAS No. 143 establishesaccounting standards for recognition and measurement of a liability for anasset retirement obligation and the associated asset retirement cost.  This statement is effective for financialstatements issued for fiscal years beginning after June 15, 2002.  The Company adopted this standard on January1, 2003.  The adoption of SFAS No. 143had no significant impact on the Company’s financial statements.

 

*Accountingfor the Impairment or Disposal of Long-Lived Assets* - SFASNo. 144 was issued in August 2001.  Thisstatement addresses financial accounting and reporting of long-lived assets andfor long-lived assets to be disposed of. The provisions of this statement are effective for financial statementsissued for fiscal years beginning after December 15, 2001, and interim periodswithin those fiscal years.  The Companyadopted this statement on January 1, 2002. The adoption of SFAS No. 144 had no significant impact on the Company’sfinancial statements.

 

 

2.                             PROPERTYAND EQUIPMENT

 

Property and equipment consisted of the following atDecember 31 (in thousands):

 

|                                             |   | **2002** |   | **2001** |   |
|--------------------------------------------------|--------|----------|--------|----------|--------|
|                                             |   |     |   |     |   |
| Land                                             |   | $        | 477    |     | $      | 477 |   |
| Building and improvements                        |   | 5,569    |   | 5,208    |   |
| Furniture and equipment                          |   | 31,145   |   | 28,428   |   |
| Software                                         |   | 13,711   |   | 11,204   |   |
| Systems development and construction in progress |   | 5,421    |   | 2,275    |   |
|                                             |   | 56,323   |   | 47,592   |   |
| Less: accumulated depreciation                   |   | (33,388  | )      | (29,315  | )      |
|                                             |   | $        | 22,935 |     | $      | 18,277 |   |

 

44

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3.          GOODWILLAND OTHER INTANGIBLE ASSETS

 

A summary of changes in the carrying amount of theCompany’s goodwill for the twelve months ended December 31, 2002, by businesssegment, is as follows (in thousands):

 
|                            |   | **Membership  Services** |   | **Publications** |   | **Retail** |   | **Consolidated** |   |
|---------------------------------|--------|--------------------------|--------|------------------|--------|------------|--------|------------------|--------|
|                            |   |                     |   |             |   |       |   |             |   |
| Balance as of January 1, 2002   |   | $                        | 56,030 |             | $      | 48,181     |   | $                | 48,741 |   | $ | 152,952 |   |
| Impairments                     |   | (1,742                   | )      | —           |   | —     |   | (1,742           | )      |
| Balance as of December 31, 2002 |   | $                        | 54,288 |             | $      | 48,181     |   | $                | 48,741 |   | $ | 151,210 |   |

 

Finite lived intangible assets and related accumulatedamortization consisted of the following at December 31 (in thousands):

 

|                                            |   | **2002**  |   |
|-------------------------------------------------|--------|-----------|--------|
|                                            |   |      |   | **Accumulated** |   |   |   |
|                                            |   | **Gross** |   | **Amortization** |   | **Net** |   |
|                                            |   |      |   |   |   |   |   |
| Membership and customer lists                   |   | $         | 4,263  |   | $ | (1,847 | ) | $ | 2,416 |   |
| Resort and golf course participation agreements |   | 13,565    |   | (8,882 | ) | 4,683 |   |
| Non-compete and deferred consulting agreements  |   | 17,880    |   | (8,413 | ) | 9,467 |   |
| Deferred financing and organization costs costs |   | 10,262    |   | (5,998 | ) | 4,264 |   |
|                                            |   | $         | 45,970 |   | $ | (25,140 | ) | $ | 20,830 |   |

 

|                                            |   | **2001**  | ** ** |
|-------------------------------------------------|--------|-----------|------------|
|                                            |   | **Gross** |       | **Accumulated  Amortization** |   | **Net** |   |
|                                            |   |      |       |   |   |   |   |
| Membership and customer lists                   |   | $         | 3,500      |   | $ | (1,476 | ) | $ | 2,024 |   |
| Resort and golf course participation agreements |   | 13,540    |       | (8,315 | ) | 5,225 |   |
| Non-compete and deferred consulting agreements  |   | 17,805    |       | (7,071 | ) | 10,734 |   |
| Deferred financing and organization costs       |   | 10,171    |       | (4,471 | ) | 5,700 |   |
|                                            |   | $         | 45,016     |   | $ | (21,333 | ) | $ | 23,683 |   |

 

The aggregate future five-year amortization of finitelived intangibles at December 31, 2002 is as follows (in thousands):

 

| 2003       |   | $     | 4,079  |   |
|------------|--------|-------|--------|--------|
| 2004       |   | 3,990 |   |
| 2005       |   | 3,081 |   |
| 2006       |   | 2,982 |   |
| 2007       |   | 2,432 |   |
| Thereafter |   | 4,266 |   |
| Total      |   | $     | 20,830 |   |

 

45

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As discussed in Note 1, in January 2002, AffinityGroup Holding, Inc. adopted SFAS No. 142, which requires companies todiscontinue amortizing goodwill and certain intangible assets with anindefinite useful life.  Instead, SFASNo. 142 requires that goodwill and intangible assets deemed to have anindefinite useful life be reviewed for impairment upon adoption of SFAS No. 142(January 1, 2002) and annually thereafter. The Company performed its annual impairment review during the fourthquarter of 2002.  Based on this review,the Company determined that no additional impairment charges were required asof December 31, 2002.

 

Under 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 unitsare generally consistent with the operating segments underlying the reportingsegments identified in Note 12- Segment Information.  This methodology differs from Affinity Group Holding, Inc.’sprevious policy, as permitted under accounting standards existing at that time,of using undiscounted cash flows on an enterprise-wide basis to determine ifgoodwill is recoverable.

 

In accordance with the transition provisions of SFASNo. 142, Goodwill and Other Intangible Assets, Affinity Group Holding, Inc.recorded a non-cash charge of approximately $1.7 million to reduce the carryingvalue of its goodwill.  The SFAS No. 142goodwill impairment is associated solely with goodwill of the Golf Card Club,which is included in the Membership Services segment.  Such charge is reflected as a cumulative effect of an accountingchange in the accompanying consolidated statement of operations.  In calculating the impairment charge, thefair value of the impaired reporting units underlying the segments wereestimated using either a discounted cash flow methodology or recent comparabletransactions.

 

The 2001 results on a historical basis do not reflectthe provisions of SFAS No. 142.  HadAffinity Group Holding, Inc. adopted SFAS No. 142 on January 1, 2001, thehistorical net income for 2001 and 2000 would have been changed to the adjustedamounts indicated below:

 

|                            |   | **2001** |   | **2000** |   |
|---------------------------------|--------|----------|--------|----------|--------|
|                            |   |     |   |     |   |
| Net income - as reported        |   | $        | 566    |     | $      | 3,303 |   |
| Add back: Goodwill amortization |   | 5,078    |   | 5,068    |   |
| Adjusted net income             |   | $        | 5,644  |     | $      | 8,371 |   |

 

4.          ACCRUEDLIABILITIES

 

Accrued liabilities consisted of the following atDecember 31 (in thousands):

 

|                      |   | **2002** |   | **2001** |   |
|---------------------------|--------|----------|--------|----------|--------|
|                      |   |     |   |     |   |
| Compensation and benefits |   | $        | 7,964  |     | $      | 8,300 |   |
| Other accruals            |   | 23,312   |   | 21,759   |   |
|                      |   | $        | 31,276 |     | $      | 30,059 |   |

 

46

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5.                 LONG-TERMDEBT

 

The followingreflects outstanding long-term debt as of December 31 (in thousands):

 
|                                           |   | **2002** |    | **2001** |   |
|------------------------------------------------|--------|----------|---------|----------|--------|
| AGHI Senior Notes                              |   | $        | 130,000 |     | $      | 130,000 |   |
|                                           |   |     |    |     |   |
| Camping World management incentive  obligation |   | —   |    | 10,000   |   |
| AGI Revolving Credit and Term Loan  Facility:  |   |     |    |     |   |
| Term A                                         |   | 11,224   |    | 16,463   |   |
| Term B                                         |   | 22,850   |    | 23,450   |   |
| Revolving credit facility                      |   | 58,600   |    | 47,725   |   |
| Other long-term obligations                    |   | 327      |    | 678      |   |
|                                           |   | 223,001  |    | 228,316  |   |
| Less: current portion                          |   | (8,053   | )       | (16,189  | )      |
|                                           |   | $        | 214,948 |     | $      | 212,127 |   |

 

On April 2, 1997,AGHI issued a total of $130.0 million of senior notes (“AGHI SeniorNotes”).  The notes bear interest at therate of 11% per annum with interest payable semi-annually each April 1 andOctober 1, and mature on April 1, 2007. The AGHI Senior Notes are redeemable, in whole or in part, at the optionof the Company any time on or after April 1, 2002, starting at a redemptionprice of 105.5% of the principal amount plus accrued interest to the redemptiondate.  These notes are general unsecuredobligations of AGHI and rank pari passu with all existing indebtedness of AGHIand senior in right of payment to all existing and future subordinatedindebtedness of the Company.

 

On April 2, 1997,AGHI entered into management incentive agreements (“Camping World ManagementIncentive Agreements”) with certain Camping World executives pursuant to whichup to an additional $15.0 million was paid subject to Camping World achievingcertain operating goals.  Suchcontingent amounts were payable in $1.0 million annual installments on thefirst four anniversaries of the closing and $11.0 million on the fifthanniversary of the closing.  Thisobligation was recorded at the present value of $10.0 million and accruedinterest at the rate of 10% per annum on the unpaid balance.  This obligation was paid in full on April 2,2002.

 

On November 13,1998, AGI entered into a $200.0 million revolving credit and term loan facility(“AGI Revolving Credit and Term Loan Facility”) consisting of two term loans(“Term A” and “Term B”) aggregating $130.0 million and a revolving creditfacility of $70.0 million which was amended to $74.5 million in December  2001. The interest on borrowings under the AGI Revolving Credit and Term LoanFacility is at variable rates based on the ratio of total cash flow tooutstanding indebtedness (as defined). Interest rates float with prime and the London Interbank Offered Rates(“LIBOR”), plus an applicable margin ranging from 1.75% to 4.125% over thestated rates.

 

As of December 31,2002, the average interest rates on the term loans and revolving creditfacility were 5.17% and 4.67%, respectively, and permitted borrowings under theundrawn revolving line were $10.4 million. AGI also pays a commitment fee of 0.5% per annum on the unused amount ofthe revolving credit line.  As ofDecember 31, 2002, $11.2 million and $22.9 million were outstanding under theTerm A and B loans, respectively. Re-borrowings under the Term Loans are not permitted.  The term loans have aggregate quarterlyscheduled payments of $1.9 million in 2003. The revolving credit facility matures on December 31, 2004, and the TermA and Term B

 

47

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loans mature onDecember 31, 2004 and June 30, 2005, respectively.  The funds available under the AGI Revolving Credit line may beutilized for borrowings or letters of credit; however, a maximum of $12.5million may be allocated to such letters of credit.  As of December 31, 2002, the Company had letters of credit in theamount of $5.5 million outstanding.  TheAGI Revolving Credit and Term Loan Facility are secured by a security interestin virtually all the assets of AGI and its subsidiaries and a pledge of thestock of AGI and its subsidiaries.

 

The AGI RevolvingCredit and Term Loan Facility allows for, among other things, the distributionof payments by AGI to AGHI to service the semi-annual interest due on the AGHISenior Notes and the annual amounts due under the Camping World ManagementIncentive Agreements, which were paid in full on April 2, 2002.  Such distributions are subject to AGI’scompliance with certain restrictive covenants, including, but not limited to,an interest coverage ratio, fixed charge coverage ratio, minimum operating cashflow, and limitations on capital expenditures and total indebtedness.  Effective December 2000 and December 5,2001, the Company amended the AGI Revolving Credit and Term Loan Facility toensure compliance with certain of its restrictive covenants, principallyminimum operating cash flow, as defined, and the total leverage covenant.  In addition, among other things, theAmendments provided for an interest rate increase on the revolving creditfacility and term loans and prohibited the distribution by its wholly-ownedsubsidiary, AGI, of any excess cash flow, as defined, until total leverageratio is less than 4.75 to 1.  TheCompany generated no excess cash flow, as defined, in 2002.

 

The AGHI indenturepursuant to which the AGHI Senior Notes were issued contains 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.

 

The Company was incompliance with all debt covenants at December 31, 2002.

 

The aggregatefuture maturities of long-term debt at December 31, 2002 are as follows (inthousands):

 

| 2003  |   | $       | 8,053   |   |
|-------|--------|---------|---------|--------|
| 2004  |   | 63,298  |    |
| 2005  |   | 21,650  |    |
| 2006  |   | —  |    |
| 2007  |   | 130,000 |    |
| Total |   | $       | 223,001 |   |

 

6.      INCOME TAXES

 

The components ofthe Company’s income tax expense from operations for the year ended December31, consisted of (in thousands):

 
|               |   | **2002** |   | **2001** |   | **2000** |   |
|--------------------|--------|----------|--------|----------|--------|----------|--------|
| Current:           |   |     |   |     |   |     |   |
| Federal            |   | $        | 7,174  |     | $      | 5,931    |   | $ | 7,259 |   |
| State              |   | 993      |   | 821      |   | 1,016    |   |
| Deferred           |   | 865      |   | (2,615   | )      | (3,575   | )      |
| Income tax expense |   | $        | 9,032  |     | $      | 4,137    |   | $ | 4,700 |   |

 

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A reconciliationof income tax expense from operations to the federal statutory rate for theyear ended December 31 is as follows (in thousands):

 
|                                             |   | **2002** |   | **2001** |   | **2000** |   |
|--------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Income taxes computed at federal statutory  rate |   | $        | 7,957  |     | $      | 1,662    |   | $ | 2,800 |   |
| State income taxes - net of federal  benefit     |   | 682      |   | 142      |   | 240      |   |
| Permanent difference -                           |   |     |   |     |   |     |   |
| Amortization of goodwill                         |   | —   |   | 1,643    |   | 1,660    |   |
| Other                                            |   | 393      |   | 690      |   | —   |   |
| Income tax expense                               |   | $        | 9,032  |     | $      | 4,137    |   | $ | 4,700 |   |

 

Deferred income taxes reflect the net tax effects oftemporary differences between the carrying amounts of assets and liabilitiesfor financial reporting purposes and the amounts used for income tax purposesand operating loss and tax credit carryforwards.  Significant items comprising the net deferred tax asset atDecember 31 are (in thousands):

 
|                                             |   | **2002** |   | **2001** |   |
|--------------------------------------------------|--------|----------|--------|----------|--------|
| **Deferred tax liabilities:**                    |   |     |   |     |   |
| Management Incentive                             |   | $        | (3,254 | )        | $      | — |   |
| Prepaid expenses                                 |   | (2,817   | )      | (2,967   | )      |
| Intangible assets                                |   | (1,800   | )      | (1,582   | )      |
| Basis difference on building and land  acquired  |   | (8,582   | )      | (8,243   | )      |
| Other                                            |   | (223     | )      | (226     | )      |
|                                             |   | (16,676  | )      | (13,018  | )      |
|                                             |   |     |   |     |   |
| **Deferred tax assets:**                         |   |     |   |     |   |
| Accelerated depreciation                         |   | 1,010    |   | 1,351    |   |
| Intangible assets                                |   | 768      |   | 1,349    |   |
| Deferred revenues                                |   | 10,307   |   | 11,558   |   |
| Accrual for employee benefits and  severance     |   | 2,460    |   | 1,803    |   |
| Accrual for deferred phantom stock  compensation |   | 2,877    |   | 1,264    |   |
| Charitable contribution carryforward             |   | 2,190    |   | 2,836    |   |
| Tax credits                                      |   | —   |   | 170      |   |
| Claims reserves                                  |   | 2,215    |   | 2,290    |   |
| Reserve for resort cards                         |   | 1,811    |   | 1,871    |   |
| Deferred compensation                            |   | 6,255    |   | 2,814    |   |
| Bad debt                                         |   | 509      |   | —   |   |
| Other reserves                                   |   | 1,242    |   | 1,545    |   |
|                                             |   | 31,644   |   | 28,851   |   |
|                                             |   |     |   |     |   |
| Valuation allowance                              |   | (5,163   | )      | (5,163   | )      |
|                                             |   |     |   |     |   |
| Net deferred tax asset                           |   | $        | 9,805  |     | $      | 10,670 |   |

 

The Company and its subsidiaries are parties to atax-sharing agreement with the Company’s parent; however, taxes are determinedon a separate company basis.  As part ofthis tax-sharing agreement, AGHC is compensated for its usable share ofseparate company federal tax losses.  Assuch, accrued income taxes on the balance sheet are due to AGHC.  At December 31, 2002, the Company hadgeneral charitable contribution carryforwards of approximately $5.8 million.

 

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7.      COMMITMENTS, CONTINGENCIES AND SALE-LEASEBACK TRANSACTIONS

 

*Leases*- The Company holds certain property and equipment under rental agreements andoperating leases which have varying expiration dates.  Future minimum annual fixed rentals under operating leases havingan original term of more than one year as of December 31, 2002 are as follows(in thousands):

 

| 2003       |   | $      | 11,096  |   |
|------------|--------|--------|---------|--------|
| 2004       |   | 11,162 |    |
| 2005       |   | 10,917 |    |
| 2006       |   | 9,704  |    |
| 2007       |   | 8,894  |    |
| Thereafter |   | 87,819 |    |
| Total      |   | $      | 139,592 |   |

 

During 2002, 2001 and 2000, respectively,approximately $11,546,000, $8,428,000, and $6,840,000 of rent expense wascharged to costs and expenses.

 

On December 5, 2001, the Companysold eleven real estate properties to eleven separate wholly-owned subsidiariesof AGRP Holding Corp., a wholly-owned subsidiary of the Company’s parent, AGIHolding Corp., for $52.3 million in cash and a note receivable.  The properties have been leased back to theCompany on a triple net basis.  Both thesales price and lease rates were based on market rates determined by thirdparty independent appraisers engaged by the mortgage lender and approved by theAGI Senior Credit Facility agent bank. These leases have an initial term of 25 to 27 years with two five-yearoptions at the then current market rent. The leases are classified as operating leases in accordance with SFASNo. 13 “Accounting for Leases”.  Landand buildings with a net book value totaling $45.8 million have been removedfrom the balance sheet.  The transactionresulted in a net gain of $6.1 million consisting of a $12.1 million gain oncertain properties and a $6.0 million loss on other properties.  In accordance with accounting principlesgenerally accepted in the United States, the $6.0 million loss has beenrecognized upon the date of sale in the statement of operations and the $12.1million gain has been deferred and will be credited to income as rent expenseadjustments over the lease terms.  Theaverage net annual lease payments over the lives of the leases are $3.4million.

 

*Litigation*- From time to time, the Company is involved in litigation arising in thenormal course of business operations.

 

InJanuary 1998, certain of the Company’s subsidiaries were sued in Californiastate court in connection with the termination of the participation by theplaintiffs in the Camp Coast to Coast reciprocal use program for RVresorts.  In October 2000, the trialcourt entered judgment in favor of the Company’s subsidiaries and subsequentlyawarded them a total of $3.88 million for their legal fees and costs.  The plaintiffs have appealed the judgment infavor of the Company’s subsidiaries as well as the award of attorney fees.  In February, 2003, the plaintiffs’ appealswere denied and the judgment in favor of the Company’s subsidiaries wasaffirmed.

 

TheInsurance Commissioner of the state of California, by order dated April 23,2002, directed GSS Enterprises, Inc. (“GSS”), one of the Company’ssubsidiaries, to cease and desist from engaging in certain insurance and motorclub services without requisite licensing, advising such subsidiary that theCommissioner may impose certain fines if GSS fails to be licensed.  The order provides GSS the right to ahearing on the matter.  The order issuedby the Insurance Commissioner of the state of California applies only tooperations of GSS within the state of California.  If sustained, the order could materially limit certain activitiesof GSS within the state of California. GSS operates in all 50 states, a majority of which have regulationscomparable to those of the state of California.  To the

 

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Company’sknowledge, there is no similar pending investigation by any other state.  The Company and the Department of Insuranceof the state of California are in the process of seeking to resolve the ceaseand desist order through clarifications in the Company’s marketing materialsand clarifications of applicable California laws.

 

8.      RELATED-PARTY TRANSACTIONS

 

Certain directors of the Company, including theChairman of the Board, are partners in partnerships and shareholders ofcorporations that lease facilities to the Company under long-term leases.  For the years ended December 31, 2002, 2001and 2000, payments under these leases were approximately $7.0 million, $3.7million and $2.6 million, respectively. Future commitments under these leases total approximately $117.1million.  The leases expire at variousdates from December 2005 through July 2029, subject to the right of the Companyto exercise renewal options.

 

During the fourth quarter of 1998, the Company’s Boardof Directors adopted a plan to sell the stock of Affinity Bank (“AB”), subjectto regulatory approval, to an affiliate of the Company at its net book value,which in the opinion of management approximates market value.  As a result, the operations of AB wereclassified as a discontinued operation in the accompanying financialstatements.  The Company receivedregulatory approval to sell AB and subsequently closed the transaction onSeptember 30, 1999.  In considerationfor the stock of AB, Affinity Group Thrift Holding Corporation (“AGTHC”)received 17,100 shares of Series A Preferred stock of the purchaser, ABH,valued at $18,631,000.  In the fourthquarter of 1999, AGTHC agreed to convert and exchange the preferred stock for aCapital Note.  The Capital Noteprincipal balance was equal to the preference amount of the preferred stock asof the conversion date and accrues interest at the rate of 11% per annum untilmaturity on October 1, 2014.  On October31, 2000, AGTHC sold, at face value, a $1.5 million participation in theCapital Note to an affiliate of Stephen Adams, the Company’s Chairman.  In addition, AGTHC, although required to beconsolidated with the Company, is recognized as an “unrestricted” ornon-guarantying subsidiary under the terms of the AGHI Senior Notes.

 

Further, on December 5, 2001, AGTHC sold a $15.0million participation in the Capital Note to an affiliate of Stephen Adams for$14,477,000.  AGTHC used the netproceeds of this sale to purchase a $14.5 million Capital Note of AGRP HoldingCorp., a wholly owned subsidiary of the Company’s parent, AGHC.  The Capital Note accrues interest at therate of 11% per annum until maturity on December 5, 2011.  Interest is payable from time to time asdeclared by the Board of Directors of AGRP Holding Corp.  Interest not paid will accumulate and willbe compounded annually until paid.

 

At various dates throughout 2002, AGTHC paid $23.2million in non-cash dividends through the Company to AGHC.  These dividends consisted of the net balanceof the Affinity Bank Holdings, Inc. Capital Note and a 100% participation in the AGRP Capital Note which hadnet book values of $7.1 million and $16.1 million, respectively.

 

In March 2002, the Company received a royalty paymentof $1.5 million from Holiday RV Superstores, Inc., doing business as RecreationUSA, (“Recreation USA”).  Thisnon-refundable payment grants Recreation USA a limited non-exclusive license touse the Company’s Good Sam trademarks and will be recognized by the Company asrevenue ratably over the license period. When the Company entered into the agreement with Recreation USA, theCompany’s Chairman beneficially owned through entities controlled by himapproximately 57%

 

51

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of the then outstanding common stock of Recreation USAafter taking into account conversion and exercise of his beneficially ownedsecurities in Recreation USA.

 

On May 15, 2002, Stephen Adams sold his 96.1%shareholder interest in the parent company of National Alliance InsuranceCompany (“NAIC”) to an unrelated third-party insurance company.  NAIC is a regulated property and casualtyinsurance company domiciled in the state of Missouri with active licenses in 39other states.  Its principal book ofbusiness is derived by marketing insurance to the Camping World President’sClub members.  Under the terms of anexclusive marketing agreement entered into December 31, 1998, the Company earnsa marketing fee based upon annual premiums received by NAIC from the sale ofits insurance products to Camping World’s President’s Club members.  As part of the sale, the expiration date ofthe agreement was modified to conclude on May 15, 2012.  The Company earned $1.3 million in marketingfees from January 1, 2002 through the May 15, 2002 sale date.  In 2002, 2001 and 2000 fees earned by theCompany under this marketing agreement totaled $3.1 million, $2.5 million, and$2.5 million, respectively.

 

The Company is recording the royalty payment intoincome in a level amount ratably over the three-year term of the license.

 

The Company has the following notes receivable fromaffiliates:

 

•                  On December 31,1998, the Company sold Affinity Insurance Group, Inc. (“AINS”) to AdamsInsurance Holding LLC, a Minnesota limited liability company wholly-owned byStephen Adams, the Company’s Chairman, in exchange for a promissory note in theamount of $3.1 million, which approximated the fair market value.  This note accrues interest at a rate of 7.0%per annum.

 

•                  In conjunctionwith the sale of real estate properties sold to an affiliate on December 5,2001, AGI financed $4.8 million of the purchase price with a ten-year balloonnote receivable 11% per annum, with monthly payments of approximately $46,000.

 

9.      STATEMENTS OF CASH FLOWS

 

Supplemental disclosures of cash flow information forDecember 31 (in thousands):

 
|                           |   | **2002** |   | **2001** |   | **2000** |   |
|--------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Cash paid during the year for: |   |     |   |     |   |     |   |
| Interest                       |   | $        | 20,080 |     | $      | 27,197   |   | $ | 30,295 |   |
| Income taxes                   |   | 8,273    |   | 9,958    |   | 3,679    |   |
|                                |        |          |        |          |        |          |        |  |  |  |

 

The Company entered into the following non-cashinvesting and financing transactions:

 

**2002:**

The Company assumed $0.2 million of liabilities in theacquisition of publication titles.

 

The Company declared and distributed $23.2 million ofdividends consisting of the balance of the Affinity Bank Holdings, Inc. CapitalNote and the 100% participation in the AGRP Capital Note.

 

52

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**2001:**

The Company recorded a $12.1 million deferred gain andprovided a $4.8 million seller financing note receivable in conjunction withthe sale-leaseback transactions.

 

**2000:**

The Company assumed $0.3million of liabilities and issued $0.8 million of purchase debt in theacquisition of Thunder Press.

 

10.    BENEFIT PLAN

 

The Company sponsors a deferred savings and profitsharing plan (the “401(k) Plan”) qualified under Section 401(a) and 401(k) ofthe Internal Revenue Codes of 1986, as amended (the “Code”).  All employees over age 21 who have completedone year of service (minimum of 1,000 hours) are eligible to participate in the401(k) Plan.  Eligible employees maycontribute up to 15% of their salary subject to an annual maximum establishedunder the Code.  For the plan yearJanuary 1, 2002 through December 31, 2002, the Company elected a Safe HarborMatching Contribution for the employer match and set the employer match, whichvests upon contribution, at an amount equal to 100% of the first 4% of theemployee’s contribution.  Alsocommencing January 1, 2002, eligible participants were permitted to makecatch-up pre-tax contributions in accordance with the maximum amount set by theInternal Revenue Code.  Catch-upcontributions are not eligible for the employer match program.  The Company’s contributions to the plantotaled approximately $1,372,000, $1,431,000, and $1,380,000 for 2002, 2001,and 2000, respectively.

 

11.    DEFERRED PHANTOM STOCKCOMPENSATION

 

The Company has deferred compensation agreements with certainofficers.  The agreements provide forpayment to the officers upon their termination, death, disability, or sale ofthe Company.  Deferred compensation isincluded in other long-term liabilities as if fully vested.  Deferred compensation to be paid in 2003 hasbeen classified in current liabilities. This deferred compensation is subject to vesting under the terms of theindividual agreements.  Vesting periodsrange from 20% per year over a five-year period to immediate vesting uponentering an agreement.

 

12.    SEGMENT INFORMATION

 

The Company’s three principal lines of business areMembership Services, Publications, and Retail. The Membership Services segment operates the Good Sam Club, Coast toCoast Club, and Camping World’s President’s Club for RV owners, campers andoutdoor vacationers, and the Golf Card Club for golf enthusiasts.  The Publications segment publishes a varietyof publications for selected markets in the recreation and leisure industry,including general circulation periodicals, club magazines, directories and RVindustry trade magazines.  The Retailsegment sells specialty retail merchandise and services for RV owners primarilythrough retail supercenters and mail order catalogs.  The Company evaluates performance based on profit or loss fromoperations before income taxes.

 

The reportable segments are strategic business unitsthat offer different products and services. They are managed separately because each business requires differenttechnology, management expertise and marketing strategies.  Most of the businesses were acquired as aunit, and the management at the time of acquisition was retained.

 

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The Company does not allocate income taxes or unusualitems to segments.  Financialinformation by reportable business segment is summarized as follows (inthousands):

 
|                                           |   | **Membership  Services** |    | **Publications** |   | **Retail** |   | **Consolidated** |    |
|------------------------------------------------|--------|--------------------------|---------|------------------|--------|------------|--------|------------------|---------|
| **YEAR ENDED DECEMBER 31, 2002**               |   |                     |    |             |   |       |   |             |    |
| Revenues from external customers               |   | $                        | 124,546 |             | $      | 66,654     |   | $                | 239,922 |   | $ | 431,122 |   |
| Loss on sale of property and equipment         |   | —                   |    | —           |   | (40        | )      | (40              | )       |
| Interest income                                |   | 2,631                    |    | —           |   | 3          |   | 2,634            |    |
| Interest expense                               |   | —                   |    | 1,641            |   | 8,438      |   | 10,079           |    |
| Depreciation and amortization                  |   | 2,635                    |    | 261              |   | 4,590      |   | 7,486            |    |
| Segment profit (loss)                          |   | 39,647                   |    | 17,079           |   | (571       | )      | 56,155           |    |
| Segment assets                                 |   | 132,897                  |    | 71,434           |   | 110,459    |   | 314,790          |    |
| Expenditures for segment assets                |   | 2,184                    |    | 1,235            |   | 6,251      |   | 9,670            |    |
|                                           |   |                     |    |             |   |       |   |             |    |
| **YEAR ENDED DECEMBER 31, 2001**               |   |                     |    |             |   |       |   |             |    |
| Revenues from external customers               |   | $                        | 119,958 |             | $      | 65,150     |   | $                | 220,264 |   | $ | 405,372 |   |
| Gain/(loss) on sale of property and  equipment |   | 6                        |    | —           |   | (1,979     | )      | (1,973           | )       |
| Interest income                                |   | 3,278                    |    | —           |   | 13         |   | 3,291            |    |
| Interest expense                               |   | —                   |    | 2,170            |   | 12,300     |   | 14,470           |    |
| Depreciation and amortization                  |   | 4,747                    |    | 1,241            |   | 6,223      |   | 12,211           |    |
| Segment profit (loss)                          |   | 34,451                   |    | 13,505           |   | (6,201     | )      | 41,755           |    |
| Segment assets                                 |   | 123,418                  |    | 72,526           |   | 109,128    |   | 305,072          |    |
| Expenditures for segment assets                |   | 1,534                    |    | 78               |   | 2,498      |   | 4,110            |    |
|                                           |   |                     |    |             |   |       |   |             |    |
| **YEAR ENDED DECEMBER 31, 2000**               |   |                     |    |             |   |       |   |             |    |
| Revenues from external customers               |   | $                        | 121,393 |             | $      | 68,519     |   | $                | 215,160 |   | $ | 405,072 |   |
| Gain/(loss) on sale of property and  equipment |   | 58                       |    | (54              | )      | 5          |   | 9                |    |
| Interest income                                |   | 3,612                    |    | 2                |   | 17         |   | 3,631            |    |
| Interest expense                               |   | —                   |    | 2,532            |   | 13,448     |   | 15,980           |    |
| Depreciation and amortization                  |   | 5,007                    |    | 1,284            |   | 6,779      |   | 13,070           |    |
| Segment profit (loss)                          |   | 31,443                   |    | 15,699           |   | (4,972     | )      | 42,170           |    |
| Segment assets                                 |   | 122,483                  |    | 72,770           |   | 146,853    |   | 342,106          |    |
| Expenditures for segment assets                |   | 2,669                    |    | 117              |   | 5,331      |   | 8,117            |    |

 

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The following is a summary of the reconciliations ofreportable segments to the Company’s consolidated financial statements for theyears ended December 31, 2002, 2001 and 2000 (in thousands):

 
|                                                                                                                       |   | **2002** |    | **2001** |   | **2000** |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| **Gain/ (Loss) on Sale of  Property and Equipment**                                                                        |   |     |    |     |   |     |   |
| Total gain/(loss) on sale for reportable  segments                                                                         |   | $        | (40     | )        | $      | (1,973   | )      | $ | 9 |   |
| Other non-allocated loss                                                                                                   |   | —   |    | (4,596   | )      | —   |   |
| Total gain/(loss) on sale of property and  equipment                                                                       |   | $        | (40     | )        | $      | (6,569   | )      | $ | 9 |   |
|                                                                                                                       |   |     |    |     |   |     |   |
| **Interest Income**                                                                                                        |   |     |    |     |   |     |   |
| Total interest income for reportable  segments                                                                             |   | $        | 2,634   |     | $      | 3,291    |   | $ | 3,631 |   |
| Elimination of intersegment interest  income                                                                               |   | (2,627   | )       | (3,266   | )      | (3,596   | )      |
| Other non-allocated interest income                                                                                        |   | 2,546    |    | 2,538    |   | 2,555    |   |
| Total interest income                                                                                                      |   | $        | 2,553   |     | $      | 2,563    |   | $ | 2,590 |   |
|                                                                                                                       |   |     |    |     |   |     |   |
| **Interest Expense**                                                                                                       |   |     |    |     |   |     |   |
| Total interest expense for reportable  segments                                                                            |   | $        | 10,079  |     | $      | 14,470   |   | $ | 15,980 |   |
| Elimination of intersegment interest  expense                                                                              |   | (10,079  | )       | (14,469  | )      | (15,964  | )      |
| Other non-allocated interest expense                                                                                       |   | 19,415   |    | 26,796   |   | 30,309   |   |
| Total interest expense                                                                                                     |   | $        | 19,415  |     | $      | 26,797   |   | $ | 30,325 |   |
|                                                                                                                       |   |     |    |     |   |     |   |
| **Depreciation and  Amortization**                                                                                         |   |     |    |     |   |     |   |
| Total depreciation and amortization for  reportable segments                                                               |   | $        | 7,486   |     | $      | 12,211   |   | $ | 13,070 |   |
| Unallocated depreciation and amortization  expense                                                                         |   | 2,407    |    | 4,193    |   | 3,815    |   |
| Total consolidated depreciation and  amortization                                                                          |   | $        | 9,893   |     | $      | 16,404   |   | $ | 16,885 |   |
|                                                                                                                       |   |     |    |     |   |     |   |
| **Income From Continuing  Operations Before Income Taxes, Extraordinary Item and Cumulative Effect of  Accounting Change** |   |     |    |     |   |     |   |
| Total profit for reportable segments                                                                                       |   | $        | 56,155  |     | $      | 41,755   |   | $ | 42,170 |   |
| Unallocated depreciation and amortization  expense                                                                         |   | (2,407   | )       | (4,193   | )      | (3,815   | )      |
| Unallocated G & A expense                                                                                              |   | (24,225  | )       | (18,430  | )      | (18,562  | )      |
| Unallocated interest expense, net                                                                                          |   | (16,869  | )       | (24,258  | )      | (27,754  | )      |
| Unallocated loss on sale of property and  equipment                                                                        |   | —   |    | (4,596   | )      | —   |   |
| Elimination of intersegment interest  expense, net                                                                         |   | 10,079   |    | 14,469   |   | 15,964   |   |
| Income From Continuing Operations Before  Income Taxes and Extraordinary Item                                              |   | $        | 22,733  |     | $      | 4,747    |   | $ | 8,003 |   |
|                                                                                                                       |   |     |    |     |   |     |   |
| **Assets**                                                                                                                 |   |     |    |     |   |     |   |
| Total assets for reportable segments                                                                                       |   | $        | 314,790 |     | $      | 305,072  |   | $ | 342,106 |   |
| Capitalized finance costs not allocated to  segments                                                                       |   | 5,595    |    | 7,015    |   | 6,889    |   |
| Corporate unallocated assets                                                                                               |   | 38,886   |    | 56,868   |   | 64,902   |   |
| Elimination of intersegment receivable                                                                                     |   | (57,073  | )       | (50,315  | )      | (42,070  | )      |
| Consolidated total                                                                                                         |   | $        | 302,198 |     | $      | 318,640  |   | $ | 371,827 |   |
|                                                                                                                       |   |     |    |     |   |     |   |
| **Capital Expenditures**                                                                                                   |   |     |    |     |   |     |   |
| Total expenditures for assets for  reportable segments                                                                     |   | $        | 9,670   |     | $      | 4,110    |   | $ | 8,117 |   |
| Other asset expenditures                                                                                                   |   | 1,040    |    | 286      |   | 1,280    |   |
| Total capital expenditures                                                                                                 |   | $        | 10,710  |     | $      | 4,396    |   | $ | 9,397 |   |

 

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*Majorcustomers-*Included in revenues in 2002, 2001 and 2000 are$17.8 million, and $15.5 million, $16.7 million, respectively, received undercontracts from one customer of the Company. These revenues have been reported in the Membership Services segment.

 

13.              SELECTED QUARTERLYINFORMATION (UNAUDITED)

 

The following is a summary of selected quarterlyinformation for the years ended December 31, 2002, 2001 and 2000 (inthousands):

 
|                              |   | **March 31,****2002** |   | **June 30,****2002** |   | **September 30,****2002** |   | **December 31,****2002** |    |
|-----------------------------------|--------|-----------------------|--------|----------------------|--------|---------------------------|--------|--------------------------|---------|
| Total revenue                     |   | $                     | 96,860 |                 | $      | 121,752                   |   | $                        | 112,302 |   | $ | 100,208 |   |
| Gross profit                      |   | 34,329                |   | 41,788               |   | 38,984                    |   | 38,308                   |    |
| Income from continuing operations |   | 2,818                 |   | 5,053                |   | 2,374                     |   | 3,456                    |    |
| Net income                        |   | 1,076                 |   | 5,053                |   | 2,374                     |   | 3,456                    |    |
|                                   |        |                       |        |                      |        |                           |        |                          |         |  |  |  |  |

 
|                                     |   | **March 31,****2001** |   | **June 30,****2001** |   | **September 30,****2001** |   | **December 31,****2001** |    |
|------------------------------------------|--------|-----------------------|--------|----------------------|--------|---------------------------|--------|--------------------------|---------|
| Total revenue                            |   | $                     | 92,999 |                 | $      | 111,176                   |   | $                        | 103,602 |   | $ | 97,595 |   |
| Gross profit                             |   | 32,864                |   | 36,963               |   | 33,864                    |   | 34,318                   |    |
| Income (loss) from continuing operations |   | 264                   |   | 1,771                |   | 1,345                     |   | (2,770                   | )       |
| Net income (loss)                        |   | 264                   |   | 1,771                |   | 1,345                     |   | (2,814                   | )       |
|                                          |        |                       |        |                      |        |                           |        |                          |         |  |  |  |  |

 
|                                     |   | **March 31,****2000** |   | **June 30,****2000** |   | **September 30,****2000** |   | **December 31,****2000** |    |
|------------------------------------------|--------|-----------------------|--------|----------------------|--------|---------------------------|--------|--------------------------|---------|
| Total revenue                            |   | $                     | 91,960 |                 | $      | 109,771                   |   | $                        | 106,013 |   | $ | 97,328 |   |
| Gross profit                             |   | 31,213                |   | 37,111               |   | 35,223                    |   | 34,584                   |    |
| Income (loss) from continuing operations |   | (300                  | )      | 1,925                |   | 541                       |   | 1,137                    |    |
| Net income (loss)                        |   | (300                  | )      | 1,925                |   | 541                       |   | 1,137                    |    |
|                                          |        |                       |        |                      |        |                           |        |                          |         |  |  |  |  |

 

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14.    VALUATION AND 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, 2002:              |   |                                 |   |                                           |   |           |   |                           |   |
| Allowance for doubtful accounts receivable |   | $                                    | 1,587  |                                           | $      | 1,319          |   | $                              | 1,704  | (a) | $ | 1,202 |   |
|                                       |   |                                 |   |                                           |   |           |   |                           |   |
| Year ended December 31, 2001:              |   |                                 |   |                                           |   |           |   |                           |   |
| Allowance for doubtful accounts receivable |   | $                                    | 1,642  |                                           | $      | 1,904          |   | $                              | 1,959  | (a) | $ | 1,587 |   |
|                                       |   |                                 |   |                                           |   |           |   |                           |   |
| Year ended December 31, 2000:              |   |                                 |   |                                           |   |           |   |                           |   |
| Allowance for doubtful accounts receivable |   | $                                    | 947    |                                           | $      | 1,563          |   | $                              | 868    | (a) | $ | 1,642 |   |

 

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(a)               Accountsdetermined to be uncollectable and charged against allowance account, net ofcollection on accounts previously charged against allowance account.

 

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**ExhibitB**

 

**ITEM 9:****              CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

On June 26, 2002, the Board of Directors of Affinity Group Holding,Inc. (the “Company”) appointed Ernst & Young LLP as the Company’sindependent public accountants, replacing Arthur Andersen LLP.  TheCompany dismissed Arthur Andersen LLP on the same date.  Ernst & Young LLP has notified theCompany that it has accepted the engagement.

 

The audit reports of Arthur Andersen LLP on the consolidated financialstatements of the Company as of and for the years ended December 31, 2001 and2000 did not contain any adverse opinion or disclaimer of opinion, nor werethey qualified or modified as to uncertainty, audit scope or accountingprinciples.

 

During the two most recent fiscal years of the Company, ended December31, 2001 and 2000 respectively, and the subsequent interim period to the datehereof, there were no disagreements between the Company and Arthur Andersen LLPon any matter of accounting principles or practices, financial statementdisclosure, or auditing scope or procedure, which disagreements, if notresolved to Arthur Andersen LLP’s satisfaction, would have caused ArthurAndersen LLP to make reference to the subject matter of the disagreement inconnection with its reports.

 

None of the reportable events described under Item 304(a)(1)(v) ofRegulation S-K occurred within the two most recent fiscal years of the Companyand the subsequent interim period to the date hereof.

 

The Company provided Arthur Andersen with a copy of the foregoingdisclosures.  We filed a copy of AA’sletter, dated April 8, 2002, stating its agreement with such statements asan exhibit to our Current Report on Form 8-K, filed on June 27, 2002, andincorporate it herein by reference.

 

During the years ended December 31, 2001 and 2000 and through June 26,2002, the Company did not consult with Ernst & Young LLP regarding any ofthe matters or events set forth in Item 304(a)(2)(i) and (ii) of RegulationS-K.

 

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**PART III**

 

**ITEM 10:****       DIRECTORSAND EXECUTIVE OFFICERS FOR THE REGISTRANT**

 

The executive officersand directors of the Company at December 31, 2002 are as follows:

 
| **Name**          |   | **Age** |   | **Position**                                                                                                             |   |
|-------------------|--------|---------|--------|--------------------------------------------------------------------------------------------------------------------------|--------|
| Stephen Adams     |   | 65      |   | Chairman  of the Board of the Company and AGI                                                                            |   |
| Joe McAdams       |   | 59      |   | President,  Chief Executive Officer of the Company and AGI, and Director                                                 |   |
| Wayne Boysen      |   | 72      |   | Director                                                                                                                 |   |
| David Frith-Smith |   | 57      |   | Director                                                                                                                 |   |
| Michael Schneider |   | 48      |   | Chief  Operating Officer of AGI                                                                                          |   |
| Mark J. Boggess   |   | 47      |   | Vice  President and Chief Financial Officer of the Company and Senior Vice  President and Chief Financial Officer of AGI |   |
| Michael Blumer    |   | 57      |   | Senior  Vice President of AGI                                                                                            |   |
| Murray S. Coker   |   | 62      |   | Senior  Vice President of AGI                                                                                            |   |
| Mark T. Gilman    |   | 38      |   | President,  Chief Executive Officer of Camping World, Inc. and Director                                                  |   |
| John Ehlert       |   | 57      |   | Director                                                                                                                 |   |
| David B. Garvin   |   | 59      |   | Director                                                                                                                 |   |
| George Parker     |   | 63      |   | Director                                                                                                                 |   |

 

Stephen Adams has been Chairman of the Company since December1988.  Since the 1970’s, Mr. Adams hasserved as Chairman of privately owned banking, bottling, publishing, outdooradvertising, television and radio companies in which he holds a controllingownership interest.  Mr. Adams is alsoChairman and the controlling shareholder of Adams Outdoor Advertising, Inc.,the managing general partner of Adams Outdoor Advertising Limited Partnership.  Further, Mr. Adams also holds a 95% interestin Affinity Bank Holdings, Inc. and holds in excess of 90% of the outstandingcommon stock of Recreation USA after taking into account conversion andexercise of his beneficially owned securities in Recreation USA.

 

Joe McAdams has been President and Chief Executive Officer of theCompany since July 1991.  Prior theretoand since December of 1988, Mr. McAdams was President of Adams PublishingCorporation, a newspaper and magazine publishing company controlled by Mr.Adams.  From October 1987 throughNovember 1988, Mr. McAdams was President and Publisher of Southern CaliforniaPublishing Co.  Prior to October 1987and since 1961, Mr. McAdams has held various management positions withpublishing and direct marketing companies, including Senior Vice President andChief Operating Officer of ADVO Systems, Inc. from August 1981 to April1983.  Mr. McAdams currently serves onthe Board of Directors of UCAP Incorporated.

 

Wayne Boysen was Senior Vice President of the Company since June 1991until his retirement on January 1, 1996 and has supervised the staff of therisk management divisions of businesses owned by Stephen Adams, including theCompany, since July 1988.  In addition,since their acquisition by the Company in 1995, Mr. Boysen has served asChairman of Affinity Bank (“AB”) and Chairman of Affinity Insurance Group, Inc.(“AINS”) until December 1998.  From 1966through July 1988, Mr. Boysen owned or

 

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managed insurance agencies and provided consulting services to propertyand casualty insurance agencies.  Mr.Boysen has been a director of the Company since 1993.

 

David Frith-Smith has served as managing partner of Biller, Frith-Smith& Archibald, Certified Public 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 adirector of the Company since November 1996. Mr. Frith-Smith is also a director of Adams Outdoor Advertising Inc.,the managing general partner of Adams Outdoor Advertising Limited Partnershipwhich is controlled by Stephen Adams, and various private and non-profitcorporations.

 

Michael Schneider has been Chief Operating Officer of AGI since1996.  Prior thereto, Mr. Schneiderserved as Senior Vice President and General Counsel of the Company sinceJanuary 1993 and was responsible for administrative areas, development of newcorporate 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 varietyof senior management positions in the AGI’s publication business.

 

Mark J. Boggess has been Vice President and Chief Financial Officer ofthe Company since June 1993.  From June1992 through May 1993, Mr. Boggess was Vice President and Chief FinancialOfficer of Hypro Corporation, a privately owned manufacturer of fluid transferpumps.  From June 1989 through June1992, Mr. Boggess was Treasurer of Adams Communications Corporation, a holdingcompany controlled by Stephen Adams which owned television and radio stationoperations throughout the United States.

 

Michael Blumer has been Senior Vice President of AGI since January1998.   Prior to 1998 and since 1996, Mr. Blumer served as CIO atPrimedia, Inc. and prior to that post he served as Senior Vice President ofInformation Technology at The Hamilton 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.

 

Murray S. Coker is currently Senior Vice President-Marketing of AGI andoversees the marketing of all products, services and clubs for AGI.  He joined Camping World in 1978 and hasserved in various management positions including Vice President-Mail Order,Vice President-Direct Marketing and Senior Vice President-Marketing.  Prior to joining Camping World, Mr. Cokerwas a consultant specializing in retail systems for Management DesignAssociates and Deloitte & Touche. He was the Data Systems Product Line Manager for Pitney Bowes’ MonarchMarketing Systems Division and a Systems Engineer for IBM Corporation.

 

Mark T. Gilman assumed the positions of President, Chief ExecutiveOfficer of Camping World, Inc. and Director effective May 2002.  Prior to joining AGI, and since 1996, Mr.Gilman held various senior management positions at New Media, a division ofBlockbuster, Inc., including President, Executive Vice President, and ChiefDevelopment Officer.  At New Media, Mr.Gilman was responsible for launching and managing Blockbuster, Inc.’s online andnew technologies business.  Prior to 1996,Mr. Gilman held various management positions with Wal-Mart Stores, Inc. andMcDonald’s Corporation.

 

John Ehlert is the founder ofEhlert Publishing Group, Inc. which the Company acquired in 1997 and has servedas its President and Chief Executive Officer since 1976 until itsacquisition.  Mr. Ehlert serves onthe board of directors of various trade, private and charitable organizations.

 

David B. Garvin founded CampingWorld in 1966 and served as President of Camping World from 1966 to 1986 and asits Chairman of the Board of Directors since 1986.  The Company acquired Camping World in 1997.  Mr. Garvin and Thomas A. Donnelly, whoserved as President of Camping World until May 2002, are first cousins.

 

George Parker is the Senior Associate Dean for Academic Affairs andDirector of the MBA Program at the Graduate School of Business at StanfordUniversity.  Prior to 1973, Mr. Parkerwas an Assistant/

 

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Associate Professor of Finance at the Graduate School of Business atColumbia University.  He currentlyserves on the Board of Directors for various companies including ContinentalAirlines, Inc., Tejon Ranch Co., iShares, Inc. and Converium Holding AG.  He also provides consulting services tovarious corporations and banks on financial management and corporate strategy,and has had numerous financial management works published.

 

Directors are elected for terms of one year or until their successorshave been duly elected.

 

**ITEM 11:****       EXECUTIVECOMPENSATION**

 

**Executive Compensation**

 

The following table provides certain summary information concerning thecompensation paid by the Company to the Company’s Chief Executive Officer andeach of the****four other highest compensated executive officers who wereofficers at December 31, 2002, and one executive officer who was not serving asan executive officer at December 31, 2002, for the fiscal years ending December31, 2002, 2001, and 2000.

 

**SUMMARYCOMPENSATION TABLE**

 
| **Name and  Principal  Position**                        |   | **Year**     |       | **Annual Compensation** |       | **Other Annual  Compensation(1)(2)** |       | **All Other  Compensation(3)** |       |
|----------------------------------------------------------|--------|--------------|------------|-------------------------|------------|--------------------------------------|------------|--------------------------------|------------|
| **Salary**                                               |   | **Bonus(1)** |
|                                                     |   |         | ** ** |                    | ** ** |                                 | ** ** |                           | ** ** |   | ** ** |
| Stephen Adams                                            |   | 2002         |       | $                       | 699,992    |                                 | $          | 1,725,030                      |       |   |   | $ | 12,687 |   |
| Chairman of the Board                                    |   | 2001         |       | 699,992                 |       | 1,567,770                            |       |                           |       | 20,658 |   |
|                                                     |   | 2000         |       | 699,996                 |       | 1,578,540                            |       |                           |       | 36,503 |   |
|                                                     |   |         |       |                    |       |                                 |       |                           |       |   |   |
| Joe McAdams, President                                   |   | 2002         |       | 100,000                 |       | 575,010                              |       |                           |       | 5,860 |   |
| Chief Executive Officer                                  |   | 2001         |       | 100,000                 |       | 522,590                              |       |                           |       | 6,332 |   |
|                                                     |   | 2000         |       | 100,000                 |       | 526,180                              |       | 447,856                        | (4)        | 7,696 |   |
|                                                     |   |         |       |                    |       |                                 |       |                           |       |   |   |
| Mark T. Gilman  President of Camping World  (since 2002) |   | 2002         |       | 205,962                 |       | 171,688                              |       |                           |       |   |   |
|                                                     |   |         |       |                    |       |                                 |       |                           |       |   |   |
| Michael Schneider                                        |   | 2002         |       | 210,000                 |       | 287,505                              |       | 811,333                        | (4)        | 8,445 |   |
| Chief Operating Officer                                  |   | 2001         |       | 210,000                 |       | 261,295                              |       |                           |       | 8,345 |   |
|                                                     |   | 2000         |       | 210,000                 |       | 263,090                              |       | 405,667                        | (4)        | 8,716 |   |
|                                                     |   |         |       |                    |       |                                 |       |                           |       |   |   |
| Murray S. Coker                                          |   | 2002         |       | 196,000                 |       | 189,753                              |       |                           |       | 7,382 |   |
| Senior Vice President of AGI                             |   | 2001         |       | 196,000                 |       | 172,455                              |       |                           |       | 8,838 |   |
|                                                     |   | 2000         |       | 195,885                 |       | 173,639                              |       |                           |       | 9,126 |   |
|                                                     |   |         |       |                    |       |                                 |       |                           |       |   |   |
| Thomas A. Donnelly                                       |   | 2002         |       | 116,827                 |       | 103,653                              |       | 717,270                        | (5)        | 7,559 |   |
| Former President of                                      |   | 2001         |       | 225,000                 |       | 261,295                              |       |                           |       | 7,920 |   |
| Camping World                                            |   | 2000         |       | 225,000                 |       | 263,090                              |       |                           |       | 8,055 |   |
|                                                          |        |              |            |                         |            |                                      |            |                                |            |  |  |  |  |  |

 

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(1)               Compensation defined as “Bonus” and “Other AnnualCompensation” is eligible, at the election of the employee, to be contributedto the AGHC Key Employee Security Option Plan (“KEYSOP”).  See “Management Agreements withExecutive Officers.”

 

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

 

(3)               Represents company contributions to 401(k), splitdollar life insurance economic benefit and personal use of Company assets.

 

(4)               Underthe terms of the phantom stock agreements, Mr. Schneider received $811,333 in2002 and $405,667 in 2000; and Mr. McAdams received $447,856 in 2000.  All payments were contributed to the KEYSOP.

 

(5)               Uponseparation from the Company in May2002, Mr. Donnelly received $492,270 under the terms of his phantom stockagreement and separation/severance pay totaling $225,000.  These payments were contributed to theKEYSOP.

 

The Company does not have any outstanding stock options or restrictedstock grants.  The Company has phantomstock agreements and a non-qualified deferred compensation plan for certain ofits officers.  See “Agreements withExecutive Officers”.

 

**Agreementswith Executive Officers**

 

Mr. Adams and the Company are parties to an amended employmentagreement providing for his employment as the Chairman of the Company throughSeptember 1, 2003.  The base salary forMr. Adams is $700,000 and his incentive compensation is 3% of operating profits(as defined in the agreement).

 

In January 1999, AGHC introduced a Key EmployeeSecurity Option Plan (“KEYSOP”) for key employees of AGHI and itssubsidiaries.  This non-qualified deferredcompensation plan allows key employees the option to contribute specificcompensation, including bonuses, incentive compensation, and phantom stockpayments to the KEYSOP.  Contributionsto the KEYSOP from AGHI employees totaled $8.9 million, $0.8 million and $3.4million in 2002, 2001 and 2000, respectively.

 

In January 1992, the Company introduced a phantomstock incentive program for key employees.  Since that time, certain employees have been granted awards atvarious interest levels and over varying vesting periods.  The value of the phantom stock interest isbased on the increase in the value of the Company over the base value at theaward date.  In accordance with theformula set forth in the agreements, which formula approximates a multiple ofoperating profits and is intended to approximate the fair market value of theCompany, earned incentives are paid in three annual installments following theearlier of (a) termination of employment, (b) sale of the Company, or (c) fiveyears after the initial grant of the phantom stock interest.  The phantom stock agreements also set forththe terms of employment for the executive.

 

The following table sets forth the current awards outstanding under theCompany’s phantom stock incentive program as of December 31, 2002.  As of December 31, 2002, the aggregateaccrued liability under this program was approximately $7.6 million, of which$1.4 million has been reflected as current in the financial statements.

 
| **Officer/Director** |   | **Full  Interest** |   | **Vested  Amount** |   |
|----------------------|--------|--------------------|--------|--------------------|--------|
| Joe McAdams          |   | 2.50               | %      | 2.50               | %      |
| Mike Schneider       |   | 1.80               | %      | 1.80               | %      |
| Mark Boggess         |   | 1.30               | %      | 1.30               | %      |
| Murray S. Coker      |   | 1.00               | %      | 0.96               | %      |
| All Other Employees  |   | 0.30               | %      | 0.24               | %      |

 

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In addition, Mark T. Gilman was granted a phantom stock interest withCamping World, Inc., a subsidiary of AGI. Under the terms of the agreement Mr. Gilman was granted a phantom stockinterest ranging from twelve (12%) percent of Company Value (as defined in thePhantom Stock Agreement) to twenty (20%) percent of Company Value.  This interest may be allocated to othermembers of the management team, at Mr. Gilman’s discretion, for the purpose ofmaximizing the incentives that the phantom stock interests are intended toprovide.  Mr. Gilman’s stock interestsvest immediately, but phantom stock interests allocated to members of themanagement team will vest at the rate of 20% per year of service.  The value of such phantom interests arebased on the increase in the value of such subsidiary and are based on formulasthat are intended to approximate the fair market value of the subsidiary.

 

The executive’s base salary and annual bonus are determined from timeto time by the Board of Directors.  Inthe event the executive’s employment is terminated without cause, the phantomstock agreements provide for severance benefits of up to one year’s base salaryplus the accrued bonus for the year in which such termination occurs.

 

**CompensationCommittee Interlock and Insider Participation**

 

The Company’s Board of Directors determines the compensation of theexecutive officers.  The executiveofficers of the Company that serve on the Board of Directors are Stephen Adams,Joe McAdams and Mark T. Gilman.

 

Stephen Adams, the Chairman and adirector of the Company, has an amended employment agreement with AGI throughSeptember 1, 2003 under which Mr. Adams receives a base salary of $700,000 plusincentive compensation of 3% of operating profits (as defined).

 

Joe McAdams, the President andChief Executive Officer and a director of the Company, has phantom stockagreements with AGI pursuant to which Mr. McAdams holds a 2.5% phantomstock interest which is fully vested.

 

Pursuant to the managementincentive agreement which the Company entered into with Mr. Donnelly andMr. Coker at the time of the acquisition of Camping World in 1997, the Companyagreed, subject to Camping World achieving certain operating goals, to pay upto $6.6 million and $1.2 million to Mr. Donnelly and Mr. Coker,respectively, over the subsequent five years. On April 2, 2002, Mr. Donnelly and Mr. Coker received the remainingbalance due under the management incentive agreement of $4.84 million and $0.9million, respectively.

 

Messrs. Garvin, McAdams,Donnelly, Boggess, Coker and Blumer are partners in various partnerships thatlease nine facilities under long-term leases to Camping World.  For the years ended December 31, 2002, 2001and 2000, payments under these leases were approximately $3.54 million, $3.50million and $2.59 million, respectively. The leases expire during the period December 2005 and December 2015,subject to the right of Camping World to exercise renewal options.  The Company believes that such leasescontain lease terms as favorable as lease terms that would be obtained fromindependent third parties.

 

On December 5, 2001, the Companysold eleven real estate properties to eleven separate wholly-owned subsidiariesof AGRP Holding Corp., a wholly-owned subsidiary of the Company’s parent, AGIHolding Corp., for $52.3 million in cash and a note receivable.  The properties have been leased back to theCompany on a triple net basis.  Both thesales price and lease rates were based on market rates determined by third partyindependent appraisers engaged by the mortgage lender and approved by the

 

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AGI Senior Credit Facility agentbank.  These leases have an initial termof 25 to 27 years with two five-year options at the then current market rent*. *Payments under these leases were$0.2 million in 2001.

 

John Ehlert, a director of theCompany, is a partner in a partnership that leased a research facility to theCompany’s publishing business under a long-term lease.  For the year ended December 31, 2001and 2000, the rental payments for such facility were $38,329 and $46,610,respectively.  The lease expired inOctober 2001 and was not renewed.

 

**BonusPlan**

 

The Company annually adopts bonus programs for employees, includingexecutive officers other than Mr. Adams. Bonus payments are made based on achievement of specified operatingresults and/or objectives.

 

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

 

The Company sponsors a deferred savings and profit sharing plan (the“401(k) Plan”) qualified under Section 401(a) and 401(k) of the InternalRevenue Codes of 1986, as amended (the “Code”).  All employees over age 21 who have completed one year of service(minimum of 1,000 hours) are eligible to participate in the 401(k) Plan.  Eligible employees may contribute up to 15%of their salary subject to an annual maximum established under the Code.  For the plan year January 1, 2002 throughDecember 31, 2002, the Company elected a Safe Harbor Matching Contribution forthe employer match and set the employer match, which vests upon contribution,at an amount equal to 100% of the first 4% of the employee’s contribution.  Also, commencing January 1, 2002, eligibleparticipants were permitted to make catch-up pre-tax contributions inaccordance with the maximum amount set by the Internal Revenue Code.  Catch-up contributions are not eligible forthe employer match program.

 

**OtherBenefit Plan**

 

Company employees receive certain medical and dental benefits duringtheir employment.  A predecessor to theCompany also provided eligible employees with medical, dental and lifeinsurance coverage after retirement. The estimated future costs associated with such coverage to retirees arereserved as a liability in the Company’s consolidated financialstatements.  Current employees are notprovided medical and dental benefits upon retirement.

 

**DirectorCompensation**

 

The Company pays directors who are not employees (Messrs. Boysen,Ehlert, Frith-Smith, Garvin and Parker) director fees of $1,800 per month.

 

**Reporton Executive Compensation**

 

The Company’s Board of Directors determines the compensation of theexecutive officers.  The base salary andbonus for Stephen Adams is established pursuant to the employment agreementdescribed under the caption entitled “Agreements with Executive Officers.”  The agreement was approved when Mr. Adamswas the sole director of the Company because it was determined to be in thebest interests of the Company to assure continuity of management.  For the other executive officers, basesalaries are set at levels which are believed to be reasonably competitive withthe salary level of executives in comparable companies, including membershipservices companies and other highly leveraged companies with comparableoperating income, except that the base salary for Joe McAdams, the Presidentand Chief Executive Officer, is lower than the comparable companies because theprimary source of his

 

64

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compensation is through the bonus program.  The executive officers, including Mr. McAdams, receive bonusesbased on their respective assigned percentage of operating income of theCompany or the operations in which the executive is employed.  The percentage assigned to each executiveofficer depends upon the level of his responsibilities or, in the case of Mr.Adams, as prescribed in their respective employment agreement.

 

In addition, the executive officers, other than Mr. Adams who owns over95% of the stock of the parentcorporation, have received phantom stockgrants under the agreements described above under the caption “Agreements withExecutive Officers.”  The purpose of thephantom stock agreements is to provide the executive officers with an incentiveto enhance the long-term value of the Company with payments of the amountsearned by the executive officers provided as deferred compensation over severalyears.

 

BOARD OF DIRECTORS

 
| Stephen Adams  |   | Joe McAdams |   | Wayne Boysen    |   | David Frith-Smith |
|----------------|--------|-------------|--------|-----------------|--------|-------------------|
|           |   |        |   |            |   |              |
| Mark T. Gilman |   | John Ehlert |   | David B. Garvin |   | George Parker     |

 

**ITEM 12:         SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT**

 

The Company is a wholly-owned subsidiary of AGI Holding Corp. (“AGHC”),a privately-owned corporation.  Thefollowing table sets forth, as of December 31, 2002, certain information withrespect to the beneficial ownership of the Common Stock of AGHC by eachshareholder who is known to the Company to beneficially own more than 5% of theoutstanding shares, each executive officer and the current sole director ofAGHC, and all executive officers and directors of the Company.

 
| **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, CA93001         |   | 1,404.7                              | (2)    | 95.75                        | %      |
| Joe McAdams                                                         |   | 3.0                                       |   | 0.20                         | %      |
| Mark Boggess                                                        |   | 0.2                                       |   | 0.01                         | %      |
| All executive  officers and directors as a group  (13 persons) |   | 1,407.9                                   |   | 95.96                        | %      |

 

----

(1)  Except as otherwise indicated, thebeneficial owners have sole voting and investment power with respect to theshares in the table.

 

(2)  Does not include 50 shares owned by membersof the Adams’ family who do not reside with him and as to which Mr. Adamsdisclaims beneficial ownership.

 

65

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**ITEM 13:         CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS**

 

During the fourth quarter of 1998, the Company’s Board of Directors adopteda plan to sell the stock of Affinity Bank (“AB”), subject to regulatoryapproval, to Affinity Bank Holdings LLC (“ABH”), an affiliate of the Company,at its net book value of $17,100,000, which in the opinion of management thenapproximated market value.  The Companyreceived regulatory approval and subsequently closed the transaction effectiveSeptember 30, 1999.  In considerationfor the stock of AB, the Company’s wholly-owned subsidiary, AGHTC received17,100 shares of Series A Preferred stock of the purchaser, ABH, having a valueof $18,631,000.  In the fourth quarterof 1999, AGHTC agreed to convert and exchange the preferred stock for a CapitalNote.  The Capital Note principalbalance was equal to the preference amount of the preferred stock as of theconversion date and accrues interest at the rate of 11% per annum untilmaturity on October 14, 2014.  OnOctober 31, 2000, AGTHC sold, at face value, a $1.5 million participation inthe Capital Note to an affiliate of Mr. Adams.

 

On May 15, 2002, Mr. Adams sold his 96.1% shareholder interest in theparent company of National Alliance Insurance Company (“NAIC”) to an unrelatedthird-party insurance company.  NAIC isa regulated property and casualty insurance company domiciled in the state ofMissouri with active licenses in 39 other states.  Its principal book of business is derived by marketing insuranceto the Camping World President’s Club members. Under the terms of an exclusive marketing agreement entered intoDecember 31, 1998, the Company earns a marketing fee based upon annual premiumsreceived by NAIC from the sale of its insurance products to Camping World’sPresident’s Club members.  As part ofthe sale, the expiration date of the agreement was modified to conclude on May15, 2012.  The Company earned $1.3million in marketing fees from January 1, 2002 through the May 15, 2002 saledate.  In 2002, 2001 and 2000 feesearned by the Company under this marketing agreement totaled $3.1 million, $2.5million, and $2.5 million, respectively.

 

On December 5, 2001, the Company sold eleven real estate properties toeleven separate 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 propertieshave been leased back to the Company on a triple net basis.  These leases are classified as operatingleases and the average net annual lease payments over the lives of the leasesare $3.4 million.  Both the sales priceand lease rates were based on market rates determined by third partyindependent appraisers engaged by the mortgage lender and approved by the AGISenior Credit Facility agent bank.  Thenet cash proceeds of $47.5 million were used to payoff $2.1 million of existingmortgage financing and the balance, $45.4 million, paid down the AGI SeniorCredit Facility Term A and B loans by $19.4 million and $26.0 million,respectively.  The balance of thepurchase price, $4.8 million, is represented by a note receivable yielding 11%per annum, with monthly payments of $46,000 and a ten-year balloon.

 

In connection with the sale-leaseback transactions, Affinity GroupThrift Holding Corporation (“AGTHC”), a wholly-owned subsidiary of the Companyand an “unrestricted” subsidiary under the terms of the indenture governing theAGHI Senior Notes, sold a $15.0 million participation in the Affinity BankHoldings, Inc. Capital Notes held by AGTHC to an affiliate of Mr. Adams.  AGTHC used the net proceeds of this sale topurchase a $14.5 million Capital Note of AGRP Holding Corp.  The Capital Note accrues interest at therate of 11% per annum until maturity on December 5, 2011.  Interest is payable from time to time asdeclared by the board of directors of AGRP Holding Corp.  Interest not paid will accumulate and willbe compounded annually until paid.

 

At various dates throughout 2002, AGTHC paid $23.2 million in non-cashdividends through the Company to AGHC. These dividends consisted of the net balance of the Affinity BankHoldings, Inc.  Capital Note

 

66

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and a 100% participation in the AGRP Capital Note which had net bookvalues of $7.1 million and $16.1 million, respectively.

 

In March 2002, the Company received a royalty payment of $1.5 millionfrom 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 theCompany entered into the agreement with Recreation USA, the Company’s Chairmanbeneficially owned through entities controlled by him approximately 57% of thethen outstanding common stock of Recreation USA after taking into accountconversion and exercise of his beneficially-owned securities in RecreationUSA.  The Company is recording theroyalty payment into income in a level amount ratably over the three-year termof the license.

 

For a description of the employment, consulting, non-competition,management incentive and phantom stock agreements with the Company and personsserving as an executive officer or director of the Company see “Management -Agreements with Executive Officers” and “Management - Compensation CommitteeInterlock and Insider Participation.”

 

For a description of leases which subsidiaries of the Company have withpartnerships in which a director of the Company has a partnership interest, see“Management - Compensation Committee Interlock and Insider Participation.”

 

**ITEM 14:         CONTROL AND PROCEDURES**

 

Within 90 days prior to the filing of this Annual Report on Form 10-K,the Company carried out an evaluation, under the supervision and with theparticipation of the Company’s management, including the Company’s Presidentand Chief Executive Officer and the Company’s Vice President and ChiefFinancial Officer, of the effectiveness of the design and operation of theCompany’s disclosure controls and procedures pursuant to Regulation 13a014under the Securities Exchange Act of 1934. Based upon that evaluation, the Company’s President and Chief ExecutiveOfficer along with the Company’s Vice President and Chief Financial Officerconcluded that the Company’s disclosure controls and procedures are effectivein timely alerting them to material information relating to the Company(including its consolidated subsidiaries) required to be included in theCompany’s periodic SEC filings.  Therehave been no significant changes in the Company’s internal controls or in otherfactors that could significantly affect these controls subsequent to the datethe Company carried out its evaluation.

 

67

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**PART IV**

 

**ITEM 15:         EXHIBITS,FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K**

 
| (a) (1) |   | Consolidated financial statements are included in  Item 8 hereto.                                                        |   |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------|--------|
|    |   |                                                                                                                     |   |
| (a) (2) |   | Consolidated financial statement schedules are  included in Item 8 hereto                                                |   |
|    |   |                                                                                                                     |   |
| (a) (3) |   | Listing of Exhibits:                                                                                                     |   |
|    |   |                                                                                                                     |   |
|    |   | The exhibits required to be a part of this report  are listed in the Index to Exhibits which follows the signature page. |   |
|    |   |                                                                                                                     |   |
| (b)     |   | Reports on Form 8-K:                                                                                                     |   |
|    |   |                                                                                                                     |   |
|    |   | None                                                                                                                     |   |
|    |   |                                                                                                                     |   |
| (c)     |   | Exhibits:                                                                                                                |   |
|    |   |                                                                                                                     |   |
|    |   | Included in Item 15 (a) (3) above.                                                                                       |   |
|    |   |                                                                                                                     |   |
| (d)     |   | Financial Statement Schedules                                                                                            |   |
|    |   |                                                                                                                     |   |
|    |   | Included in Item 15 (a) (2) above.                                                                                       |   |

 

68

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) of the SecuritiesAct of 1934, the Company has duly caused this Report to be signed on its behalfby the undersigned, thereto duly authorized, in the City of Denver, State ofColorado on March 21, 2003.

 
| AFFINITY GROUP HOLDING, INC. |                      |
|------------------------------|---------------------------|
|                         |                      |
|                         |                      |
|                         |                      |
| By                           | /s/  Joe B.  McAdams |   |   |
| Joe B. McAdams               |                      |
| Chief Executive Officer      |                      |
|                              |                           |  |  |

 

Pursuant to the requirements of the Securities Act of 1934, this Reporthas been signed below by the following persons on behalf of the Company in thecapacities and on the dates indicated.

 
| /s/  Joe B.  McAdams  |   | Chief Executive Officer and Director         | March 21, 2003 |
|----------------------------|--------|----------------------------------------------|----------------|
| Joe B. McAdams             |   | (Principal Executive Officer)                |           |
|                       |   |                                         |           |
| /s/  Mark J.  Boggess |   | Senior Vice President and Chief              | March 21, 2003 |
| Mark J. Boggess            |   | Financial Officer                            |           |
|                       |   | (Principal Financial and Accounting Officer) |           |
|                       |   |                                         |           |
| *                          |   | Director                                     | March 21, 2003 |
| Stephen Adams              |   |                                         |           |
|                       |   |                                         |           |
| *                          |   | Director                                     | March 21, 2003 |
| David Frith-Smith          |   |                                         |           |
|                       |   |                                         |           |
| *                          |   | Director                                     | March 21, 2003 |
| Wayne Boysen               |   |                                         |           |

 

69

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| *               |                       | Director | March 21, 2003 |
|-----------------|----------------------------|----------|----------------|
| Mark T. Gilman  |                       |     |           |
|            |                       |     |           |
| *               |                       | Director | March 21, 2003 |
| David B. Garvin |                       |     |           |
|            |                       |     |           |
| *               |                       | Director | March 21, 2003 |
| John Elhert     |                       |     |           |
|            |                       |     |           |
| *               |                       | Director | March 21, 2003 |
| George Parker   |                       |     |           |
|            |                       |     |           |
| *By             | /s/  Mark J.  Boggess |     |           | March 21, 2003 |
|            | (Mark J. Boggess           |     |           |   |
|            | Attorney-in-Fact)          |     |           |   |

 

Mark J. Boggess, 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 GroupHolding, Inc. on behalf of each of such officers and directors in thecapacities in which the names of each appear above.

 

70

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CERTIFICATION

 

I, Joe McAdams,President and Chief Executive Officer of Affinity Group Holding, Inc., certifythat:

 

1.       I have reviewed this annual report onForm 10-K of Affinity Group Holding, Inc.;

 

2.       Based on my knowledge, this annual reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this annual report;

 

3.       Based on my knowledge, the financialstatements, and other financial information included in this annual report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this annual report;

 

4.       The registrant’s other certifyingofficers and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the registrant and we have:

 

(a)        designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this annual report isbeing prepared;

 

(b)       evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this annual report (the “Evaluation Date”); and

 

(c)        presented in this annual report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date.

 

5.       The registrant’s other certifyingofficers and I have disclosed, based on our most recent evaluation, to theregistrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent function):

 

(a)        all significant deficiencies in thedesign or operation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

(b)       any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls.

 

6.       The registrant’s other certifyingofficers and I have indicated in this annual report whether or not there weresignificant changes in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 

| Date:  March 21, 2003 |   |   |   |   | /s/  Joe McAdams |   |
|----------------------------|--------|--------|--------|--------|-----------------------|--------|
|                       |   |   |   |   | Joe  McAdams          |
|                       |   |   |   |   | President  and Chief  |
|                       |   |   |   |   | Executive  Officer    |

 

71

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CERTIFICATION

 

I, Mark J.Boggess, Vice President and Chief Financial Officer of Affinity Group Holding,Inc., certify that:

 

1.       I have reviewed this annual report onForm 10-K of Affinity Group Holding, Inc.;

 

2.       Based on my knowledge, this annual reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstancesunder which such statements were made, not misleading with respect to theperiod covered by this annual report;

 

3.       Based on my knowledge, the financialstatements, and other financial information included in this annual report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this annual report;

 

4.       The registrant’s other certifyingofficers and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the registrant and we have:

 

(a)  designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this annual report isbeing prepared;

 

(b)  evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this annual report (the “Evaluation Date”); and

 

(c)  presented in this annual report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date.

 

5.       The registrant’s other certifyingofficers and I have disclosed, based on our most recent evaluation, to theregistrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent function):

 

(a)        all significant deficiencies in thedesign or operation of internal controls which could adversely affect theregistrant’s ability to record, process, summarize and report financial dataand have identified for the registrant’s auditors any material weaknesses ininternal controls; and

 

(b)       any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls.

 

6.       The registrant’s other certifyingofficers and I have indicated in this annual report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date:  March 21, 2003 |   |   |   | /s/  Mark J. Boggess |   |
|----------------------------|--------|--------|--------|---------------------------|--------|
|                       |   |   |   | Mark  J. Boggess          |
|                       |   |   |   | Vice  President and Chief |
|                       |   |   |   | Financial Officer         |

 

72

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**AFFINITYGROUP HOLDING, INC.**

 

**EXHIBITINDEX TO ANNUAL REPORT**

**ON FORM10-K**

 

**ForFiscal Year Ended December 31, 2002**

 
| **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                                           |   |                     |
|                                                                                                                                                           |   |                                          |   |                     |
| Indenture dated  as of October 29, 1993 by and between the Company and United States Trust  Company of New York.(2)                                            |   | 4.1                                           |   |                     |
|                                                                                                                                                           |   |                                          |   |                     |
| First  Supplemental Indenture dated as of May 17, 1994, by and between Company and  United States Trust Company of New York.(5)                                |   | 4.2                                           |   |                     |
|                                                                                                                                                           |   |                                          |   |                     |
| Second  Supplemental Indenture dated as of October 11, 1994, by and between Company  and United States Trust Company of New York.(5)                           |   | 4.3                                           |   |                     |
|                                                                                                                                                           |   |                                          |   |                     |
| Third  Supplemental Indenture dated as of December 21, 1995 by and between Company  and United States Trust Company of New York.(7)                            |   | 4.3a                                          |   |                     |
|                                                                                                                                                           |   |                                          |   |                     |
| Fourth  Supplemental Indenture dated as of February 1, 1996 by and between Company  and United States Trust Company of New York.(7)                            |   | 4.3b                                          |   |                     |
|                                                                                                                                                           |   |                                          |   |                     |
| Credit Agreement  dated as of November 13, 1998 among Affinity Group, Inc., Fleet National  Bank, as agent, and the banks named therein.(10)                   |   | 4.9                                           |   |                     |
|                                                                                                                                                           |   |                                          |   |                     |
| Second Amendment  to Credit Agreement dated as of March 1, 2001 among Affinity Group, Inc.,  Fleet National Bank, as agent, and the banks named therein.(12)   |   | 4.10                                          |   |                     |
|                                                                                                                                                           |   |                                          |   |                     |
| Third Amendment  to Credit Agreement dated as of December 5, 2001 among Affinity Group, Inc.,  Fleet National Bank, as agent, and the banks named therein.(14) |   | 4.11                                          |   |                     |
|                                                                                                                                                           |   |                                          |   |                     |
| Change in  Registrant’s Accountants(16)                                                                                                                   |   | 4.12                                          |   |                     |
|                                                                                                                                                           |   |                                          |   |                     |
| Fourth Amendment  to Credit Agreement dated as of November 20, 2001 among Affinity Group, Inc.,  Fleet National Bank, as agent, and the banks named therein.   |   | 4.13                                          |   | 77                       |
|                                                                                                                                                           |   |                                          |   |                     |
| Tax Sharing  Agreement among Affinity Group Holding, Inc., Affinity Group, Inc. and its  subsidiaries.(2)                                                      |   | 10.1                                          |   |                     |
|                                                                                                                                                           |   |                                          |   |                     |
| Lease for office facilities in Denver, Colorado.(2)                                                                                                            |   | 10.3                                          |   |                     |
|                                                                                                                                                           |   |                                          |   |                     |
| Lease Agreement for office facilities in Ventura,  California(6)                                                                                               |   | 10.3a                                         |   |                     |

 

73

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| **Item**                                                                                                                                                    |   | **Regulation  S-K Exhibit  Table  Reference** |   | **Sequential  Page No.** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|--------------------------|
| Investment in  unrestricted subsidiary, assignment and assumption agreement and fourth  amendment to office facility lease in Denver, Colorado.(3)          |   | 10.4                                          |   |                     |
|                                                                                                                                                        |   |                                          |   |                     |
| Employment  Agreement dated August 1, 1993 between Stephen Adams and the Company, as  amended.(2)                                                           |   | 10.5                                          |   |                     |
|                                                                                                                                                        |   |                                          |   |                     |
| Phantom Stock  Agreement dated January 2, 1992 between Joe McAdams and the Company.(2)                                                                      |   | 10.6                                          |   |                     |
|                                                                                                                                                        |   |                                          |   |                     |
| Phantom Stock  Agreement dated January 2, 1992 between Michael Schneider and the Company.(2)                                                                |   | 10.8                                          |   |                     |
|                                                                                                                                                        |   |                                          |   |                     |
| Phantom Stock  Agreement dated January 2, 1992 between Mark J. Boggess and the Company.(2)                                                                  |   | 10.10                                         |   |                     |
|                                                                                                                                                        |   |                                          |   |                     |
| Employment  Agreement dated as of January 1, 1991 between Keith Urry and Golf Card  International Corp. as amended.(2)                                      |   | 10.12                                         |   |                     |
|                                                                                                                                                        |   |                                          |   |                     |
| Executive split-dollar life insurance agreements(3)                                                                                                         |   | 10.15                                         |   |                     |
|                                                                                                                                                        |   |                                          |   |                     |
| Indemnity  Agreement dated October 29, 1994, by and between Affinity Group, Inc. and AGI  Services, Inc.(5)                                                 |   | 10.16                                         |   |                     |
|                                                                                                                                                        |   |                                          |   |                     |
| Agreement with Cross Country Motor Club, Inc. as  amended.(2)                                                                                               |   | 10.17                                         |   |                     |
|                                                                                                                                                        |   |                                          |   |                     |
| Amendment to National General Insurance Contract  Dated January 13, 1994.(1)                                                                                |   | 10.19                                         |   |                     |
|                                                                                                                                                        |   |                                          |   |                     |
| Amendment to  Service Agreement dated March 22, 1994 by and between Affinity Group, Inc.  and National General Insurance Company.(4)                        |   | 10.20                                         |   |                     |
|                                                                                                                                                        |   |                                          |   |                     |
| 401 (k) Savings and Investment Plan.(2)                                                                                                                     |   | 10.21                                         |   |                     |
|                                                                                                                                                        |   |                                          |   |                     |
| Form of  Indemnification Agreement for persons consenting to serve as directors upon  completion of the offering and amendment thereto.(1)                  |   | 10.22                                         |   |                     |
|                                                                                                                                                        |   |                                          |   |                     |
| Phantom Stock  Amendment dated October 10, 1995 between Joe McAdams and the Company.(7)                                                                     |   | 10.24                                         |   |                     |
|                                                                                                                                                        |   |                                          |   |                     |
| Phantom Stock  Agreement dated December 19, 1995 between David Block and Affinity Road and  Travel Club, Inc., a wholly-owned subsidiary of the Company.(7) |   | 10.25                                         |   |                     |
|                                                                                                                                                        |   |                                          |   |                     |
| Agreement between Ganis Credit Corporation and the  Company dated September, 1995.(7)                                                                       |   | 10.26                                         |   |                     |
|                                                                                                                                                        |   |                                          |   |                     |
| Addendum to National General Insurance Contract  Dated January 13, 1994.(9)                                                                                 |   | 10.29                                         |   |                     |
|                                                                                                                                                        |   |                                          |   |                     |
| Agreement with Cross Country Motor Club, Inc. dated  October 10, 1997, as amended.(9)                                                                       |   | 10.30                                         |   |                     |

 

74

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| **Item**                                                                                                                                      |   | **Regulation  S-K Exhibit  Table  Reference** |   | **Sequential  Page No.** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|--------------------------|
| Stock Purchase  Agreement dated as of February 25, 1997, by and among the Shareholders of  Camping World, Inc. and Affinity Group, Inc. (8)   |   | 10.31                                         |   |                     |
|                                                                                                                                          |   |                                          |   |                     |
| Form of Phantom  Stock Agreements, between certain executives and the Company (9)                                                             |   | 10.35                                         |   |                     |
|                                                                                                                                          |   |                                          |   |                     |
| Stock Purchase  Agreement between Affinity Group Thrift Holding Corp. and Affinity Bank  Holdings LLC (11)                                    |   | 10.39                                         |   |                     |
|                                                                                                                                          |   |                                          |   |                     |
| Member Control  Agreement of Affinity Bank Holdings LLC (11)                                                                                  |   | 10.40                                         |   |                     |
|                                                                                                                                          |   |                                          |   |                     |
| Closing  Agreement between Affinity Group Thrift Holding Corp. and Affinity Bank  Holdings LLC (11)                                           |   | 10.41                                         |   |                     |
|                                                                                                                                          |   |                                          |   |                     |
| Agreement and  Escrow Instructions for Purchase of Real Estate by AGRP Holding Corp., dated  November 1, 2001 (13)                            |   | 10.44                                         |   |                     |
|                                                                                                                                          |   |                                          |   |                     |
| Participation  Agreement by and between Affinity Group Thrift Holding Corp. and the Stephen  Adams Living Trust, dated December 5, 2001. (14) |   | 10.45                                         |   |                     |
|                                                                                                                                          |   |                                          |   |                     |
| Capital Note of  AGRP Holding Corp., dated December 5, 2001. (14)                                                                             |   | 10.46                                         |   |                     |
|                                                                                                                                          |   |                                          |   |                     |
| Phantom Stock  Amendment dated December 5, 2001 between Joe McAdams and the Company (15)                                                      |   | 10.48                                         |   |                     |
|                                                                                                                                          |   |                                          |   |                     |
| Amended and  Restated Marketing Agreement, dated March 15, 2002 by and between Camping  World, Inc. and National General Insurance Company    |   | 10.49                                         |   | 88                       |
|                                                                                                                                          |   |                                          |   |                     |
| Addendums to  National General Insurance Working Agreements dated March 15, 2002                                                              |   | 10.50                                         |   | 106                      |
|                                                                                                                                          |   |                                          |   |                     |
| Addendums to  National General Insurance Service Agreements dated March 15, 2002                                                              |   | 10.51                                         |   | 110                      |
|                                                                                                                                          |   |                                          |   |                     |
| Phantom Stock  Agreement dated May 15, 2002 between Mark T. Gilman and Camping World, Inc.                                                    |   | 10.52                                         |   | 114                      |
|                                                                                                                                          |   |                                          |   |                     |
| Amendment to  Employment Agreement dated August 1, 1993 between Stephen Adams and the  Company                                                |   | 10.53                                         |   | 126                      |
|                                                                                                                                          |   |                                          |   |                     |
| Subsidiaries of  the Registrant                                                                                                               |   | 21                                            |   | 127                      |
|                                                                                                                                          |   |                                          |   |                     |
| Power of  Attorney                                                                                                                            |   | 24                                            |   | 128                      |
|                                                                                                                                          |   |                                          |   |                     |
| Certification  Pursuant to 18 U.S.C Section 1350- Joe McAdams, President and CEO of Affinity  Group Holding, Inc.                             |   | 99.1                                          |   | 130                      |
|                                                                                                                                          |   |                                          |   |                     |
| Certification  Pursuant to 18 U.S.C Section 1350- Mark J. Boggess, Vice President and CFO of  Affinity Group Holding, Inc.                    |   | 99.2                                          |   | 131                      |

 

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(1)               Filed with theCompany’s Annual Report on Form 10-K for the year ended December 31, 1993 andincorporated by reference herein.

 

(2)               Filed with theCompany’s Registration Statement No. 33-67272 and incorporated by referenceherein.

 

(3)               Filed with theCompany’s Report on Form 10-Q for the quarter ended June 30, 1994 andincorporated by reference herein.

 

(4)               Filed with theCompany’s Report on Form 10-Q for the quarter ended March 31, 1994 andincorporated by reference herein.

 

(5)               Filed with theCompany’s Annual Report on Form 10-K for the year ended December 31, 1994 andincorporated by reference herein.

 

(6)               Filed with theCompany’s Report on Form 10-Q for the quarter ended June 30, 1995 andincorporated by reference herein.

 

(7)               Filed with theCompany’s Annual Report on Form 10-K for the year ended December 31, 1995 andincorporated by reference herein.

 

(8)               Filed with theCompany’s Report on Form 8-K dated April 2, 1997 and incorporated by referenceherein.

 

(9)               Filed with theCompany’s Annual Report on Form 10-K for the year ended December 31, 1997 andincorporated by reference herein.

 

(10)         Filed with the Company’sReport on Form 8-K dated November 13, 1998 and incorporated by referenceherein.

 

(11)         Filed with the Company’sReport on Form 10-Q for the quarter ended September 30, 1999 and incorporatedby reference herein.

 

(12)         Filed with the Company’sAnnual Report on Form 10-K for the year ended December 31, 2000 andincorporated by reference herein.

 

(13)         Filed with the Company’sReport on Form 10-Q for the quarter ended September 30, 2001 and incorporatedby reference herein.

 

(14)         Filed with the Company’sReport on Form 8-K dated December 5, 2001 and incorporated by reference herein.

 

(15)         Filed with the Company’sAnnual Report on Form 10-K for the year ended December 31, 2001 andincorporated by reference herein.

 

(16)         Filed with the Company’sReport on Form 8-K dated June 27, 2002 and incorporated by reference herein.

 

A copy of any of these exhibits will be furnished at areasonable cost to any person upon receipt from such person of a writtenrequest for such exhibit.  Such requestshould be sent to Affinity Group, Inc., 64 Inverness Drive East, Englewood,Colorado  80112, Attention:  Chief Financial Officer

 

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