** **

**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, 2001    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 GROUPHOLDING, INC.**

(Exactname of registrant as specified in its charter)

 

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

 

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**SECURITIES REGISTEREDPURSUANT 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 theRegistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the Registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.

 

YES   ý    NO  o

 

Indicate the number of shares outstandingof each of the issuer’s classes of common stock, as of the latest practicabledate.

 

|                          |   | **Outstanding as of** |
|-------------------------------|--------|-----------------------|
| **Class**                     |   | **March 11, 2002**    |
| Common  stock, $.01 par value |   | 100                   |

 

**DOCUMENTS INCORPORATED BY REFERENCE:Documents Referenced on Exhibit Index**

 

 

**PART I**

 

**ITEM 1: BUSINESS**

 

**General**

 

Except where the context indicates otherwise, the term “Company”, or“AGHI” means Affinity Group Holding, Inc. and its predecessors and subsidiariesbut excludes the operations of Affinity Insurance Group (“AINS”), and AffinityBank (“AB”), which are classified as discontinued operations.

 

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 throughretail supercenters, mail order catalogs and the Internet, and(iii) subscription magazines and other publications including directories.  The Company’s affinity groups are principallycomprised of recreational vehicle owners, campers, outdoor recreationists and,to a lesser extent, golfers.  See Footnote 12 in the Notes to Consolidated Financial Statementsfor financial information about the Company’s segments.

 

At December 31, 2001, there were approximately 1.8 million dues payingmembers enrolled in the Company’s clubs, remaining level with 2000.  The paid circulation per issue of theCompany’s general circulation magazines is estimated at approximately 851,000with an aggregate readership estimated at 5.3 million at December 31,2001.  The Company believes its clubmembers have favorable demographic characteristics and comparatively highrenewal rates.  Total revenues of theCompany were $405.4 million for the year ended December 31, 2001, compared to$405.1 million for the year ended December 31, 2000, representing a 0.1%increase.

 

**BusinessStrategy**

 

The Company’s business strategy is toincrease (i) the enrollment of its clubs through internal growth andacquisitions, (ii) the sales of its products and services to club membersthrough improving 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 numberof its club members through maximizing renewals by establishing an optimal mixof channels for soliciting new members and re-acquiring inactive members.  These channels include our Internet presencethrough RV.Net.  Management believesthat the participation levels and renewal rates of club members reflect thebenefits derived from membership.  Inorder to maintain high participation rates in its clubs, the Companycontinuously evaluates member satisfaction and actively responds to changingmember preferences through the enhancement or introduction of new membershipbenefits including products and services. The Company also uses alternative channels for acquiring clubmembers.  This is achieved through the useof two separate call centers, promotion in the publication titles it owns,through the national network of Camping World Supercenters, mail order catalogsand the Internet.

 

1

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*Acquire and Develop Other AffinityGroups*

 

The Company believes that the experienceit has accumulated in managing its existing recreational affinity groups isapplicable to the management of other recreational interest organizations.  As a result, the Company conducts ongoingevaluations for developing or acquiring affinity groups for which it can buildmembership enrollment and to which it can market products and services.

 

*Increase Sales 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 President’s Club members represent a focused group of customers towhich it will market Camping World’s RV accessory merchandise.  The Company regularly studies thefeasibility of introducing new products and services.

 

Management also believes a substantialopportunity exists to expand the number of Camping World stores by developingretail partnerships with RV dealerships across North America.  By establishing Camping World storesalongside or within existing independent dealerships, an expanded number ofcustomers are provided with access to the vast array of products and servicesavailable under the Affinity Group umbrella and traffic is increased for ourdealer partners.

 

*Improve Operating Performance*

 

The Company seeks to achieve operatingefficiencies by selectively acquiring and developing recreational affinitygroups which enable the Company to increase membership enrollment and torealize cost savings.  The Company alsoseeks to enhance its importance with third party providers of products andservices by maintaining high membership enrollment levels in such programs,thereby increasing the fees it receives from such vendors.

 

*Expand Niche Recreational Publications*

 

The Company seeks to expand its presenceas a dominant publisher in select recreational niches through the introductionof new magazine formats and the acquisition of other publications in its marketor in complementary recreational market niches.  Publications in complementary niches may also provide the Companywith the opportunity to launch new membership clubs, to market its products andservices to members of new clubs and to develop other products and serviceswhich meet the special needs of such members. The Company believes overall circulation of its magazines is animportant factor in determining the amount of revenues it can obtain fromadvertisers.

 

**RV Industry**

 

The use of recreational vehicles (“RVs”)and the demand for club memberships and related products and services may beinfluenced by a number of factors including general economic conditions, theavailability and price of propane and gasoline, and the total number of RVs.  The Company believes that both the installedbase of RVs and the type of RV owned (full service vehicles excluding vanconversions) are the most important factors affecting the demand for itsmembership clubs, 

 

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merchandise, products and services.  Based on the most recent survey conducted in1997 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 8.6 million in1997 to approximately 9.7 million in 2005. The Survey also indicates that the percentage of households owning RVsduring this period will rise slightly from 9.8% to 10.2%.

 

According to the Survey, the average RVowner is 49 yearsold.  RV ownership also increases withage reaching its highest percentage level among those 55 to 64 years old. Households in this age group are projected to increase from 12.7 millionin 1997 to 17.3 million in 2005.  RVownership also is concentrated in the western United States, an area in whichthe population growth rate is expected to be greater than the national averagethrough 2005.  The Survey also indicatesthat RV ownership is associated with higher than average annual householdincome which among RV owners was approximately $47,000 per annum as compared to the nationalaverage of $37,000 per annum.

 

The average age and annual householdincome of the Company’s club members in 2001 were 57 yearsand $57,000,respectively, based on member survey data compiled by the Company.  The Company believes that the demographicprofile of its typical club member, coupled with a demographic trend towards anaging population will have a favorable impact on RV ownership and the demandfor club memberships and related 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 outdoor vacationers, and the Golf Card Club forgolf enthusiasts.  The membership clubsform a receptive audience to which the Company markets its products andservices.

 

The following table sets forth the number of members at December 31,2001, annual membership dues and average annual renewal rates during the periodof 1997 to 2001 for each club:

 
| **Membership Club**   |   | **Number of Members at December 31, 2001 (1)** |   | **Annual Fee (2)** |   | **Average Renewal Rate(3)** |    |
|-----------------------|--------|------------------------------------------------|--------|--------------------|--------|-----------------------------|---------|
| Good Sam Club         |   | 946,800                                        |   | $12 — $25     |   | 70                          | %       |
|                  |   |                                           |   |               |   |                        |    |
| Coast to Coast Club   |   | 157,200                                        |   | $80 — $90     |   | 74                          | %       |
|                  |   |                                           |   |               |   |                        |    |
| President’s Club |   | 596,500                                        |   | $15 — $20     |   | 69                          | %  |
|                  |   |                                           |   |               |   |                        |    |
| Golf Card Club        |   | 82,300                                         |   | $65 — $75     |   | 63                          | %       |

 

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(1)  Includes multi-year and lifetime members.

(2)  For a single member, subject to specialdiscounts and promotions.

(3)  Excludes members having lifetimememberships.

 

In addition to regular memberships, theCompany also sells multi-year memberships. Management believes that multi-year memberships provide severaladvantages, including the up-front receipt of dues in cash, reduced membershipcosts and a strengthened member commitment.

 

Beginning in 1992, the Company beganselling lifetime memberships for the Good Sam Club.  As of December 31, 2001, the average price for a lifetimemembership was $330 with 118,965 members registered.  Based on an actuarial analysis of thelifetime members, the Company expects the average length of a lifetimemembership to be 18 years.

 

3

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*Good Sam Club*

 

The Good Sam Club, founded in 1966, is amembership organization for owners of recreation vehicles.  The Good Sam Club is the largest RV club inNorth America with approximately 947,000 member families and over 1,900 local chapters as of December 31, 2001.  The average renewal rate for Good Sam Clubmembers was approximately 70% during the period 1997 through 2001.  The Company has focused on sellinghigher margin multi-year memberships which, among other advantages, reduces thecost of membership renewal.  At December31, 2001, 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 benefits of club memberships include:discounts for overnight stays at 1,650participating RV parks and campgrounds; discounts on the purchase of suppliesand accessories for recreation vehicles at nearly 100RV service centers; a free annual subscription to *Highways*,the club’s regular news magazine; discounts on other Company publications; triprouting and mail-forwarding; and access to products and services developed forclub members.  Based on typical usagepatterns, the Company estimates that Good Sam Club members realize estimatedannual savings from discounts of $157.

 

The Good Sam Club establishes quality standards for RV parks andcampgrounds participating in its discount program.  Campgrounds and parks participating in the Good Sam programbenefit from increased 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.

 

The following table lists the number of club members and RV parks andcampgrounds from 1997 through 2001 at which discounts for members wereavailable at December 31st of the respective year:

 
|                                                             |   | **Year Ended December 31** |
|------------------------------------------------------------------|--------|----------------------------|
|                                                             |   | **2001**                   |   | **2000** |   | **1999** |   | **1998** |   | **1997** |
| Number of Good Sam Members  (1)                                  |   | 946,800                    |   | 949,600 |   | 970,100 |   | 936,200 |   | 927,000 |
|                                                             |   |                       |   |   |   |   |   |   |   |   |
| Lifetime members included  above                                 |   | 119,000                    |   | 114,800 |   | 109,900 |   | 102,800 |   | 82,900 |
|                                                             |   |                       |   |   |   |   |   |   |   |   |
| Number of RV campgrounds  offering discounts to Good Sam members |   | 1,650                      |   | 1,747 |   | 1,775 |   | 1,682 |   | 1,697 |

 

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(1)  A member consists of ahousehold.

 

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*Coast to Coast*

 

The Coast to Coast Club operates the largest reciprocal usenetwork of private 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 most of theparticipating resorts in the Coast to Coast network subject toavailability.  At December 31, 2001,there were over 157,000 member families in the Coast to Coast Club.  Approximately 360 private RV resortsnationwide participated in the Coast to Coast reciprocal use programs as wellas a network of 624 open to the public affiliated campgrounds. These private resorts are designed primarily for RV owners, buttypically provide camping or lodging facilities, comprised of RVs, cabins, parkmodels, and condominiums.  For aninitial membership fee plus annual maintenance fees, both paid by the customerto the resort, the private resorts provide an RV site with water, sewer andelectrical hook-ups and recreational amenities, such as swimming, tennis orfishing, or proximity to theme parks or other recreational activities.  The Company has established quality criteriafor resorts to join and remain in the Coast to Coast networks.

 

For standard annual renewal dues from$79.95 for a single year membership to $189.95 for a multiple-year membership,Coast to Coast Club members receive the following benefits: discounts forovernight stays at participating resorts, hotels and campgrounds; an annualsubscription to *Coast to Coast Magazine;*the*Coast to Coast Directory*providinginformation on the participating resorts; discounts on other Companypublications, access to discount travel services; trip routing; and access toproducts and services developed for club members.

 

The Company believes that resortsparticipating in the Coast to Coast networks view access to reciprocatingmember resorts as an incentive for their customers to join their resort.  Because a majority of members of Coast toCoast Club own RVs, access to participating resorts throughout North America canbe an important complement to local resort membership.  During 2001, Coast to Coast members utilizedapproximately 750,000 nightly stays under the reciprocal use program.  Based on typical use patterns, the Companyestimates that Coast to Coast members realize estimated annual savings fromthese 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 74% during the period 1997 through 2001.

 

The following table sets forth the numberof members in Coast to Coast Club and resorts participating in the reciprocaluse program, and the number of public resorts extending discounts to Coast toCoast members at December 31st of the respective year:

 
|                                              |   | **Year Ended December 31** |
|---------------------------------------------------|--------|----------------------------|
|                                              |   | **2001**                   |   | **2000** |   | **1999** |   | **1998** |   | **1997** |
| Number of member families  in Coast to Coast Club |   | 157,200                    |   | 178,100 |   | 194,600 |   | 229,900 |   | 241,500 |
|                                              |   |                       |   |   |   |   |   |   |   |   |
| Participating private  resorts                    |   | 360                        |   | 360 |   | 400 |   | 369 |   | 387 |
| Affiliated public resorts                         |   | 624                        |   | 590 |   | 529 |   | 571 |   | 441 |

 

Membership in the Coast to Coast Club declined 11.7% from 2000 to 2001,and 34.9% from 1997 to 2001.  Thedecreasing trend in membership is due to less affiliated parks which activelysell and market the club, which in turn curtails membership.  Three major resort systems that eitherexperienced bankruptcy or left the Coast system in the past four years havedirectly impacted the Coast to Coast membership enrollment.

 

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*President’s Club*

 

Camping World’s President’s Club program, whichwas established in 1986, has grown to 596,500 members.  President’s Club memberships may initiallybe obtained for one, two or three years at a cost of $20, $35 or $50,respectively.  The average life(including renewals) of a club membership is three years and approximately 80%of club members are enrolled for one year. President’s Club members receive a 10% discount on the purchase of all ofCamping World’s merchandise and installation fees and also receive specialmailings, including newsletters and flyers offering selected products andservices at special prices.

 

The following table lists the number of President’s Club members andnumber of retail stores at year-end for 1997 through 2001 for the respectiveyear:
|                                                |   | **Year Ended December 31** |
|-----------------------------------------------------|--------|----------------------------|
|                                                |   | **2001**                   |   | **2000** |   | **1999** |   | **1998** |   | **1997** |
| Camping World’s  President’s Club Members |   | 596,500                    |   | 581,700 |   | 560,200 |   | 524,300 |   | 510,900 |
|                                                |   |                       |   |   |   |   |   |   |   |   |
| Number of stores (1)                                |   | 30                         |   | 30 |   | 30 |   | 29 |   | 27 |

 

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(1)  Includes supercenters andone 1,800 square foot retail showroom located within the Bakersfield,California distribution center.

 

*Golf Card Club*

 

The Golf Card Club, founded in 1974, had approximately 82,300 members at December31, 2001.  The major attraction formembership is the financial savings which members receive when playing at oneof over 3,300 participating golf courses located throughout the US and Canada.The annual membership fee varies with the length and type (single or double) ofmembership.  The Company believes that the participating golf coursesproviding playing privileges to club members represent the largest number ofgolf courses participating in a discount program in North America.  None of the participating golf courses areowned or operated by the Company.

 

Members of the Golf Card Club receive thefollowing benefits:  (i) minimum of tworounds annually of free or discounted golf at over 3,300affiliated golf courses, (ii) discounted vacation packages at 241“Stay and Play” resorts, (iii)one-year National Car Rental Emerald Club membership, (iv) annual subscriptionto *GolfTraveler*magazine, published four times per year, and (v) AnnualDirectory of Affiliated Courses and Resorts, (vi) One-year Great AmericanTraveler membership (hotel discount card), (vii) access to 135 localGrasshopper Clubs for tournament and social activities, (viii) opportunity toplay in Member-Guest Tournaments, and (ix) chance to test (and keep) selectgolf products.

 

Daily-fee, semi-private and privately-owned golf courses participate inthe Golf Card program.  The program isattractive to participating courses because it builds traffic and helps fillempty tee times during off-peak hours. In addition, participating courses receive promotion of their golfcourse in Golf Traveler magazine, the Annual Directory, and the club websitewww.golfcard.com.  Members also purchaseother merchandise or services when exercising their playing privileges.  In this manner, the Golf Card members tendto provide incremental revenue to the golf courses.  Based on surveys conducted by the Company, members realizesavings on green fees, ranging from $150 to $250 annually, which significantlyexceed the cost of membership.

 

The standard annual membership fee is $59for a single membership and $99 for a doublemembership.  Multi-year membershipsrange from a single two-year for $129 to a five-year double of 

 

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$479.  The average renewal rate for Golf Card Clubmembers at December 31, 2001 was approximately 63% for the period 1997 to 2001, with arenewal rate of 65%for 2001.

 

The following table lists the number ofGolf Card members, participating golf courses and “Stay and Play” resorts atDecember 31st of each respective year:

 
|                                              |   | **Year Ended December 31** |
|---------------------------------------------------|--------|----------------------------|
|                                              |   | **2001**                   |   | **2000** |   | **1999** |   | **1998** |   | **1997** |
| Number of Members in the  Golf Card Club (1)      |   | 82,300                     |   | 93,900 |   | 93,600 |   | 111,000 |   | 134,400 |
|                                              |   |                       |   |   |   |   |   |   |   |   |
| Number of Participating  Golf Courses             |   | 3,300                      |   | 3,300 |   | 3,300 |   | 3,400 |   | 3,500 |
|                                              |   |                       |   |   |   |   |   |   |   |   |
| Number of “Stay and Play”  Golf Resorts |   | 241                        |   | 251 |   | 264 |   | 300 |   | 305 |

 

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(1) A single membership counts as one member and a double membership as twomembers.

 

The decline in membership reflects increased competition from localdiscount programs and poor acquisition response rates.  During the past year, a new single pricepoint and a new direct mail acquisition package were successfully tested andwill be implemented during 2002.

 

**Membership Products and Services**

 

The Company’s 1.8 million club members form a receptive audience towhich it sells products and services targeted to the recreational interests ofits club members.  The Company promotesproducts and services which either address special needs arising in theactivities of the club members or appeal generally to persons with thedemographic characteristics of club members. The two most established products are the emergency road service (“ERS”)and the vehicle insurance programs. Most of the Company’s products and services are provided by thirdparties who pay the Company a marketing fee, with the exception of ERS wherethe Company assumes the risk of incurred claims.

 

*Emergency Road Service (ERS)*

 

The Company promotes various road service products to its existingmembership programs, as well as to non-club members.  The ERS products provide towing and roadside assistance forsubscribers with annual dues ranging from $69.95 to $99.95.  The Company developed ERS initially for GoodSam Club members in 1984.  Currently 25%of the general Good Sam Club membership is enrolled in the Good Sam ERSprogram, up 1% from the prior year.  TheCompany believes it is important to target the diversified market niches withidentifiable products that offer a range of benefits.  The Company currently markets these products through direct mail,advertising in publications, campground directories, space ads, Internet andtelemarketing.

 

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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** |
|----------------|--------|----------------------------|
|           |   | **2001**                   |   | **2000** |   | **1999** |   | **1998** |   | **1997** |
| ERS Enrollment |   | 345,100                    |   | 341,600 |   | 331,700 |   | 329,900 |   | 315,200 |

 

For the fourth year in a row, enrollment in the various ERS programshas grown through promotional and marketing efforts which have attracted newmembers and improved renewal rates. Combined enrollment in the programs has increased 3,500 members orapproximately 1% over 2000.

 

*Vehicle Insurance Programs*

 

The Company offers two vehicle insurance programs, Vehicle InsuranceProgram (“VIP”) and Motor Vehicle Program (“MVP”), to facilitate theavailability of cost-effective collision and liability insurance suitable tothe demographic characteristics and vehicle usage patterns of its various clubmembers.  At December 31, 2001, the VIPprogram had approximately 190,800 members, which represented a 17.8% and 3.1%penetration, respectively, of the Good Sam Club and Coast to Coast clubs.  During the period 1997 to 2001, the averageannual renewal rate of members participating in the VIP program was approximately91.0%.

 

The Company acquired the Motor Vehicle Program (“MVP”) in conjunctionwith the acquisition of Camping World. This program, marketed to President’s Club members, had 43,800 policiesoutstanding as of December 31, 2001. The MVP policies generated $53.0 million of written premiums during 2001from which the company recognized $2.5 million of marketing fee revenue.

 

The Company’s marketing fee is based onthe amount of written premiums.  Theinsurance providers assume all claim risks.

 

The table below sets forth the total number of policies in force, thedollar amount of written premiums paid to insurance providers, and themarketing fees generated for each year indicated:

 
|                                                     |   | **Year Ended December 31** |
|----------------------------------------------------------|--------|----------------------------|
|                                                     |   | **2001**                   |   | **2000** |   | **1999** |   | **1998** |   | **1997** |
| Total policies in force                                  |   | 234,600                    |   | 231,200 |   | 235,100 |   | 246,500 |   | 258,600 |
|                                                     |   |                       |   |   |   |   |   |   |   |   |
| Written premiums paid to  insurance providers (millions) |   | $240.4                     |   | $231.3 |   | $236.3 |   | $252.9 |   | $249.5 |
|                                                     |   |                       |   |   |   |   |   |   |   |   |
| Marketing fees (millions)                                |   | $18.0                      |   | $19.2 |   | $20.8 |   | $16.5 |   | $22.6 |

 

Management believes the increase in policies in force and premiumswritten for the period 2000 to 2001 reflects improved competitiveness from theinsurance providers, as well as new product enhancements offered to existingand new policy holders.

 

*Other Products and Services*

 

Other products and services marketed toclub members include credit cards, vehicle financing, supplemental health andlife insurance, financial services and extended vehicle warranties.  Most of these services are provided to clubmembers by third parties who pay the Company a marketing fee.

 

The RV financing program is administeredby Ganis Credit Corporation (“Ganis”). The number of Ganis RV loans to the Company’s club members increased by 80.1% from 2000 to 2001 primarily due to reduced interest rates.

 

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During 1996, the Company introduced itsextended vehicle warranty program.  TheCompany earned marketing fees of approximately $7.8million in 2001, a 36.2% increase over 2000. This program, which had 19,187 policies in force as of December 31,2001, promotes the product through direct mail marketing channels, Companymagazine print ads and retail kiosks in Camping World stores.

 

In addition, the Company is evaluatingother products and services that club 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 avariety of publications for select markets in the recreation and leisureindustry, including general circulation periodicals, club magazines,directories, and RV industry trade magazines. Revenues are recognized from the sale of advertising, subscriptions anddirect sales of some of the publications. The Company believes that the focused audience of each publication is animportant factor in attracting advertisers.

 

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

* *
|                                                     |   | **2001**        |   | **Number of Issues**    |
|----------------------------------------------------------|--------|-----------------|--------|-------------------------|
| **Publication**                                          |   | **Circulation** |   | **Published Each Year** |
| **PAID  CIRCULATION MAGAZINES:**                         |   |            |   |                    |
| American Rider                                           |   | 58,607          | (1)    | 8                       |
| ATV Sport                                                |   | 57,235          | (1)    | 8                       |
| Bowhunting World                                         |   | 86,694          | (1)    | 9                       |
| MotorHome                                                |   | 145,578         | (1)    | 12                      |
| Rider                                                    |   | 109,216         | (1)    | 12                      |
| Snow Week                                                |   | 20,213          | (1)    | 16                      |
| SnowGoer                                                 |   | 68,167          | (1)    | 6                       |
| Trailer Life                                             |   | 281,915         | (1)    | 12                      |
| Watercraft World                                         |   | 23,365          | (1)    | 9                       |
|                                                     |   |            |   |                    |
| **CONTROLLED  CIRCULATION— Business:**              |   |            |   |                    |
| Archery Business                                         |   | 11,000          | (2)    | 7                       |
| Campground Management                                    |   | 11,100          | (2)    | 12                      |
| PowerSports Business                                     |   | 11,000          | (2)    | 18                      |
| PowerSports Business Directory                           |   | 6,204           | (2)    | 3                       |
| RV Business                                              |   | 18,950          | (2)    | 12                      |
|                                                     |   |            |   |                    |
| **CONTROLLED  CIRCULATION— Consumer:**              |   |            |   |                    |
| ATV Magazine                                             |   | 236,175         | (3)    | 4                       |
| Cruising Rider                                           |   | 107,331         | (3)    | 5                       |
| PWC Magazine                                             |   | 260,080         | (3)    | 4                       |
| Snowmobile                                               |   | 549,700         | (3)    | 4                       |
| Woman Rider                                              |   | 40,000          | (3)    | 2                       |
|                                                     |   |            |   |                    |
| **FREE  DISTRIBUTION:**                                  |   |            |   |                    |
| Thunder Press— North                                |   | 26,000          | (4)    | 12                      |
| Thunder Press— East                                 |   | 15,000          | (4)    | 12                      |
| Thunder Press— West                                 |   | 44,000          | (4)    | 12                      |
| Woodall Specials                                         |   | 73,526          | (4)(5) | 1                       |
| Woodall’s Regional News Tabloids                    |   | 147,408         | (4)(5) | 12                      |
|                                                     |   |            |   |                    |
| **ANNUALS:**                                             |   |            |   |                    |
| Trailer Life Campground/RV Park & Services Directory |   | 300,000         | (1)    | 1                       |
| Trailer Life’s RV Buyers Guide                      |   | 116,000         | (1)    | 1                       |
| World Snowmobile Association                             |   | 91,184          | (4)    | 1                       |
| Woodall Buyer’s Guide                               |   | 74,500          | (1)    | 1                       |
| Woodall Campground Directory                             |   | 354,388         | (1)    | 1                       |
| Woodall Tenting Directory                                |   | 27,068          | (1)    | 1                       |
| Woodall Go & Rent... Rent & Go                   |   | 86,730          | (4)    | 1                       |
|                                                     |   |            |   |                    |
| **CLUB  MAGAZINES:**                                     |   |            |   |                    |
| Coast to Coast Magazine                                  |   | 167,221         | (6)    | 8                       |
| Golf Traveler                                            |   | 88,833          | (6)(7) | 6                       |
| Highways                                                 |   | 950,248         | (6)    | 11                      |
| RV View                                                  |   | 599,638         | (6)    | 5                       |

 

----

(1) Paid circulation, may include supplemental qualified controlled

(2) Trade publication distributed to industry-specific groups.

(3) Qualified and limited paid.

(4) Includes limited paid.

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

(6) Circulation is limited to club members and the price is included in theannual membership fee.

(7) Only one magazine is issued when two members are from the samehousehold.

 

10

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*Paid Circulation Magazines*

 

*American Rider*, introduced in November 1993, is targetedto owners and operators of Harley-Davidson motorcycles.

 

*ATV Sport* was introduced May 1998 and targets recreationaland racing sport quad riders.

 

*Bowhunting World* is the archery equipmentauthority which provides information on new equipment reviews and maintenancetechniques, and features articles which discuss ethical hunting, huntingrights, and pertinent legislative issues.

 

*MotorHome* is a monthly periodical for owners andprospective buyers of motorhomes which has been published since 1968 with apaid circulation of approximately 146,000 in 2001.  *MotorHome* features articles on subjects such as product tests,travel and tourist attractions.

 

*Rider* is a monthly magazine for motorcycletouring enthusiasts and has been published since 1974.  Each issue focuses on motorcycles,personalities, technical subjects, travel notes and other features of interestto this recreational affinity group.

 

*Snow Week* is the central source ofinformation for the competition and high–performance snowmobiling marketsegment. The publication provides timely, year–round stories on racing,performance enhancing products, technical assistance, new productintroductions, and industry general information.

 

*SnowGoer* is designed for the sport’shighly active participants and provides detailed equipment and productcritiques and maintenance tips.

 

*Trailer Life*, initially published in 1941, is theleading consumer magazine for the RV industry with a paid circulation ofapproximately 282,000 in 2001.  *Trailer Life*features articles on subjects including product tests, travel and touristattractions.

 

*Watercraft World* is targeted to avid personalwatercraft enthusiasts and provides detailed critiques of watercraft, in–depthgear and accessory evaluations, technical tips and racing information.

 

*Controlled Circulation Magazines-Business*

 

The Company publishes the following trademagazines:

 

*Archery Business* is the leading trade publicationfor archery dealers and presents a mix of industry news and trends, productreviews and sales tips designed to improve financial performance of archeryproduct dealers.

 

*Campground Management* is the leading trademagazine for the campground industry.

 

*Power Sports Business*is an industry trademagazine introduced in January 1998 which combines previously issued *SnowmobileBusiness* and *Watercraft Business* with a motorcycle andATV business section.  Distribution isto dealers servicing these industries, which in numerous cases have combinedoperations to service more than one of these segments.

 

*Powersports Directories* represent supplierdirectories for each of the ATV, snowmobile and watercraft markets.  These directories feature hundreds ofmanufacturers and suppliers of parts, services, apparel and much more- completewith detailed company information.

 

*RV Business* is the leading trade magazine coveringindustry news and trends for RV dealers,

 

11

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manufacturers, suppliers, associations andothers.

 

*Controlled Circulation Magazines-Consumer*

 

*ATV Magazine’s* first issue was published inOctober 1995. The publication is designed to reach large numbers of activeATV owners with comprehensive product information during the peak periods whenequipment is purchased.  *ATV Sport*magazine debuted in 1998.

 

*Cruising Rider* was introduced in March 1998 and targetscruiser motorcycle owners and buyers.

 

*PWC Magazine* is the complete guide for thepersonal watercraft owner and provides reviews of personal watercraft, gear andaccessories as well as information on maintenance procedures, safety tips andtravel destinations. PWC Magazine was first published in January 1995.

 

*Snowmobile* magazine delivers broad–basededitorial and snowmobile–related information to its audience of activesnowmobile enthusiasts.  The publicationincludes reviews of new machines, clothing and accessories, and articles onresponsible riding practices, snowmobiling vacation destinations and special events,and serves as the front–end medium for all snowmobile–relatedproduct promotions.

 

*Woman Rider*was introduced in 2000 and filled animportant void in motorcycle publications. Readers learn about new products from the female point of view anddiscover more about the lifestyle of motorcycling.

 

*Free Distribution Publications*

 

*Thunder Press*newspapers are published monthly in threeseparate editions to reach the country’s motorcycling public.  Thunder press is available primarily throughmotorcycle dealers.  Thistell-it-like-it-is magazine is designed for the ultra-active motorcycleenthusiast 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 thesepublications cover area campgrounds and RV dealerships, as well as new vehicleson the market and new products within the industry. The publications areprimarily distributed at campgrounds and RV parks, as well as at RV shows andstate welcome centers.

 

*Annual Publications*

 

*TrailerLife Campground/ RV Park & Services Directory*, initially published in 1972, is anannually updated directory which provides information on and ratings forapproximately 12,250 public and private campgrounds, and 1,330 RV servicecenters, including over 900touristattractions in North America along with color maps of the areas covered.  In 2001, approximately 300,000 directorieswere distributed.  The publicationfeatures Good Sam Parks that offer discounts on overnight camping fees for theCompany’s club members.  This directoryis sold by direct mail to Good Sam Club members, at RV dealerships and inbookstores.  In 2000, the Company beganissuing a version of the directory on cd-rom.

 

*World Snowmobile Association (“WSA”) Snowcross Yearbook*is mailed to thesubscribers of Snow Goer and Snow Week magazines and is available at WSA racingevents across the country.

 

12

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Snowmobile racing enthusiasts depend onthis yearbook for information on upcoming events.

 

Woodall*Campground Directory,* initially publishedin 1948, is an annual consumer directory offered in both national and regionaleditions.  In 2001, approximately354,000 directories were distributed. The Woodall directory is primarily distributed through book stores.

 

*Woodall Tenting Directory*is an annual directoryproviding information on both government and privately-owned campgrounds andthe outdoor activities and attractions that are available near them.  In 2001, approximately 27,000 directorieswere distributed, primarily through newsstands.

 

*Woodall Go & Rent... Rent & Go* is an annualcatalog providing information on where to find on-site lodging and cabinrentals at RV Parks & Campgrounds and “Over-the-Road” RV Rentals, as wellas fully equipped campsites throughout the U.S.A. and Canada.  This book features “turn-key” campingexperiences for those who want to try camping, rent a cabin, or afully-equipped campsite.  In 2001,approximately 87,000 catalogs were distributed.

 

*Club or Trade Magazines and Books*

 

Each of the Company’s membership clubs hasits own publication which provides information on club activities and events,feature stories and other articles.  TheCompany publishes *Highways* for the Good Sam Club, *Coast to Coast Magazine* forthe Coast to Coast clubs, *The Golf Traveler* for the Golf Card Club,and*RVView* for Camping World’s President’s Club.  The Company also periodically publishes books targeted for itsclub membership which address the RV lifestyle.

 

**Retail**

 

Camping World is a national specialty retailer ofmerchandise and services for RV owners. The 29 Camping World retail supercenters, which are located in 18states, accounted for approximately 66**%** of the merchandise revenues for the yearended December 31, 2001 while approximately 25% were derived from catalog andInternet sales and approximately 9% were derived from fees or non-merchandiserevenues.

 

The Company believes that Camping World’s leadingposition in the RV accessory industry results from a high level of namerecognition, an effective triple channel distribution strategy (store, catalog,and Internet), and a commitment to offer a broad selection of specialized RVproducts and services at competitive prices combined with technical assistanceand on-site installation.  CampingWorld’s supercenters offer over 8,000 SKUs, approximately 80% of which are notregularly available in general merchandise stores.  In addition, general merchandise stores do not provideinstallation or repair services for RV products, which are available at CampingWorld’s supercenters.  Products sold byCamping World include specialty-sized refrigerators, housewares and otherappliances, bedding and furniture, 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 atnumerous locations to market such products and services as vehicle insurance,extended warranty and emergency road service. Camping World supercenters are strategically located in areas where manyRV owners live or in proximity to destinations frequented by RV users.  Camping World’s supercenters are designed toprovide one-stop shopping by combining broad product selection, technicalassistance and on-site installation 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, homefurnishings, gifts, camping and sporting goods.  Camping World has developed an automated “plan-o-gram” system toprovide merchandising plans to each 

 

13

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supercenter and a minimum/maximum inventory systemfor its operations to improve fulfillment rates on key items.  Camping World believes that the volume ofmerchandise it purchases and its ability to buy direct from manufacturerstogether with the utilization of its transportation fleet and contract carriersenables Camping World to obtain merchandise at costs which compare favorably tolocal RV dealers and retailers.  CampingWorld does not enter into material long-term contracts or commitments with itsvendors.

 

**Mail Order Operations and Internet**

 

Camping World initiated its catalog operations in1967.  Camping World currently has aproprietary mailing list of approximately 2.5 million RV owners, all of whomhave made a purchase or requested a catalog from Camping World within the prior60 months.  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.

 

In 2001 Camping World implemented a new integratedcatalog management system into our existing accounting, merchandising andwarehouse management systems.  Thisproject was substantially complete on January 1, 2002.  Benefits from this system include a moreuser-friendly environment providing operational cost and customer satisfactionimprovements.

 

During 2001, Camping World distributed 12.4million catalogs, of which 10.4 million were mailed in 14 separate mailings,and the remaining 2.0 million catalogs were distributed in supercenters, atcampgrounds, and as package inserts.  In2001, Camping World processed approximately 503,000 catalog orders at anaverage net order size of $93, excluding postage and handling charges.  Camping World distributes eighthigh-quality, full-color catalogs each year: the master, a spring, fall,holiday, two sale editions and two prospecting catalogs.  Camping World also distributes specialtycatalogs directed to targeted customers in order to develop market niches.

 

The Company maintains twenty-six Internet websites, 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 addedunder these new programs represented approximately 6.3% of all newmembers.   E-mail acquisition campaignsand Internet online revenues total approximately $10.2 million in 2001.

 

 

14

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**Marketing**

 

Marketing of club memberships and related products and services isthrough direct mail, e-mail, inserts, ride-alongs, space advertisements,promotional events and telemarketing. Direct response marketing efforts account for approximately 64% of newenrollments with the remaining 36% derived from other sources.  The Company uses a variety of commerciallyavailable mailing lists of RV owners in its direct mail efforts.  Currently, the most widely used listdatabases are provided by three commercial list compilers, and direct responselists are from RV industry participants, RV consumer surveys, and proprietaryin-house lists.

 

The Publications segment solicitsadvertisements through its internal sales force and by paying commissions toadvertising agencies and independent contractors who place advertisements.  Many advertisers are repeat customers withwhom the Company has long standing relationships.

 

The Merchandise segment solicits customersthrough mail order catalogs, direct mail retail flyers, advertisements innational and regional industry publications, vendor co-op advertising programs,promotional events, President’s Club direct mailings and personal solicitationsand referrals. Camping World’s principal marketing strategy is to capitalize onits broad name recognition among RV owners.

 

The Internet is proving to be a significant, low-cost source for newclub members, subscriptions and other ancillary product sales.  The Company’s twenty-six web pages, whichare accessible through “RV.net,” are experiencing tremendous growth.  E-mail acquisition campaigns and Internetonline revenues totaled approximately $10.2 million in 2001, up 57% or $6.5million from 2000.  In addition,e-commerce page views increased 45% to 16.0 million in 2001 versus 11.0 millionin 2000.

 

**Operations**

 

*Member Services and Publications*

 

The Company’s customer service operationsare located in Denver, Colorado and Bowling Green, Kentucky.  The primary focus of these groups is tomanage the customers’ expectations and relationship with the organization.Approximately fifty percent of the calls into these centers originate from themarketing efforts of catalog mailings, membership acquisition, membershiprenewals and associated ancillary products and events.  All such efforts use toll-free numbers as aresponse mechanism.

 

The Company’s Information Technology group has developed abrowsers-based tool that enables the contact centers to have a single view of acustomer’s involvement across the Company’s multiple products andservices.  This tool has made itpossible to route calls that arrive when the Denver center is closed to theBowling Green center that operates 24 hours a day, seven days a week.  The 2002 implementation of this system isexpected to yield improved customer satisfaction and increased revenues at alower cost.

 

Camping World’s catalog and Internet operations,located at its headquarters in Bowling Green, Kentucky, are supported by thecustomer contact center in the same location. Orders are usually processed and shipped within 24 hours ofreceipt.  On average, these memberservice operations process approximately 7,300 telephone calls daily.

 

Fulfillment operations involve the processing of orders and checksprincipally received by mail.  Certainfulfillment operations are performed by third parties.  The Company’s publication operations developthe layout for publications and outsource printing to third parties.

 

15

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*Retail*

 

Camping World’s supercenters generally range insize from approximately 12,000 to 59,000 square feet.  Approximately 40% of each supercenter is devoted to a retailsales floor, a customer service area, and a technical information counter; 40%is comprised 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 of its supercenter store network while at the same timedevelop dealer partnerships across North America by establishing Camping Worldstores alongside 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.

 

**Information Support Services**

 

The Company utilizes integrated computersystems to support its membership club and publishing operations.  Comprehensive information on each member,including a profile of the purchasing activities of members, is available tocustomer service representatives when responding to member requests, and whensales representatives market the Company’s products and services.  The Company employs publishing software forpublication makeup and content and for advertising to support its publicationsoperations.  A wide-area networkfacilitates communication within and between the Company’s offices.  The Company also utilizes informationtechnology, including list segmentation and merge and purge programs, to selectprospects for direct mail solicitations and other direct marketing efforts.

 

Camping World’s management informationsystems and electronic data processing systems consist of an extensive range ofretail, mail order, financial and merchandising systems, including purchasing,inventory distribution and control, sales reporting, accounts payable andmerchandise management.  Camping World’smanagement information system includes point-of-sale registers that areequipped with bar code readers in each supercenter.  These registers are polled nightly by a central computer.  With this point-of-sale information and theinformation from Camping World’s on-line distribution centers, Camping Worldcompiles comprehensive data, including detailed sales volume and inventoryinformation by product, merchandise transfers and receipts, special orders,supply orders and returns of product purchases to vendors.  In conjunction with its nightly polling,Camping World’s central computer sends price changes to registers at the pointof sale.  The registers capturePresident’s Club member numbers and associated sales and references to specificpromotional campaigns.  Managementmonitors the performance of each supercenter and mail order operation toevaluate inventory levels, determine markdowns and analyze gross profit marginsby product.

 

Camping World’s catalog operations also utilize a computerizedmanagement system allowing on-line desktop access to information whichpreviously required manual retrieval. Screen prompts which provide product, promotional, and revenue potentialinformation have allowed Camping World to maintain high service levels duringseasonal sales peaks.  The installationof an automatic call distribution switch with scheduling software hasfacilitated more effective management of customer inquiries and reduced set-uptime for call processing.

 

16

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**Regulation**

 

The Company’s operations are subject tovarying degrees of federal, state and local regulation.  Specifically, the Company’s outboundtelemarketing, direct mail, and emergency road service programs, as well ascertain services provided by third parties, including insurance, RV Financing,and extended warranty, are currently subject to certain regulation and may besubjected to increased scrutiny in the future. The Company does not believe that such federal, state and localregulations currently have a material impact on its operations.  However, new regulatory efforts impactingthe Company’s operations may be proposed from time to time in the future at thefederal, state and local level.  Therecan be no assurance that such regulatory efforts will not have a materialadverse effect on the Company’s ability to operate its businesses or on itsresults of operations.

 

**Competition**

 

In general, the Company’s membershipclubs, retail and catalog operations and publications compete with numerousorganizations in the recreation industry for disposable income spent on leisureactivities.  By offering significantmembership benefits at a reasonable cost and actively marketing to clubmembers, the Company believes that it has been able to maintain a loyalfollowing for its membership organizations as evidenced by such clubs’ highrenewal rates.  The products andservices marketed by the Company compete with similar products and servicesoffered by other providers.  However,management believes that it is able to use the large volume of purchases by itsclub members to secure attractive pricing for the products and servicesmarketed by the Company.

 

**Employees**

 

As of December 31, 2001, the Company had1,378 full-time and 136 part-time or seasonal employees, including 7executives, 897 employees in retail operations, 364 employees in administrativeand club operations, 187 employees in publishing and advertising sales, 12employees in resort services and 47 employees in marketing.  No employees are covered by a collectivebargaining agreement.  The Companybelieves that its employee relations are good.

 

**Trademarks and Copyrights**

 

The Company owns a variety of registeredtrademarks and service marks for the names of its clubs, magazines and otherpublications.  The Company also owns thecopyrights to certain articles in its publications.  The Company believes that its trademark and copyrights havesignificant value and are important to its marketing efforts.

 

17

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**ITEM 2:  PROPERTIES**

 

The table below sets forth certain informationconcerning the Company’s properties. The leased properties generally provide for fixed monthly rentals withannual 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, warehousingfulfillment, and information system functions). |   | 60,000            |   |      |   | Leased             |   | 2029                   |
| Bowling Green, Kentucky (for its retail administrativeheadquarters  and mail order operations).        |   | 31,278            |   |      |   | Leased             |   | 2029                   |
| Bowling Green Headquarters Annex                                                                       |   | 4,100             |   |      |   | Leased             |   | 2003                   |
| Seattle, Washington                                                                                    |   | 912               |   |      |   | Leased             |   | 2002                   |
| Elkhart, Indiana                                                                                       |   | 4,076             |   |      |   | Leased             |   | 2002                   |
| Maple Grove, Minnesota                                                                                 |   | 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                   |
| 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                   |

 

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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 involvedin litigation arising in the normal course of business operations.  None of such current litigation is expected,individually or in the aggregate, to have a material adverse effect on theCompany.

 

In January 1998, certain of the Company’s subsidiaries were sued inCalifornia state court in connection with the termination by Camp Coast toCoast, Inc. 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. Both appeals are currently pending.

 

**ITEM 4:  SUBMISSION OFMATTER TO A VOTE OF SECURITY HOLDERS**

 

None.

 

19

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**PART II**

 

**ITEM 5:  MARKET FORTHE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**

 

Not Applicable

 

20

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**ITEM 6:  SELECTEDFINANCIAL DATA**

 

The selected financial data of the Company for each of the five yearsended December 31 are derived from the audited consolidated financialstatements of the Company.  The selectedfinancial data of the Company should be read in conjunction with “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” andthe Company’s Consolidated Financial Statements and the notes thereto includedelsewhere herein.

 
|                                                                                                                   |   | **Years Ended December 31,** |    |
|------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|---------|
|                                                                                                                   |   | ***(dollars in thousands)*** |    |
| **Statement of  Operations Data:**                                                                                     |   | **2001**                     |    | **2000** |   | **1999** |   | **1998** |   | **1997** |   |
| REVENUES:                                                                                                              |   |                         |    |   |   |   |   |   |   |   |   |
| Membership services                                                                                                    |   | $                            | 119,958 |   | $ | 121,393 |   | $ | 120,410 |   | $ | 116,325 |   | $ | 114,175 |   |
| Publications                                                                                                           |   | 65,150                       |    | 68,519 |   | 61,554 |   | 60,354 |   | 53,891 |   |
| Retail                                                                                                                 |   | 220,264                      |    | 215,160 |   | 204,732 |   | 186,835 |   | 136,367 |   |
|                                                                                                                   |   | 405,372                      |    | 405,072 |   | 386,696 |   | 363,514 |   | 304,433 |   |
|                                                                                                                   |   |                         |    |   |   |   |   |   |   |   |   |
| COSTS APPLICABLE TO REVENUES:                                                                                          |   |                         |    |   |   |   |   |   |   |   |   |
| Membership services                                                                                                    |   | 72,944                       |    | 77,625 |   | 73,283 |   | 71,460 |   | 62,607 |   |
| Publications                                                                                                           |   | 46,175                       |    | 46,298 |   | 40,915 |   | 42,703 |   | 36,554 |   |
| Retail                                                                                                                 |   | 148,244                      |    | 143,018 |   | 135,510 |   | 125,298 |   | 93,419 |   |
|                                                                                                                   |   | 267,363                      |    | 266,941 |   | 249,708 |   | 239,461 |   | 192,580 |   |
|                                                                                                                   |   |                         |    |   |   |   |   |   |   |   |   |
| GROSS PROFIT                                                                                                           |   | 138,009                      |    | 138,131 |   | 136,988 |   | 124,053 |   | 111,853 |   |
|                                                                                                                   |   |                         |    |   |   |   |   |   |   |   |   |
| OPERATING EXPENSES:                                                                                                    |   |                         |    |   |   |   |   |   |   |   |   |
| Selling, general and administrative                                                                                    |   | 86,050                       |    | 85,513 |   | 80,670 |   | 73,227 |   | 57,808 |   |
| Depreciation and amortization                                                                                          |   | 16,404                       |    | 16,885 |   | 16,216 |   | 14,868 |   | 13,859 |   |
|                                                                                                                   |   | 102,454                      |    | 102,398 |   | 96,886 |   | 88,095 |   | 71,667 |   |
|                                                                                                                   |   |                         |    |   |   |   |   |   |   |   |   |
| INCOME FROM OPERATIONS                                                                                                 |   | 35,555                       |    | 35,733 |   | 40,102 |   | 35,958 |   | 40,186 |   |
|                                                                                                                   |   |                         |    |   |   |   |   |   |   |   |   |
| NON-OPERATING ITEMS:                                                                                                   |   |                         |    |   |   |   |   |   |   |   |   |
| Interest expense, net                                                                                                  |   | (24,234                      | )       | (27,735 | ) | (28,543 | ) | (31,823 | ) | (27,825 | ) |
| Other non-operating (expense) income,  net                                                                             |   | (6,574                       | )       | 5 |   | (1,215 | ) | 2,501 |   | 232 |   |
|                                                                                                                   |   | (30,808)                     |    | (27,730 | ) | (29,758 | ) | (29,322 | ) | (27,593 | ) |
|                                                                                                                   |   |                         |    |   |   |   |   |   |   |   |   |
| INCOME FROM CONTINUING OPERATIONS  BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING  CHANGE |   | 4,747                        |    | 8,003 |   | 10,344 |   | 6,636 |   | 12,593 |   |
|                                                                                                                   |   |                         |    |   |   |   |   |   |   |   |   |
| INCOME TAX EXPENSE                                                                                                     |   | (4,137                       | )       | (4,700 | ) | (5,641 | ) | (4,422 | ) | (7,114 | ) |
| INCOME FROM CONTINUING OPERATIONS                                                                                      |   | 610                          |    | 3,303 |   | 4,703 |   | 2,214 |   | 5,479 |   |
| DISCONTINUED OPERATIONS:                                                                                               |   |                         |    |   |   |   |   |   |   |   |   |
| Gain (loss) from discontinued operations, net of applicable income  taxes                                              |   | —                       |    | — |   | 1,018 |   | (1,935 | ) | (1,424 | ) |
| Gain (loss) on disposal, net of applicable income taxes                                                                |   | —                       |    | — |   | 757 |   | (54 | ) | (294 | ) |
| INCOME BEFORE EXTRAORDINARY ITEM AND  CUMULATIVE EFFECT OF ACCOUNTING CHANGE                                           |   | 610                          |    | 3,303 |   | 6,478 |   | 225 |   | 3,761 |   |
|                                                                                                                   |   |                         |    |   |   |   |   |   |   |   |   |
| EXTRAORDINARY ITEM:                                                                                                    |   |                         |    |   |   |   |   |   |   |   |   |
| Loss on early extinguishment of debt,  net of applicable current income tax benefit                                    |   | (44                          | )       | — |   | — |   | (5,135 | ) | (239 | ) |
| CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR START-UP COSTS, net of  applicable current income tax benefit               |   | —                       |    | — |   | — |   | (124 | ) | — |   |
| NET INCOME (LOSS)                                                                                                      |   | $                            | 566     |   | $ | 3,303 |   | $ | 6,478 |   | $ | (5,034 | ) | $ | 3,522 |   |

 

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|                                |   | **December 31,**          |    |
|-------------------------------------|--------|---------------------------|---------|
|                                |   | *(dollars in  thousands)* |    |
| Balance Sheet Data (at period end): |   | **2001**                  |    | **2000** |   | **1999** |   | **1998** |   | **1997** |   |
| Working capital (deficiency) (1)    |   | $                         | (55,585 | ) | $ | (51,796 | ) | $ | (47,010 | ) | $ | (42,111 | ) | $ | (40,417 | ) |
| Total assets                        |   | 318,640                   |    | 371,827 |   | 377,267 |   | 496,169 |   | 388,265 |   |
| Deferred revenues and gains (2)     |   | 96,162                    |    | 89,968 |   | 90,610 |   | 88,671 |   | 79,057 |   |
| Total debt                          |   | 228,316                   |    | 285,486 |   | 293,558 |   | 305,467 |   | 294,361 |   |
| Total stockholder’s deficit    |   | (76,349                   | )       | (76,915 | ) | (74,468 | ) | (80,946 | ) | (75,912 | ) |
|                                     |        |                           |         |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1) Restated to give effect to the reclassifications of NAFE, AINS andAB as discontinued operations.  Excludesnet current assets or (liabilities) of discontinued operations in the amount of($129,596) and ($32,237) for 1998 and 1997 respectively.

(2) Deferred revenues represent cash received by the Company in advanceof the recognition of revenues in accordance with generally accepted accountingprinciples.  Deferred revenues primarilyreflect club membership dues, annual ERS fees, advances on third party creditcard fee revenues and publication subscriptions.  These revenues are recognized at the time the goods or servicesare provided or over the membership period, which averages approximately 18months.  The deferred revenue balancefor 2001 also includes a $12.0 million deferred gain from the real estatesale-leaseback transactions which occurred in December 2001.

 

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**ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

The following tables set forth the components of the statements ofoperations for the years ended December 31, 2001, 2000, and 1999 as apercentage of total revenues, and the comparison of those components fromperiod to period.  The following discussionis based on the Company’s Consolidated Financial Statements included elsewhereherein.  The Company’s revenues arederived principally from membership services, including club membership duesand marketing fees paid to the Company for services provided by third parties,from publications, including subscriptions and advertising, and from retailsales.  The Company acquired AffinityBank (“AB”) in 1995, and sold it in the fourth quarter of 1999.  The “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” discussion below excludes theoperations of AB, since it has been classified as discontinued operations.

 

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**AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES**

 

**TABLE FORPERCENTAGE COMPARISONS OF TOTAL REVENUES**

**FOR THEYEARS ENDED DECEMBER 31, 2001, 2000 AND 1999**

 
|                                                                                      |   | **Percentage of********Total Revenue** |   | **Percentage Increase/**** ****(Decrease)** |   |
|-------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|--------------------------------------------------|--------|
|                                                                                      |   |                                   |   |                                             |   |   |   | **Year 2001** |   | **Year 2000** |   |
|                                                                                      |   | **2001**                               |   | **2000**                                         |   | **1999** |   | **over 2000** |   | **over 1999** |   |
| REVENUES:                                                                                 |   |                                   |   |                                             |   |   |   |   |   |   |   |
| Membership services                                                                       |   | 29.6                                   | %      | 30.0                                             | %      | 31.1 | % | (1.2 | )% | 0.8 | % |
| Publications                                                                              |   | 16.1                                   | %      | 16.9                                             | %      | 15.9 | % | (4.9 | )% | 11.3 | % |
| Retail                                                                                    |   | 54.3                                   | %      | 53.1                                             | %      | 53.0 | % | 2.4 | % | 5.1 | % |
|                                                                                      |   | 100.0                                  | %      | 100.0                                            | %      | 100.0 | % | 0.1 | % | 4.8 | % |
|                                                                                      |   |                                   |   |                                             |   |   |   |   |   |   |   |
| COSTS APPLICABLE TO REVENUES:                                                             |   |                                   |   |                                             |   |   |   |   |   |   |   |
| Membership services                                                                       |   | 18.0                                   | %      | 19.2                                             | %      | 19.0 | % | (6.0 | )% | 5.9 | % |
| Publications                                                                              |   | 11.4                                   | %      | 11.4                                             | %      | 10.6 | % | (0.3 | )% | 13.2 | % |
| Retail                                                                                    |   | 36.6                                   | %      | 35.3                                             | %      | 35.0 | % | 3.7 | % | 5.5 | % |
|                                                                                      |   | 66.0                                   | %      | 65.9                                             | %      | 64.6 | % | 0.2 | % | 6.9 | % |
|                                                                                      |   |                                   |   |                                             |   |   |   |   |   |   |   |
| GROSS PROFIT                                                                              |   | 34.0                                   | %      | 34.1                                             | %      | 35.4 | % | (0.1 | )% | 0.8 | % |
|                                                                                      |   |                                   |   |                                             |   |   |   |   |   |   |   |
| OPERATING EXPENSES:                                                                       |   |                                   |   |                                             |   |   |   |   |   |   |   |
| Selling, general and administrative                                                       |   | 21.2                                   | %      | 21.1                                             | %      | 20.8 | % | 0.6 | % | 6.0 | % |
| Depreciation and amortization                                                             |   | 4.0                                    | %      | 4.2                                              | %      | 4.2 | % | (2.8 | )% | 4.1 | % |
|                                                                                      |   | 25.2                                   | %      | 25.3                                             | %      | 25.0 | % | 0.1 | % | 5.7 | % |
|                                                                                      |   |                                   |   |                                             |   |   |   |   |   |   |   |
| INCOME FROM OPERATIONS                                                                    |   | 8.8                                    | %      | 8.8                                              | %      | 10.4 | % | (0.5 | )% | (10.9 | )% |
|                                                                                      |   |                                   |   |                                             |   |   |   |   |   |   |   |
| NON-OPERATING ITEMS:                                                                      |   |                                   |   |                                             |   |   |   |   |   |   |   |
| Interest expense, net                                                                     |   | (6.0                                   | )%     | (6.8                                             | )%     | (7.4 | )% | (12.6 | )% | (2.8 | )% |
| Other non-operating (expense) income, net                                                 |   | (1.6                                   | )%     | —                                           |   | (0.3 | )% | 100.0 | % | 100.4 | % |
|                                                                                      |   | (7.6                                   | )%     | (6.8                                             | )%     | (7.7 | )% | 11.1 | % | (6.8 | )% |
|                                                                                      |   |                                   |   |                                             |   |   |   |   |   |   |   |
| INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND  EXTRAORDINARY ITEM             |   | 1.2                                    | %      | 2.0                                              | %      | 2.7 | % | (40.7 | )% | (22.6 | )% |
|                                                                                      |   |                                   |   |                                             |   |   |   |   |   |   |   |
| INCOME TAX EXPENSE                                                                        |   | (1.0                                   | )%     | (1.2                                             | )%     | (1.5 | )% | (12.0 | )% | (16.7 | )% |
|                                                                                      |   |                                   |   |                                             |   |   |   |   |   |   |   |
| INCOME FROM CONTINUING OPERATIONS                                                         |   | 0.2                                    | %      | 0.8                                              | %      | 1.2 | % | (81.5 | )% | (29.8 | )% |
| DISCONTINUED OPERATIONS:                                                                  |   |                                   |   |                                             |   |   |   |   |   |   |   |
| Gain from discontinued operations, net of applicable income taxes                         |   | —                                 |   | —                                           |   | 0.3 | % | — |   | (100.0 | )% |
| Gain on disposal, net of applicable income taxes                                          |   | —                                 |   | —                                           |   | 0.2 | % | — |   | (100.0 | )% |
| INCOME BEFORE EXTRAORDINARY ITEM                                                          |   | 0.2                                    | %      | 0.8                                              | %      | 1.7 | % | (81.5 | )% | (49.0 | )% |
|                                                                                      |   |                                   |   |                                             |   |   |   |   |   |   |   |
| EXTRAORDINARY ITEM:                                                                       |   |                                   |   |                                             |   |   |   |   |   |   |   |
|  Loss on early extinguishment  of debt, net of applicable current income tax benefit |   | (0.1                                   | )%     | —                                           |   | — |   | — |   | — |   |
| NET INCOME                                                                                |   | 0.1                                    | %      | 0.8                                              | %      | 1.7 | % | (82.9 | )% | (49.0 | )% |

 

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

* *

*Revenues*

 

Revenues of $405.4 million for 2001increased by approximately $0.3 million or 0.1% from the comparable period in2000.

 

Membership services revenues for 2001 of$120.0 million decreased by approximately $1.4 million or 1.2% compared to$121.4 million for 2000.  This revenuedecrease is largely attributable to a $3.6 million reduction in Coast to CoastClub membership revenue, a $1.4 million decrease in marketing fee income recognizedon sales of vehicle insurance products, and $0.8 million in reduced memberevents revenue.  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 $65.1million decreased by $3.4 million or 4.9% from $68.5 million for 2000.  This decrease is attributable to a $1.8million reduction in advertising revenue associated with the recreationalvehicle magazines, a $1.0 million reduction in annual directory and relatedproduct sales, and a $0.6 million reduction in single-copy book sales.

 

Retail revenue for 2001 of $220.3 millionincreased $5.1 million or 2.4% over 2000. This increase consisted of revenues of $4.7 million related to the March2000 asset acquisition of Camping World RV Sales, Inc. (“CWRV”) and a $0.4million increase in Camping World merchandise sales.  The increase in Camping World merchandise sales is attributableto a $1.0 million revenue increase for installation fees, service work andsupply sales, offset by a $0.3 million decrease in mail order revenue and a$0.3 million or 0.3% decrease in same store sales over 2000.

 

*Costs Applicable to Revenues*

 

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

 

Membership services costs and expenses decreased by approximately $4.7million or 6.0% to $72.9 million for 2001 compared to $77.6 million in2000.  This decrease was primarilyassociated with $2.1 million of legal defense costs recognized in 2000 inconjunction with the Travel America, Inc., et al lawsuit dismissed in October2000, plus associated insurance reimbursements of $1.5 million in 2001, and$1.8 million of reduced marketing and program costs in the Coast to CoastClub.  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 $46.2million for 2001 decreased $0.1 million or 0.3% compared to 2000.  This decrease was primarily due to $0.3million of savings realized with the implementation of an in-house prepressproduction process and reduced paper costs, and $0.6 million of reduced costsassociated with lower single copy book sales, partially offset by an $0.8million increase in annual directory production, marketing and overheadexpenses.

 

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 

 

25

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merchandise gross profit margin. The retail gross profit margin decreased by $0.1 million, to 32.7% in2001 from 33.5% in 2000 primarily due to the lower margins realized on the saleof RV vehicles in addition to increased shipping costs associated withmerchandise sales.

 

*Operating**Expenses*

 

Selling, general and administrative expenses of $86.1 million for 2001were $0.5 million or 0.6% over 2000.  Thisincrease was the result of a $1.2 million increase in retail lease expenses asa result of the sale-leaseback transactions that occurred in December 2000,partially offset by reduced retail selling, general and administrative expensesof $0.7 million.  Depreciation andamortization 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 partiallyoffset by increased 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 Continuing Operations Before Income Taxes and Extraordinary Item*

 

Income from continuing operations before income taxes and extraordinaryitem for 2001 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.

 

*Incomefrom Continuing Operations*

 

Income from continuing operations for 2001 was $0.6 million compared to$3.3 million for 2000.  This decreasewas due to the decrease in income from operations and increased non-operatingexpenses.

 

*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.

 

26

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*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 continuing operations for2001 over 2000.

 

**Year Ended December 31, 2000 Comparedwith Year Ended December 31, 1999**

* *

*Revenues*

 

Revenues of $405.1 million for 2000increased by approximately $18.4 million or 4.8% from the comparable period in1999.

 

Membership services revenues for 2000 of$121.4 million increased by approximately $1.0 million or 0.8% compared to$120.4 million for 1999.  This revenueincrease is largely attributable to $1.2 million in additional emergency roadservice revenue as a result of increased enrollment and $0.9 million inincreased member event revenue, partially offset by a $0.7 million decrease inmembership services revenue, relating primarily to reduced revenue for its golfmembership club from declining enrollment, and a net $0.4 million decrease inancillary product revenue, primarily relating to the fee income recognized onRV financing and insurance products.

 

Publications revenues for 2000 of $68.5million increased by $7.0 million or 11.3% from $61.5 million for 1999.  This is attributable to a $2.5 millionrevenue increase related to the new cd-rom version of the *Trailer Life Campground/RV Park andServices Directory* and a new customized road atlas, revenues of $2.5million associated with motorcycle titles acquired through the acquisition ofThunder Press (“TPI”) in January 2000, and a net $2.0 million increase inadvertising revenue throughout the publications.

 

Retail revenue for 2000 of $215.2 millionincreased $10.4 million or 5.1% over 1999. This increase consisted of revenues of $7.5 million related to the March2000 asset acquisition by Camping World RV Sales, Inc. (“CWRV”) of TraveltownTexas, Inc., a recreational vehicle (“RV”) dealership in San Antonio, Texasthat was subsequently moved to the Camping World retail location in NewBraunfels, Texas, and a $2.9 million or 1.4% increase in Camping Worldmerchandise sales.  The increase inCamping World merchandise sales is primarily attributable to a net $0.8 millionincrease in retail showroom sales, which includes a $3.9 million increaserelated to the addition of one new store that was partially offset by a $3.1million or 2.3% decrease in same store sales over 1999.  In addition, mail order sales increased $1.4million and installation fees and other supplies and services increased $0.7million.

 

*Costs Applicable to Revenues*

 

Costs applicable to revenues totaled$266.9 million in 2000, an increase of $17.2 million or 6.9% over 1999.

 

Membership services costs and expenses increased by approximately $4.3million or 5.9% to $77.6 million for 2000 compared to $73.3 million in1999.  This increase was due to a $2.2million increase in Coast to Coast Club expenses, primarily legal defense costsand an increase in member acquisition marketing expenses, a $1.5 millionincrease in Camping World RV Resource Center costs and President’s Clubpromotional expenses, $1.1 million of increased expenses for programenhancements related to RVSEARCH, an internet website developed to list new andused recreational vehicles for sale by both dealers and private parties,partially offset by reduced expenses of $0.5 million for the extended vehiclewarranty program.

 

Publication costs and expenses of $46.3million for 2000 increased $5.4 million or 13.2% compared 

 

27

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to 1999. This increase was primarily due to increased directory expenses relatedto the new products sold, and the newly acquired operations of TPI.

 

Retail costs applicable to revenues increased $7.5 million or 5.5% to$143.0 million due to a $6.0 million increase associated with CWRV, and a $1.5million increase in merchandise costs which was primarily attributable to the1.1% increase in merchandise sales.  Theretail gross profit margin increased by $2.9 million, to 33.5% in 2000 from33.8% in 1999.

 

*Operating**Expenses*

 

Selling, general and administrative expenses of $85.5 million for 2000were $4.8 million or 6.0% over 1999. This increase was the result of a $5.8 million increase in wage andrelated benefits, $1.3 million in additional expenses relating to CWRV, $1.0million increase in retail selling, general and administrative expensesassociated with an additional store in 2000, and an increase of $0.6 million inother selling, general and administrative expenses, partially offset by a $3.0million decrease in deferred executive compensation, and reduced Y2K computerconversion expenses of $0.9 million. Depreciation and amortization expenses of $16.9 million were $0.7million higher than in 1999.  Thisvariance was principally associated with an increase in depreciation expenseattributable to increased capital expenditures in 1999.

 

*Incomefrom Operations*

 

Income from operations of $35.7 million for 2000 decreased by $4.4million or 10.9% compared to 1999. Increased operating expenses of $5.5 million and reduced gross profitfrom membership services of $3.4 million were partially offset by increasedgross profit for the retail operations and publications operations of $2.9million and $1.6 million, respectively.

 

*Non-OperatingItems*

 

Net non-operating items for 2000 were $27.7 million compared toapproximately $29.7 million for 1999. This $2.0 million decrease was the result of a $1.2 million reduction inother non-operating items over 1999, related to a 1999 one-time expenseassociated with the reorganization of certain publications and club activities,and a $0.8 million decrease in net interest expense as a result of increasedincome on notes from affiliates partially offset by higher interest expense onoutstanding indebtedness due to a rise in interest rates.

 

*Incomefrom Continuing Operations Before Income Taxes, Extraordinary Item andCumulative Effect of Accounting Change*

 

Income from continuing operations before income taxes, extraordinaryitem and cumulative effect of accounting change in 2000 was $8.0 millioncompared to $10.3 million for 1999. This decrease was due to the decreases in income from operationsreflected above partially offset by lower net non-operating expenses.

 

*IncomeTaxes*

 

Income taxes for 2000 of $4.7 million decreased $0.9 million from1999.  The effective income tax ratesare higher than statutory rates due primarily to the amortization ofnon-deductible goodwill.

 

28

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*Incomefrom Continuing Operations*

 

Income from continuing operations for 2000 was $3.3 million compared to$4.7 million for 1999.  This decreasewas due to the decrease in income from operations that was only partiallyoffset by reduced non-operating expenses.

 

*NetIncome (Loss)*

 

The net income for 2000 was $3.3 million compared with $6.5 million for1999.  This $3.2 million unfavorablevariance resulted from a decrease of $1.4 million in income from continuingoperations for 2000 over 1999, and the $1.8 million income recognized in 1999associated with the discontinued operations of Affinity Bank.

 

**Liquidity and Capital Resources**

 

AGHI is a holding company whose primary assets are the capital stock ofAGI and Affinity Group Thrift Holding Corporation (“AGTHC”).  AGI, and its subsidiaries, provide theoperating cash flow necessary to service its debt as well as that of AGHI.  The sale of AB, AGTHC’s sole andwholly-owned subsidiary, was completed on September 30, 1999 when the stock ofAB was sold to Affinity Bank Holdings LLC, an affiliate which has beensubsequently merged into Affinity Bank Holdings, Inc. (“ABH”), and has beenreclassified as discontinued in the accompanying financial statements.

 

The Company has historically operated with aworking capital deficit.  The workingcapital deficit as of December 31, 2001 and 2000 was $55.6 million and $51.8million, respectively.  The primaryreason for the working capital deficit is the deferred revenue and gainsreported under current liabilities which was $54.9 million and $57.4 million asof December 31, 2001 and 2000, respectively. Deferred revenue is primarily comprised of cash collected for clubmemberships in advance which is deferred over the life of the membership.  The Company uses this membership revenue tolower its long-term borrowings.  TheCompany generated $19.0 million from operations in 2001 and 2000.  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 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 (The revolving credit facilitywas amended to $74.5 million on December 5, 2001).  The interest on borrowings under the AGI Credit Facility is atvariable rates based on the ratio of total cash flow to outstanding indebtedness(as defined).  Interest rates float withprime and the London Interbank Offered Rates (“LIBOR”), plus an applicablemargin ranging from 2.25% to 4.125% over the stated rates.  As of December 31, 2001, the averageinterest rates on the term loans and revolving credit facility were 5.79% and5.53%, respectively, and permitted borrowings under the undrawn revolving linewere $25.4 million.  AGI also pays acommitment fee of 0.5% per annum on the unused amount of the revolving creditline.  As of December 31, 2001, $16.46million and $23.45 million were outstanding under the Term A and B loans,respectively.  Reborrowings under theTerm Loans are not permitted.  The termloans have aggregate quarterly scheduled payments of $1.46 million in2002.  The revolving credit facilitymatures on December 31, 2004, and the Term A and Term B loans mature on June30, 2004 and June 30, 2005, respectively. The funds available under the AGI Revolving Credit line may be utilizedfor borrowings or letters of credit; however, a maximum of $5.0 million may beallocated to such letters of credit.  Asof December 31, 2001, the Company had letters of credit in the amount of $1.38million outstanding.  The AGI CreditFacility is secured by virtually all the assets and a pledge of the stock ofAGI.

 

29

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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.  Theproperties have been leased back to the Company or its subsidiaries on a triplenet basis.  Both the sales price andlease 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 2001.

 

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 maturity onDecember 5, 2011.  Interest is payablefrom time to time as declared by the board of directors of AGRP Holding Corp.  Interest not paid will accumulate and willbe compounded annually until paid.

 

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, 2001.

 

During 2001, payments under the terms of several phantom stockagreements totaled $41,000.  Additionalphantom stock payments of $1.1 million are scheduled to be made over the nexttwelve months.

 

Capital expenditures for 2001 totaled $4.5 million compared to capitalexpenditures of $9.4 million in 2000. Capital expenditures are anticipated to be approximately $5.5 millionfor 2002, primarily for Camping World supercenter equipment, continuedenhancements to membership marketing databases, computer hardware upgrades andreplacements, and computer software upgrades and enhancements.

 

 

30

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**Factors Affecting Future Performance**

 

Although increases in operating costscould adversely affect the Company’s operations, management does not believethat inflation has had a material effect on operating profit during the past severalyears.  However, fuel shortages andsubstantial increases in propane and gasoline costs could have a significantimpact on the Company’s travel-related membership services and publicationsrevenues.  Historically such events havecaused declines in advertisements but have not significantly affected clubmembership enrollment.  The Company isunable to predict at what point fluctuating fuel prices may begin to adverselyimpact revenues or cash flow.  TheCompany believes it will be able to partially offset any cost increases withprice increases to its members and certain cost reducing measures.

 

**Seasonality**

 

The Company’s cash flow is highest in thesecond half of the year due to the seasonal nature of the retail segment andmembership renewals of the Coast to Coast clubs in the fourth quarter.

 

**Critical Accounting Policies**

 

In response to the SEC’s Release No.33-8040, “Cautionary Advice Regarding Disclosure About Critical AccountingPolicy,” we identified the most critical accounting principles upon which ourfinancial status depends.  We determinedthe critical principles by considering accounting policies that involve themost complex or subjective decisions or assessments.  We identified our most critical accounting policies to be relatedto revenue recognition and intangible assets. We state these accounting policies in the notes to the consolidatedfinancial statements and at relevant sections in this management’s discussionand analysis.

 

**ITEM 7A:  QUANTITATIVEAND QUALITATIVE DISCLOSURE 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 the useof a combination of fixed and variable interest debt as well as the periodicuse of interest rate collar contracts.

 

The following analysis presents the sensitivity to the earnings of theCompany if these changes occurred at December 31, 2001.  The range of changes chosen for thisanalysis reflects the Company’s view of changes which are reasonably possibleover a one-year period.  Theseforward-looking disclosures are selective in nature and only address the potentialimpacts from financial instruments. They do not include other potential effects which could impact theCompany’s business as a result of these interest rate fluctuations.

 

*Interest Rate Sensitivity Analysis*

 

At December 31, 2001, the Company had debt, excluding capital leases,totaling $228.3 million, comprised of $87.7 million of variable rate debt and$140.6 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.

 

31

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Concentrations of credit risk with respect to trade receivables arelimited due to the number of customers comprising the Company’s customerbase.  The Company currently believesits allowance for doubtful accounts is sufficient to cover customer creditrisks.

 

**New Accounting Standards**

 

*Business Combinations and Goodwill* - SFAS No. 141,Business Combinations, and No. 142, Goodwill and Other Intangible Assets, wererecently issued.  The Company plans toadopt the standards 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.  Other than the discontinuance of goodwillamortization which was $4.8 million in 2001, the most significant unknowneffect of these standards is to determine if an impairment charge will berequired upon adoption.  Thisdetermination will be made during the first half of 2002.

 

*Accounting for Asset Retirement Obligations* - SFAS No. 143was issued in June 2001.  SFAS No. 143establishes accounting standards for recognition and measurement of a liabilityfor an asset retirement obligation and the associated asset retirementcost.  This statement is effective forfinancial statements issued for fiscal years beginning after June 15,2002.  The Company plans to adopt thisstandard on January 1, 2003.  As theCompany currently does not have any legal obligations associated with theretirement of long-lived assets within the scope of SFAS No. 143, the potentialfuture impact of this statement is not known.

 

*Accounting for the Impairment or Disposal of Long-LivedAssets* - SFAS No. 144 was issued in August 2001.  This statement addresses financial accountingand reporting of long-lived assets and for long-lived assets to be disposedof.  The provisions of this statementare effective for financial statements issued for fiscal years beginning afterDecember 15, 2001, and interim periods within those fiscal years.  The Company will adopt in this statement onJanuary 1, 2002.  The Company iscurrently evaluating the impact of SFAS No.144.

 

**Disclosure Regarding Forward LookingStatements**

 

This filing contains statements that are“forward looking statements,” and includes, among other things, discussions ofthe Company’s business strategy and expectations concerning market position,future operations, margins, profitability, liquidity and capital resources, aswell as statements concerning the integrations of acquired operations and theachievement of financial benefits and operational efficiencies in connectionwith acquisitions.  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 expectations reflected in suchforward looking statements are reasonable, it can give no assurance that suchexpectations will prove to have been correct. Generally, these statements relate to business plans or strategies,projected or anticipated benefits or other consequences of such plans orstrategies, number of acquisitions and projected or anticipated benefits fromacquisitions made by or to be made by the Company, or projections involvinganticipated revenues, expenses, earnings, levels of capital expenditures orother aspects of operating results.  Allphases of the operations of the Company are subject to a number ofuncertainties, risks and other influences, including consumer spending, fuelprices, general economic conditions, regulatory changes and competition, manyof which are outside the control of the Company, any one of which, or acombination of which, could materially affect the results of the Company’soperations and whether the forward looking statements made by the Companyultimately prove to be accurate.

 

32

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**ITEM 8:  FINANCIALSTATEMENTS AND SUPPLEMENTAL DATA**

 

**Index to Financial Statements**

* *
| Report of  Independent Public Accountants                                                                    |
|--------------------------------------------------------------------------------------------------------------|
|                                                                                                         |
| Consolidated Balance Sheets  as of December 31, 2001 and 2000                                                |
|                                                                                                         |
| Consolidated  Statements of Operations for the years ended December 31, 2001, 2000 and 1999                  |
|                                                                                                         |
| Consolidated  Statements of Stockholder’s Deficit for the years ended December 31, 2001,  2000 and 1999 |
|                                                                                                         |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999                  |
|                                                                                                         |
| Notes to  Consolidated Financial Statements                                                                  |
|                                                                                                         |
| Schedule  II — Valuation and Qualifying Accounts                                                        |

 

All other financial statement schedulesnot listed have been omitted since the required information is included in theconsolidated financial statements, the notes thereto, is not applicable, or notrequired.

 

33

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**REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS**

 

Board of Directors

Affinity Group Holding, Inc. andSubsidiaries:

 

We have audited the accompanyingconsolidated balance sheets of Affinity Group Holding, Inc. (a Delawarecorporation and wholly-owned subsidiary of AGI Holding Corp.) and Subsidiariesas of December 31, 2001 and 2000, and the related consolidated statements ofoperations, stockholder’s deficit, and cash flows for each of the three yearsin the period ended December 31, 2001. These financial statements are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance withauditing standards generally accepted in the United States.  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statementsreferred to above present fairly, in all material respects, the financialposition of Affinity Group Holding, Inc. and Subsidiaries as of December 31,2001 and 2000, and the results of their operations and their cash flows foreach of the three years in the period ended December 31, 2001 in conformitywith accounting principles generally accepted in the United States.

 

ARTHUR ANDERSEN LLP

Los Angeles, California

February 18, 2002

 

34

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**AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES**

** **

**CONSOLIDATEDBALANCE SHEETS**

**DECEMBER31, 2001 AND 2000 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)**

 
|                                                                                            |   | **2001** |    | **2000** |   |
|-------------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| **ASSETS**                                                                                      |   |     |    |     |   |
| CURRENT ASSETS:                                                                                 |   |     |    |     |   |
| Cash and cash equivalents                                                                       |   | $        | 3,180   |     | $      | 3,456 |   |
| Accounts receivable, less allowance for doubtful accounts of $1,587  in 2001 and $1,642 in 2000 |   | 20,636   |    | 24,393   |   |
| Inventories                                                                                     |   | 32,065   |    | 33,774   |   |
| Prepaid expenses and other assets                                                               |   | 10,281   |    | 9,961    |   |
| Deferred tax asset                                                                              |   | 4,985    |    | 6,558    |   |
| Total current assets                                                                            |   | 71,147   |    | 78,142   |   |
|                                                                                            |   |     |    |     |   |
| PROPERTY AND EQUIPMENT, net                                                                     |   | 18,277   |    | 67,118   |   |
| NOTES FROM AFFILIATES                                                                           |   | 30,128   |    | 23,388   |   |
| INTANGIBLE ASSETS, net                                                                          |   | 176,635  |    | 183,333  |   |
| DEFERRED TAX ASSET                                                                              |   | 18,703   |    | 14,950   |   |
| OTHER ASSETS                                                                                    |   | 3,750    |    | 4,896    |   |
|                                                                                            |   | $        | 318,640 |     | $      | 371,827 |   |
| **LIABILITIES AND STOCKHOLDER’S DEFICIT**                                                  |   |     |    |     |   |
| CURRENT LIABILITIES:                                                                            |   |     |    |     |   |
| Accounts payable                                                                                |   | $        | 17,554  |     | $      | 17,709 |   |
| Accrued interest                                                                                |   | 4,565    |    | 4,966    |   |
| Accrued income taxes                                                                            |   | 2,212    |    | 5,941    |   |
| Accrued liabilities                                                                             |   | 30,059   |    | 27,202   |   |
| Deferred revenues and gains                                                                     |   | 54,872   |    | 57,401   |   |
| Deferred tax liability                                                                          |   | 1,281    |    | 5,514    |   |
| Current portion of long-term debt                                                               |   | 16,189   |    | 11,205   |   |
| Total current liabilities                                                                       |   | 126,732  |    | 129,938  |   |
|                                                                                            |   |     |    |     |   |
| DEFERRED REVENUES AND GAINS                                                                     |   | 41,290   |    | 32,567   |   |
| LONG-TERM DEBT, net of current portion                                                          |   | 212,127  |    | 274,281  |   |
| DEFERRED TAX LIABILITY                                                                          |   | 11,737   |    | 7,939    |   |
| OTHER LONG-TERM LIABILITIES                                                                     |   | 3,103    |    | 4,017    |   |
|                                                                                            |   | 394,989  |    | 448,742  |   |
|                                                                                            |   |     |    |     |   |
| 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                                                                      |   | 12,021   |    | 12,021   |   |
| Accumulated deficit                                                                             |   | (88,371) |    | (88,937) |   |
| Total stockholder’s deficit                                                                |   | (76,349) |    | (76,915) |   |
|                                                                                            |   | $        | 318,640 |     | $      | 371,827 |   |

 

See notes to consolidated financialstatements.

 

 

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**AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES**

** **

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**FOR THEYEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN THOUSANDS)**

 
|                                                                                       |   | **2001** |    | **2000** |   | **1999** |   |
|--------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| REVENUES:                                                                                  |   |     |    |     |   |     |   |
| Membership services                                                                        |   | $        | 119,958 |     | $      | 121,393  |   | $ | 120,410 |   |
| Publications                                                                               |   | 65,150   |    | 68,519   |   | 61,554   |   |
| Retail                                                                                     |   | 220,264  |    | 215,160  |   | 204,732  |   |
|                                                                                       |   | 405,372  |    | 405,072  |   | 386,696  |   |
| COSTS APPLICABLE TO REVENUES:                                                              |   |     |    |     |   |     |   |
| Membership services                                                                        |   | 72,944   |    | 77,625   |   | 73,283   |   |
| Publications                                                                               |   | 46,175   |    | 46,298   |   | 40,915   |   |
| Retail                                                                                     |   | 148,244  |    | 143,018  |   | 135,510  |   |
|                                                                                       |   | 267,363  |    | 266,941  |   | 249,708  |   |
|                                                                                       |   |     |    |     |   |     |   |
| GROSS PROFIT                                                                               |   | 138,009  |    | 138,131  |   | 136,988  |   |
|                                                                                       |   |     |    |     |   |     |   |
| OPERATING EXPENSES:                                                                        |   |     |    |     |   |     |   |
| Selling, general and administrative                                                        |   | 86,050   |    | 85,513   |   | 80,670   |   |
| Depreciation and amortization                                                              |   | 16,404   |    | 16,885   |   | 16,216   |   |
|                                                                                       |   | 102,454  |    | 102,398  |   | 96,886   |   |
|                                                                                       |   |     |    |     |   |     |   |
| INCOME FROM OPERATIONS                                                                     |   | 35,555   |    | 35,733   |   | 40,102   |   |
| NON-OPERATING ITEMS:                                                                       |   |     |    |     |   |     |   |
| Interest expense, net                                                                      |   | (24,234  |    | (27,735  | )      | (28,543  | )      |
| Other non-operating income (expense), net                                                  |   | (6,574   | )       | 5        |   | (1,215   | )      |
|                                                                                       |   | (30,808  | )       | (27,730  | )      | (29,758  | )      |
| INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND  EXTRAORDINARY ITEM              |   | 4,747    |    | 8,003    |   | 10,344   |   |
|                                                                                       |   |     |    |     |   |     |   |
| INCOME TAX EXPENSE                                                                         |   | (4,137   | )       | (4,700   | )      | (5,641   | )      |
|                                                                                       |   |     |    |     |   |     |   |
| INCOME FROM CONTINUING OPERATIONS                                                          |   | 610      |    | 3,303    |   | 4,703    |   |
|                                                                                       |   |     |    |     |   |     |   |
| DISCONTINUED OPERATIONS:                                                                   |   |     |    |     |   |     |   |
| Gain from discontinued operations, net of applicable income tax  expense of $624           |   | —   |    | —   |   | 1,018    |   |
| Gain on disposal, net of applicable income tax expense of $267                             |   | —   |    | —   |   | 757      |   |
| INCOME  BEFORE EXTRAORDINARY  ITEM                                                    |   | 610      |    | 3,303    |   | 6,478    |   |
|                                                                                       |   |     |    |     |   |     |   |
| EXTRAORDINARY ITEM:                                                                        |   |     |    |     |   |     |   |
| Loss on early extinguishment of debt, net of applicable current  income tax benefit of $27 |   | (44      | )       | —   |   | —   |   |
| NET INCOME                                                                                 |   | $        | 566     |     | $      | 3,303    |   | $ | 6,478 |   |

 

See notes to consolidated financialstatements.

 

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**AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF STOCKHOLDER’S DEFICIT**

**FORTHE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999**

**(INTHOUSANDS, EXCEPT SHARE AMOUNTS)**

 
|                          |   |             |   |        |   | **Additional**  |   |        |   |      |    |
|-------------------------------|--------|------------------|--------|-------------|--------|-----------------|--------|-------------|--------|-----------|---------|
|                          |   | **Common Stock** |   | **Paid-in** |   | **Accumulated** |   |        |   |
|                          |   | **Shares**       |   | **Amount**  |   | **Capital**     |   | **Deficit** |   | **Total** |    |
|                          |   |             |   |        |   |            |   |        |   |      |    |
| BALANCES AT JANUARY 1, 1999   |   | 100              |   | $           | 1      |            | $      | 12,021      |   | $         | (92,968 | ) | $ | (80,946 | ) |
|                          |   |             |   |        |   |            |   |        |   |      |    |
| Net income                    |   |             |   |        |   |            |   | 6,478       |   | 6,478     |    |
| BALANCES AT DECEMBER 31, 1999 |   | 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 | ) |

 

See notes to consolidated financialstatements.

 

 

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**AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**FOR THEYEARS ENDED DECEMBER 31, 2001, 2000, AND 1999 (IN THOUSANDS)**

 
|                                                                               |   | **2001** |   | **2000** |   | **1999**   |       |
|------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|------------|------------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                                              |   |     |   |     |   |       |       |
| Net income                                                                         |   | $        | 566    |     | $      | 3,303      |       | $ | 6,478 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |   |     |   |     |   |       |       |
| Deferred tax provision (benefit)                                                   |   | (2,615   | )      | (3,557   | )      | 1,398      |       |
| Depreciation and amortization                                                      |   | 16,404   |   | 16,885   |   | 16,216     |       |
| Provision for losses on accounts receivable                                        |   | 1,904    |   | 1,563    |   | 653        |       |
| Deferred compensation                                                              |   | 300      |   | —   |   | 3,050      |       |
| Loss (gain) on sale of property and equipment                                      |   | 6,047    |   | (9       | )      | 1          |       |
| 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                                                                |   | 1,853    |   | (4,859   | )      | 2,657      |       |
| Inventories                                                                        |   | 1,709    |   | 857      |   | (1,659     | )          |
| Prepaid expenses and other assets                                                  |   | 826      |   | (316     | )      | (2,225     | )          |
| Accounts payable                                                                   |   | (155     | )      | (1,599   | )      | (708       | )          |
| Accrued and other liabilities                                                      |   | (2,487   | )      | 7,378    |   | 265        |       |
| Deferred revenues                                                                  |   | (5,873   | )      | (713     | )      | 1,939      |       |
| Net assets and liabilities of discontinued operations                              |   | —   |   | —   |   | (1,775     | )          |
| Net cash provided by operating activities                                          |   | 19,072   |   | 18,933   |   | 26,290     |       |
|                                                                               |   |     |   |     |   |       |       |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                              |   |     |   |     |   |       |       |
| Capital expenditures                                                               |   | (4,454   | )      | (9,397   | )      | (11,967    | )          |
| Net proceeds from sale of property and equipment                                   |   | 46,300   |   | 7,547    |   | 97         |       |
| Increase in intangible assets                                                      |   | (2,048   | )      | (9       | )      | (451       | )          |
| Loans receivable                                                                   |   | (1,905   | )      | (945     | )      | (712       | )          |
| Acquisitions, net of cash received                                                 |   | —   |   | (2,262   | )      | —     |       |
| Net cash provided by (used in) investing activities                                |   | 37,893   |   | (5,066   | )      | (13,033    | )          |
|                                                                               |   |     |   |     |   |       |       |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                              |   |     |   |     |   |       |       |
| Dividends paid                                                                     |   | —   |   | (5,750   | **)**  | **—** | ** ** |
| Borrowings on long-term debt                                                       |   | 99,630   |   | 99,322   |   | 86,334     |       |
| Principal payments of long-term debt                                               |   | (156,871 | )      | (108,194 | )      | (98,243    | )          |
| Net cash used in financing activities                                              |   | (57,241  | )      | (14,622  | )      | (11,909    | )          |
|                                                                               |   |     |   |     |   |       |       |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                               |   | (276     | )      | (755     | )      | 1,348      |       |
|                                                                               |   |     |   |     |   |       |       |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                     |   | 3,456    |   | 4,211    |   | 2,863      |       |
|                                                                               |   |     |   |     |   |       |       |
| CASH AND CASH EQUIVALENTS AT END OF YEAR                                           |   | $        | 3,180  |     | $      | 3,456      |       | $ | 4,211 |   |

 

38

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

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**YEARS ENDED DECEMBER 31, 2001, 2000AND 1999**

 

1.      SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

 

*Principles of Consolidation* - Theconsolidated financial statements include the accounts of Affinity GroupHolding, Inc. (“AGHI”), its wholly-owned subsidiary, Affinity Group, Inc.(“AGI”), and AGI’s subsidiaries (collectively the Company).  AGHI was formed in November 1996 and all ofthe stock of AGI was contributed to AGHI from its parent, AGI Holding Corp.(“AGHC”), formerly Affinity Group Holding, Inc., upon formation.  All significant intercompany transactionsand balances have been eliminated. Certain balances in the prior year consolidated financial statementswere reclassified to conform with current year presentation.

 

*Description of the Business* - The Company isa membership based direct marketing company which sells club memberships,products, services, and publications to selected affinity groups primarily inNorth America.  The Company markets clubmemberships, merchandise and services to RV owners, and camping and golfenthusiasts.  The Company also publishesmagazines, directories and books.

 

*Use of Estimates -  *The preparation of the Company’sconsolidated financial statements in conformity with generally acceptedaccounting principles requires the Company’s management to make estimates andassumptions that affect the amounts reported in these financial statements andaccompanying notes.  Actual resultscould differ from those estimates.

 

*Cash and Cash Equivalents* - The Companyconsiders all short-term, highly liquid investments purchased with a maturitydate of three months or less to be cash equivalents.  The carrying amount approximates fair value because of the shortmaturity of these instruments.

 

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

 

*Inventories*- Inventories arestated at lower of cost or market.  Costis determined by the last-in, first-out (“LIFO”) method for approximately 89.7%and 89.1% of the Company’s inventories at December 31, 2001 and 2000,respectively, and the first-in, first-out (“FIFO”) method for all otherinventories.  The FIFO and LIFO valuesapproximate the current market cost. Inventories consist of retail travel and leisure specialty merchandise.

 

*Property and Equipment* - Property andequipment are recorded at cost. Depreciation of property and equipment is provided using thestraight-line method over the following estimated useful lives of the assets:

 
|                    |   | **Years** |
|-------------------------|--------|-----------|
| Leasehold improvements  |   | 3-38      |
| Furniture and equipment |   | 3-12      |
| Software                |   | 3-5       |

 

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Leaseholdimprovements are amortized over their useful lives or the remaining term of therespective lease, whichever is shorter.

 

*Intangible Assets -*Intangible assetsare amortized over the following lives:

 
|                                           |   | **Years** |
|------------------------------------------------|--------|-----------|
| Goodwill                                       |   | 15-40     |
| Membership and customer  lists                 |   | 3-10      |
| Resort and golf course  agreements             |   | 4         |
| Noncompete and deferred  consulting agreements |   | 3-15      |

 

Deferredfinancing costs are amortized over the lives of the related debt agreements.

 

*Long-term Debt* - The fair valueof the Company’s long-term debt is estimated based on the quoted market pricesfor the same or similar issues or on the current rates offered for debt of thesame or similar remaining maturities. The fair value of the Company’s long-term debt was $204.9 million as ofDecember 31, 2001.

 

*Revenue Recognition - *Merchandise revenue is recognized whenproducts are sold in the retail stores, shipped for mail and Internet orders orwhen services are provided to customers.* *Membershipand Emergency Road Service (“ERS”) revenues are deferred and recognized overthe life of the membership.  Advances onthird party credit card fee revenues are deferred and recognized based 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, aredeferred 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.

 

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

 

*Accounting for Derivative Instruments and Hedging Activities*- Effective January1, 2001, the Company adopted Statement of Financial Accounting Standards(“SFAS”) No. 133, which establishes accounting and reporting standards forderivative instruments, including certain derivative instruments embedded inother 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.

 

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The adoption of SFAS 133 on January 1, 2001, resulted in a cumulativepre-tax reduction to OCI of $127,000 ($76,000 after-tax).  The Company periodically uses derivativeinstruments to manage exposures to interest rate risks.  As of December 31, 2001, 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 theseexposures.

 

*Business Combinations and Goodwill* - SFAS No. 141,Business Combinations, and No. 142, Goodwill and Other Intangible Assets, wererecently issued.  The Company plans toadopt the standards 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.  Other than the discontinuance of goodwillamortization which was $4.8 million in 2001, the most significant unknown effectof these standards is to determine if an impairment charge will be requiredupon adoption.  This determination willbe made during the first half of 2002.

 

*Accounting for Asset RetirementObligations* - SFAS No. 143 was issued in June 2001.  SFAS No. 143 establishes accountingstandards for recognition and measurement of a liability for an assetretirement obligation and the associated asset retirement cost.  This statement is effective for financialstatements issued for fiscal years beginning after June 15, 2002.  The Company plans to adopt this standard onJanuary 1, 2003.  As the Companycurrently does not have any legal obligations associated with the retirement oflong-lived assets within the scope of SFAS No. 143, the potential future impactof this statement is not known.

 

*Accounting for the Impairment or Disposalof Long-Lived Assets* - SFAS No. 144 was issued in August2001.  This statement addressesfinancial accounting and reporting of long-lived assets and for long-livedassets to be disposed of.  The provisionsof this statement are effective for financial statements issued for fiscalyears beginning after December 15, 2001, and interim periods within thosefiscal years.  The Company will adopt inthis statement on January 1, 2002.  TheCompany is currently evaluating the impact of SFAS No.144.

 

2.      PROPERTYAND EQUIPMENT

 

Property andequipment consisted of the following at December 31 (in thousands):

 
|                            |   | **2001** |   | **2000** |   |
|---------------------------------|--------|----------|--------|----------|--------|
| Land                            |   | $        | 477    |     | $      | 18,041 |   |
| Building and improvements       |   | 5,208    |   | 38,247   |   |
| Furniture and equipment         |   | 28,428   |   | 27,188   |   |
| Software                        |   | 11,204   |   | 9,367    |   |
| Systems development in progress |   | 2,275    |   | 2,300    |   |
|                            |   | 47,592   |   | 95,143   |   |
| Less: accumulated depreciation  |   | (29,315  | )      | (28,025  | )      |
|                            |   | $        | 18,277 |     | $      | 67,118 |   |

 

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3.      INTANGIBLEASSETS

 

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

 
|                                            |   | **2001** |    | **2000** |   |
|-------------------------------------------------|--------|----------|---------|----------|--------|
| Goodwill                                        |   | $        | 187,661 |     | $      | 187,572 |   |
| Membership and customer lists                   |   | 3,959    |    | 3,947    |   |
| Resort and golf course participation agreements |   | 13,540   |    | 13,568   |   |
| Noncompete and deferred consulting agreements   |   | 27,805   |    | 27,815   |   |
| Deferred financing costs                        |   | 11,743   |    | 9,882    |   |
|                                            |   | 244,708  |    | 242,784  |   |
| Less: accumulated amortization                  |   | (68,073  | )       | (59,451  | )      |
|                                            |   | $        | 176,635 |     | $      | 183,333 |   |

 

4.      ACCRUEDLIABILITIES

 

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

 
|                      |   | **2001** |   | **2000** |   |
|---------------------------|--------|----------|--------|----------|--------|
| Compensation and benefits |   | $        | 8,300  |     | $      | 7,923 |   |
| Other accruals            |   | 21,759   |   | 19,279   |   |
|                      |   | $        | 30,059 |     | $      | 27,202 |   |

 

5.      LONG-TERMDEBT

 

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

 
|                                          |   | **2001** |    | **2000** |   |
|-----------------------------------------------|--------|----------|---------|----------|--------|
| AGHI Senior Notes                             |   | $        | 130,000 |     | $      | 130,000 |   |
|                                          |   |     |    |     |   |
| Camping World management incentive obligation |   | 10,000   |    | 10,000   |   |
| AGI Revolving Credit and Term Loan Facility:  |   |     |    |     |   |
| Term A                                        |   | 16,463   |    | 48,761   |   |
| Term B                                        |   | 23,450   |    | 54,710   |   |
| Revolving credit facility                     |   | 47,725   |    | 38,750   |   |
| Other long-term obligations                   |   | 678      |    | 3,265    |   |
|                                          |   | 228,316  |    | 285,486  |   |
| Less: current portion                         |   | (16,189  | )       | (11,205  | )      |
|                                          |   | $        | 212,127 |     | $      | 274,281 |   |

 

On April 2, 1997, AGHIissued a total of $130.0 million of senior notes (“AGHI Senior Notes”).  The notes bear interest at the rate of 11%per annum with interest payable semi-annually each April 1 and October 1, andmature on April 1, 2007.  The AGHISenior Notes are redeemable, in whole or in part, at the option of the Companyany time on or after April 1, 2002, starting at a redemption price of 105.5% ofthe principal amount plus accrued interest to the redemption date.  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.

 

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On April 2, 1997, AGHIentered into management incentive agreements (“Camping World ManagementIncentive Agreements”) with certain Camping World executives pursuant to whichup to an additional $15.0 million will be paid subject to Camping Worldachieving certain operating goals.  Suchcontingent amounts will be 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 accruesinterest at the rate of 10% per annum on the unpaid balance.

 

On November 13, 1998, AGIentered into a $200.0 million revolving credit and term loan facility (“AGI RevolvingCredit and Term Loan Facility”) consisting of two term loans (“Term A” and“Term B”) aggregating $130.0 million and a revolving credit facility of $70.0million.  (The revolving credit facilitywas amended to $74.5 million on December 5, 2001.)  The interest on borrowings under the AGI Revolving Credit andTerm Loan Facility is at variable rates based on the ratio of total cash flowto outstanding indebtedness (as defined). Interest rates float with prime and the London Interbank Offered Rates(“LIBOR”), plus an applicable margin ranging from 2.25% to 4.125% over thestated rates.  As of December 31, 2001,the average interest rates on the term loans and revolving credit facility were5.79% and 5.53%, respectively, and permitted borrowings under the undrawnrevolving line were $25.4 million.  AGIalso pays a commitment fee of 0.5% per annum on the unused amount of therevolving credit line.  As of December31, 2001, $16.46 million and $23.45 million were outstanding under the Term Aand B loans, respectively.  Reborrowingsunder the Term Loans are not permitted. The term loans have aggregate quarterly scheduled payments of $1.46million in 2002.  The revolving creditfacility matures on December 31, 2004, and the Term A and Term B loans matureon June 30, 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 $5.0million may be allocated to such letters of credit.  As of December 31, 2001, the Company had letters of credit in theamount of $1.38 million outstanding. The AGI Revolving Credit and Term Loan Facility is secured by a securityinterest in virtually all the assets of AGI and its subsidiaries and a pledgeof the stock of AGI and its subsidiaries.

 

The AGI Revolving Creditand Term Loan Facility allows for, among other things, the distribution ofpayments 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.  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. Effective December 2000 and December 5, 2001, the Company amended theAGI Revolving Credit and Term Loan Facility to ensure compliance with certainof its restrictive covenants, principally minimum operating cash flow, asdefined, and the total leverage covenant. In addition, among other things, the Amendments provided for an interestrate increase on the revolving credit facility and term loans and prohibitedthe distribution by its wholly-owned subsidiary, AGI, of any excess cash flow,as defined, until total leverage ratio is less than 4.75 to 1.  The Company generated no excess cash flow,as defined, in 2001.

 

The AGHI indenturepursuant to which the AGHI Senior Notes were issued contains certain restrictivecovenants relating to, but not limited to, mergers, changes in the nature ofthe business, acquisitions, additional indebtedness, sale of assets,investments, and the payment of dividends subject to certain limitations andminimum operating covenants.  TheCompany was in compliance with all debt covenants at December 31, 2001.

 

 

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The aggregate futurematurities of long-term debt at December 31, 2001 are as follows (inthousands):   

 

| 2002       |   | $       | 16,189  |
|------------|--------|---------|---------|
| 2003       |   | 8,053   |
| 2004       |   | 52,424  |
| 2005       |   | 21,650  |
| 2006       |   | —  |
| Thereafter |   | 130,000 |
| Total      |   | $       | 228,316 |

 

6.      INCOMETAXES

 

Thecomponents of the Company’s income tax expense from continuing operations forthe year ended December 31, consisted of (in thousands):

 
|               |   | **2001** |   | **2000** |   | **1999** |   |
|--------------------|--------|----------|--------|----------|--------|----------|--------|
| Current:           |   |     |   |     |   |     |   |
| Federal            |   | $        | 5,931  |     | $      | 7,259    |   | $ | 7,075 |   |
| State              |   | 821      |   | 1,016    |   | 938      |   |
| Deferred           |   | (2,615   | )      | (3,575   | )      | (2,372   | )      |
| Income tax expense |   | $        | 4,137  |     | $      | 4,700    |   | $ | 5,641 |   |

 

Areconciliation of income tax expense from continuing operations to the federalstatutory rate for the year ended December 31, is as follows (in thousands):

 
|                                             |   | **2001** |   | **2000** |   | **1999** |   |
|--------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Income taxes computed at federal statutory rate  |   | $        | 1,662  |     | $      | 2,800    |   | $ | 3,620 |   |
| State income taxes — net of federal benefit |   | 142      |   | 240      |   | 310      |   |
| Permanent difference —                      |   |     |   |     |   |     |   |
| Amortization of goodwill                         |   | 1,643    |   | 1,660    |   | 1,529    |   |
| Other                                            |   | 690      |   | —   |   | 182      |   |
| Income tax expense                               |   | $        | 4,137  |     | $      | 4,700    |   | $ | 5,641 |   |

 

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

 
|                                            |   | **2001** |   | **2000** |   |
|-------------------------------------------------|--------|----------|--------|----------|--------|
| **Deferred tax liabilities:**                   |   |     |   |     |   |
| Accelerated depreciation                        |   | $        | — |     | $      | (1,418 | ) |
| Prepaid expenses                                |   | (2,967   | )      | (3,020   | )      |
| Intangible assets                               |   | (1,582   | )      | (1,140   | )      |
| Basis difference on building and land acquired  |   | (8,243   | )      | (7,717   | )      |
| Other                                           |   | (226     | )      | (158     | )      |
|                                            |   | (13,018  | )      | (13,453  | )      |
|                                            |   |     |   |     |   |
| **Deferred tax assets:**                        |   |     |   |     |   |
| Accelerated depreciation                        |   | 1,351    |   | —   |   |
| Intangible assets                               |   | 1,349    |   | 1,198    |   |
| Deferred revenues                               |   | 11,558   |   | 13,500   |   |
| Accrual for employee benefits and severance     |   | 1,803    |   | 1,915    |   |
| Accrual for deferred phantom stock compensation |   | 1,264    |   | 1,156    |   |
| Charitable contribution carryforward            |   | 2,836    |   | 1,418    |   |
| Tax credits                                     |   | 170      |   | 123      |   |
| Claims reserves                                 |   | 2,290    |   | 1,636    |   |
| Reserve for resort cards                        |   | 1,871    |   | 1,978    |   |
| Deferred compensation                           |   | 2,814    |   | 2,471    |   |
| Other reserves                                  |   | 1,545    |   | 1,276    |   |
|                                            |   | 28,851   |   | 26,671   |   |
| Valuation allowance                             |   | (5,163   | )      | (5,163   | )      |
| Net deferred tax asset                          |   | $        | 10,670 |     | $      | 8,055 |   |

 

The Companyand its subsidiaries are parties to a tax-sharing agreement with the Company’sparent; however, taxes are determined on a separate company basis.  As part of this tax-sharing agreement, AGHCis compensated for its usable share of separate company federal taxlosses.  As such, accrued income taxeson the balance sheet are due to AGHC. At December 31, 2001, the Company has alternative minimum tax credit(AMT) carryforwards remaining of approximately $170,000 and general charitablecontribution carryforwards attributable to a subsidiary of approximately $2.8million.

 

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7.      COMMITMENTS,CONTINGENCIES AND SALE-LEASEBACK TRANSACTIONS

 

*Leases* - The Company holds certainproperty and equipment under rental agreements and operating leases which havevarying expiration dates.  Futureminimum annual fixed rentals under operating leases having an original term ofmore than one year as of December 31, 2001 are as follows (in thousands):

 

| 2002       |   | $      | 10,814  |
|------------|--------|--------|---------|
| 2003       |   | 10,467 |
| 2004       |   | 10,377 |
| 2005       |   | 9,903  |
| 2006       |   | 8,713  |
| Thereafter |   | 95,270 |
| Total      |   | $      | 145,544 |

 

During 2001,2000 and 1999, respectively, approximately $8,428,000, $6,840,000, and$6,819,000 of rent expense was charged to costs and expenses.

 

OnDecember 5, 2001, the Company sold eleven real estate properties to elevenseparate wholly-owned subsidiaries of AGRP Holding Corp., a wholly-ownedsubsidiary of the Company’s parent, AGI Holding Corp., for $52.3 million incash and a note receivable.  Theproperties have been leased back to the Company on a triple net basis.  Both the sales price and lease rates werebased on market rates determined by third party independent appraisers engagedby the mortgage lender and approved by the AGI Senior Credit Facility agentbank.  These leases have an initial termof 25 to 27 years with two five-year options at the then current marketrent.  The leases are classified asoperating leases in accordance with SFAS No. 13 “Accounting for Leases”.  Land and buildings with a net book valuetotaling $45.8 million have been removed from the balance sheet.  The transaction resulted in a net gain of$6.1 million consisting of a $12.1 million gain on certain properties and a$6.0 million loss on other properties. In accordance with generally accepted accounting principles, the $6.0million loss has been recognized in the statement of income 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 totime, the Company is involved in litigation arising in the normal course ofbusiness operations.

 

In January 1998, certainof the Company’s subsidiaries were sued in California state court in connectionwith the termination by Camp Coast to Coast, Inc. of the participation by theplaintiffs in the Camp Coast to Coast reciprocal use program for RV resorts.  In October 2000, the trial court enteredjudgment in favor of the Company’s subsidiaries and subsequently awarded them atotal 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.  Both appeals are currently pending.

 

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8.      RELATED-PARTYTRANSACTIONS

 

Certaindirectors of the Company, including the Chairman of the Board, are partners inpartnerships and shareholders of corporations that lease facilities to theCompany under long-term leases.  Foryear ended December 31, 2001, payments under these leases were approximately$3.7 million.  Future commitments underthese leases total approximately $124.0 million.  The leases expire at various dates from December 2005 throughJuly 2029, subject to the right of the Company to exercise renewal options.

 

The Company has thefollowing notes receivable from affiliates:

 

•             OnDecember 31, 1998, the Company sold Affinity Insurance Group, Inc. (“AINS”) toAdams Insurance Holding LLC, a 

Minnesota limitedliability company wholly-owned by Stephen Adams, the Company’s Chairman, inexchange for a promissory note in the amount of $3.1 million, whichapproximated the fair market value. This note accrues interest at a per annum rate equal to the interestrate on the senior secured borrowings of AGI.

 

•             During the fourthquarter of 1998, the Company’s Board of Directors adopted a plan to sell thestock of Affinity Bank (“AB”), subject to regulatory approval, to an affiliateof the Company at its net book value, which in the opinion of managementapproximates market value.  As a result,the operations of AB are classified as a discontinued operation in theaccompanying financial statements.  TheCompany received regulatory approval to sell AB and subsequently closed thetransaction on September 30, 1999.  Inconsideration for 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 thefourth quarter of 1999, AGTHC agreed to convert and exchange the preferredstock for a Capital Note.  The CapitalNote principal balance was equal to the preference amount of the preferredstock as of the conversion date and accrues interest at the rate of 11% perannum until maturity on October 1, 2014. On October 31, 2000, AGTHC sold, at face value, a $1.5 millionparticipation in the Capital Note to an affiliate of Stephen Adams, theCompany’s Chairman.  In addition, AGTHC,although required to be consolidated with the Company, is recognized as an“unrestricted” or non-guarantying subsidiary under the terms of the AGHI SeniorNotes.

 

•             Further, onDecember 5, 2001, AGTHC sold a $15.0 million participation in the Capital Noteto an affiliate of Stephen Adams for $14,477,000.  AGTHC used the net proceeds of this sale to purchase a $14.5million Capital Note of AGRP Holding Corp., a wholly owned subsidiary of theCompany’s parent, AGHC.  The CapitalNote accrues interest at the rate of 11% per annum until maturity on December5, 2011.  Interest is payable from timeto time as declared by the Board of Directors of AGRP Holding Corp.  Interest not paid will accumulate and willbe compounded annually until paid.

 

•             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 $46,000.

 

As ofDecember 31, 2001, the Chairman had a 96.1% shareholder interest in the parentcompany of National Alliance Insurance Company (“NAIC”).  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 products to the Camping WorldPresident’s Club members.  Under theterms of an exclusive marketing agreement entered into December 31, 1998, theCompany earns a marketing fee based upon annual premiums received

 

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by NAIC fromthe sale of its insurance products to Camping World’s President’s Clubmembers.  The agreement runs throughDecember 31, 2018 or may be terminated sooner by either party after June 30,2007 with a minimum of 18 months notice. Marketing fees earned by the Company totaled $2.5 million for both 2001and 2000.  Further, an additionaldirector of AGHI also serves as director of NAIC and its parent.

 

9.      STATEMENTSOF CASH FLOWS

 

Supplementaldisclosures of cash flow information for December 31 (in thousands):

 
|                           |   | **2001** |   | **2000** |   | **1999** |   |
|--------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Cash paid during the year for: |   |     |   |     |   |     |   |
| Interest                       |   | $        | 27,197 |     | $      | 30,295   |   | $ | 29,485 |   |
| Income taxes                   |   | 9,958    |   | 3,679    |   | 4,011    |   |
|                                |        |          |        |          |        |          |        |  |  |  |

 

The Companyentered into the following non-cash investing transactions:

**2001:**

The Companyrecorded a $12.1 million deferred gain and provided a $4.8 million sellerfinancing note receivable in conjunction with the sale-leaseback transactions.

**2000:**

The Companyassumed $267,000 of liabilities and issued $800,000 of purchase debt in theacquisition of Thunder Press.

**1999:**

The Companyreceived proceeds of 17,100 shares of Series A preferred stock valued at$18,631,000 on the sale of Affinity Bank.

 

10.    BENEFITPLAN

 

The Companyhas a 401(k) deferred savings and profit sharing plan.  Employees must have attained age 21 andcompleted 1 year of service with a minimum of 1,000 hours to participate in theplan.  Employees may contribute up to15% of their salaries, and the Company matches these employee contributions atthe rate of 75%, up to 6% of the employee’s salary.  Vesting of the Company’s contribution occurs ratably over 5 yearsat which time the participants are 100% vested.  Contributions are limited to the maximum amount deductible forfederal income tax purposes during the year. The Company’s contributions to the plan totaled approximately$1,431,000, $1,380,000, and $1,273,000 for 2001, 2000, and 1999, respectively.

 

 

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11.    DEFERREDPHANTOM STOCK COMPENSATION

 

The Company has deferredcompensation agreements with certain officers. The agreements provide for payment to the officers upon theirtermination, death, disability, or sale of the Company.  Deferred compensation is included in otherlong-term liabilities as if fully vested. Deferred compensation to be paid in 2002 has been classified in currentliabilities.  This deferred compensationis subject to vesting under the terms of the individual agreements.  Vesting periods range from 20% per year overa five-year period to immediate vesting upon entering an agreement.

 

12.    SEGMENTINFORMATION

 

The Company’s threeprincipal lines of business are Membership Services, Publications, andRetail.  The Membership Services segmentoperates the Good Sam Club, Coast to Coast Club, and Camping World’sPresident’s Club for RV owners, campers and outdoor vacationers, and the GolfCard Club for golf enthusiasts.  Thesemembership clubs form a receptive audience to which the Company markets itsproducts and services.  The Publicationssegment publishes a variety of publications for selected markets in the recreationand leisure industry, including general circulation periodicals, clubmagazines, directories and RV industry trade magazines.  The Retail segment sells specialty retailmerchandise and services for RV owners primarily through retail supercentersand mail order catalogs.  The Companyevaluates performance based on profit or loss from operations before incometaxes.

 

The reportable segmentsare strategic business units that offer different products and services.  They are managed separately because each businessrequires different technology, management expertise and marketingstrategies.  Most of the businesses wereacquired as a unit, and the management at the time of acquisition was retained.

 

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The Company does notallocate income taxes or unusual items to segments.  Financial information by reportable business segment issummarized as follows (in thousands):

 
|                                          |   | **Membership  Services** |    | **Publications** |   | **Retail** |   | **Consolidated** |    |
|-----------------------------------------------|--------|--------------------------|---------|------------------|--------|------------|--------|------------------|---------|
| **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               |   | 1,476                    |    | 78               |   | 2,498      |   | 4,052            |    |
|                                          |   |                     |    |             |   |       |   |             |    |
| **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            |    |
|                                          |   |                     |    |             |   |       |   |             |    |
|                                          |   | **Membership  Services** |    | **Publications** |   | **Retail** |   | **Consolidated** |    |
| **YEAR  ENDED DECEMBER 31, 1999**             |   |                     |    |             |   |       |   |             |    |
| Revenues from external customers              |   | $                        | 120,410 |             | $      | 61,554     |   | $                | 204,732 |   | $ | 386,696 |   |
| Gain/(loss) on sale of property and equipment |   | (26                      | )       | —           |   | 12         |   | (14              | )       |
| Interest income                               |   | 3                        |    | 7                |   | 39         |   | 49               |    |
| Interest expense                              |   | —                   |    | 2,790            |   | 12,805     |   | 15,595           |    |
| Depreciation and amortization                 |   | 4,585                    |    | 1,190            |   | 6,625      |   | 12,400           |    |
| Segment profit (loss)                         |   | 31,436                   |    | 12,931           |   | (947       | )      | 43,420           |    |
| Segment assets                                |   | 80,137                   |    | 72,819           |   | 154,046    |   | 307,002          |    |
| Expenditures for segment assets               |   | 1,784                    |    | 331              |   | 8,851      |   | 10,966           |    |

 

50

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The followingis a summary of the reconciliations of reportable segments to the Company’sconsolidated financial statements for the years ended December 31, 2001, 2000and 1999 (in thousands):

 
|                                                                                                                      |   | **2001** |    | **2000** |   | **1999** |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| **Gain/ (Loss) on Sale of Property and Equipment**                                                                        |   |     |    |     |   |     |   |
| Total gain/(loss) on sale for reportable segments                                                                         |   | $        | (1,973  | )        | $      | 9        |   | $ | (14 | ) |
| Other non-allocated loss                                                                                                  |   | (4,596   | )       | —   |   | —   |   |
| Total gain/(loss) on sale of property and equipment                                                                       |   | $        | (6,569  | )        | $      | 9        |   | $ | (14 | ) |
|                                                                                                                      |   |     |    |     |   |     |   |
| **Interest Income**                                                                                                       |   |     |    |     |   |     |   |
| Total interest income for reportable segments                                                                             |   | $        | 3,291   |     | $      | 3,631    |   | $ | 49 |   |
| Elimination of intersegment interest income                                                                               |   | (3,266   | )       | (3,596   | )      | —   |   |
| Other non-allocated interest income                                                                                       |   | 2,538    |    | 2,555    |   | 835      |   |
| Total interest income                                                                                                     |   | $        | 2,563   |     | $      | 2,590    |   | $ | 884 |   |
|                                                                                                                      |   |     |    |     |   |     |   |
| **Interest Expense**                                                                                                      |   |     |    |     |   |     |   |
| Total interest expense for reportable segments                                                                            |   | $        | 14,470  |     | $      | 15,980   |   | $ | 15,595 |   |
| Elimination of intersegment interest expense                                                                              |   | (14,469  | )       | (15,964  | )      | (15,589  | )      |
| Other non-allocated interest expense                                                                                      |   | 26,796   |    | 30,309   |   | 29,421   |   |
| Total interest expense                                                                                                    |   | $        | 26,797  |     | $      | 30,325   |   | $ | 29,427 |   |
|                                                                                                                      |   |     |    |     |   |     |   |
| **Depreciation and Amortization**                                                                                         |   |     |    |     |   |     |   |
| Total depreciation and amortization for reportable segments                                                               |   | $        | 12,211  |     | $      | 13,070   |   | $ | 12,400 |   |
| Unallocated depreciation and amortization expense                                                                         |   | 4,193    |    | 3,815    |   | 3,816    |   |
| Total consolidated depreciation and amortization                                                                          |   | $        | 16,404  |     | $      | 16,885   |   | $ | 16,216 |   |
|                                                                                                                      |   |     |    |     |   |     |   |
| **Income From Continuing Operations Before Income  Taxes, Extraordinary Item and Cumulative Effect of Accounting Change** |   |     |    |     |   |     |   |
| Total profit for reportable segments                                                                                      |   | $        | 41,755  |     | $      | 42,170   |   | $ | 43,420 |   |
| Unallocated depreciation and amortization expense                                                                         |   | (4,193   | )       | (3,815   | )      | (3,816   | )      |
| Unallocated G & A expense                                                                                             |   | (18,430  | )       | (18,562  | )      | (16,263  | )      |
| Unallocated interest expense, net                                                                                         |   | (24,258  | )       | (27,754  | )      | (28,586  | )      |
| Unallocated loss on sale of property and equipment                                                                        |   | (4,596   | )       | —   |   | —   |   |
| Elimination of intersegment interest expense, net                                                                         |   | 14,469   |    | 15,964   |   | 15,589   |   |
| Income From Continuing Operations Before Income Taxes and  Extraordinary Item                                             |   | $        | 4,747   |     | $      | 8,003    |   | $ | 10,344 |   |
|                                                                                                                      |   |     |    |     |   |     |   |
| **Assets**                                                                                                                |   |     |    |     |   |     |   |
| Total assets for reportable segments                                                                                      |   | $        | 305,072 |     | $      | 342,106  |   | $ | 307,002 |   |
| Capitalized finance costs not allocated to segments                                                                       |   | 7,015    |    | 6,889    |   | 8,067    |   |
| Corporate unallocated assets                                                                                              |   | 56,868   |    | 64,902   |   | 62,198   |   |
| Elimination of intersegment receivable                                                                                    |   | (50,315  | )       | (42,070  | )      | —   |   |
| Consolidated total                                                                                                        |   | $        | 318,640 |     | $      | 371,827  |   | $ | 377,267 |   |
|                                                                                                                      |   |     |    |     |   |     |   |   |   |   |
| **Capital Expenditures**                                                                                                  |   |     |    |     |   |     |   |
| Total expenditures for assets for reportable segments                                                                     |   | $        | 4,052   |     | $      | 8,117    |   | $ | 10,966 |   |
| Other asset expenditures                                                                                                  |   | 402      |    | 1,280    |   | 1,001    |   |
| Total capital expenditures                                                                                                |   | $        | 4,454   |     | $      | 9,397    |   | $ | 11,967 |   |

 

51

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*Major customers-*Included inrevenues in 2001, 2000 and 1999 are $15.5 million, $16.7 million, and $18.2million, respectively, received under contracts from one customer of theCompany.  These revenues have beenreported in the Membership Services segment.

 

13.    SELECTEDUNAUDITED QUARTERLY INFORMATION

 

The following is asummary of selected quarterly information for the years ended December 31,2001, 2000 and 1999 (in thousands):

 
|                                     |   | **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                     |    |   |
|                                     |   |                  |   |                 |   |                       |   |                      |    |   |
|                                     |   | **March 31,****1999** |   | **June 30,****1999** |   | **September 30,****1999**  |   | **December 31,****1999**  |    |   |
| Total revenue                            |   | $                     | 85,572 |                 | $      | 103,681                    |   | $                         | 101,438 |   | $ | 96,005 |   |
| Gross profit                             |   | 28,866                |   | 36,852               |   | 33,954                     |   | 37,316                    |    |   |
| Income (loss) from continuing operations |   | (408                  | )      | 2,030                |   | 706                        |   | 2,375                     |    |   |
| Net income (loss)                        |   | (486                  | )      | 2,711                |   | 1,557                      |   | 2,696                     |    |   |
|                                          |        |                       |        |                      |        |                            |        |                           |         |        |  |  |  |  |  |  |  |

 

52

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**AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES**

**SCHEDULEII— VALUATION AND QUALIFYING ACCOUNTS**

 

** **
|                                       |   | **Balance at  Beginningof Period** |   | **Additions  Charged to  Costs andExpenses** |   | **Deductions** |   | **Balance at  Endof Period** |    |
|--------------------------------------------|--------|------------------------------------|--------|----------------------------------------------|--------|----------------|--------|------------------------------|---------|
|                                       |   | **(IN THOUSANDS)**                 |   |
| Description:                               |   |                               |   |                                         |   |           |   |                         |    |
|                                       |   |                               |   |                                         |   |           |   |                         |    |
| 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 |   |
|                                       |   |                               |   |                                         |   |           |   |                         |    |
| Year ended December 31, 1999:              |   |                               |   |                                         |   |           |   |                         |    |
| Allowance for doubtful accounts receivable |   | $                                  | 1,071  |                                         | $      | 653            |   | $                            | 777(a   | ) | $ | 947 |   |

 

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

 

**ITEM 9:   CHANGES IN ANDDISAGREEMENTS WITH ACCOUNTANTS ON**

**ACCOUNTING AND FINANCIAL DISCLOSURE**

 

None

53

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PART III

 

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

 

The executive officers and directors of the Company are as follows:

 
| **Name**           |   | **Age**                                                                                                                  |   | **Position** |   |
|--------------------|--------|--------------------------------------------------------------------------------------------------------------------------|--------|--------------|--------|
| Stephen Adams      | 64     | Chairman of the Board of the  Company and AGI                                                                            |
| Joe McAdams        | 58     | President, Chief Executive  Officer of the Company and AGI, and Director                                                 |
| Wayne Boysen       | 71     | Director                                                                                                                 |
| David Frith-Smith  | 56     | Director                                                                                                                 |
| Michael Schneider  | 47     | Chief Operating Officer of AGI                                                                                           |
| Mark J. Boggess    | 46     | Vice President and Chief  Financial Officer of the Company and Senior Vice President and Chief  Financial Officer of AGI |
| Michael Blumer     | 56     | Senior Vice President of AGI                                                                                             |
| Murray S. Coker    | 61     | Senior Vice President of AGI                                                                                             |
| Thomas A. Donnelly | 45     | President of Camping World,  Inc. and Director                                                                           |
| John Ehlert        | 56     | Director                                                                                                                 |
| David B. Garvin    | 58     | Director                                                                                                                 |
| George Parker      | 62     | Director                                                                                                                 |

 

Stephen Adamshas been Chairman of the Company since December 1988.  Since the 1970’s, Mr. Adams has served as Chairman ofprivately-owned banking, bottling, publishing, outdoor advertising, televisionand radio companies in which he holds a controlling ownership interest.  Mr. Adams is also Chairman and thecontrolling shareholder of Adams Outdoor Advertising, Inc., the managinggeneral partner of Adams Outdoor Advertising Limited Partnership.  Further, Mr. Adams also holds a 96.1**%**ownership interest in National Alliance Insurance Company and a 95% interest inAffinity Bank Holdings, Inc.

 

Joe McAdams has been President and Chief ExecutiveOfficer of the Company since July 1991. Prior thereto and since December of 1988, Mr. McAdams was President ofAdams Publishing Corporation, a newspaper and magazine publishing companycontrolled by Mr. Adams.  From October1987 through November 1988, Mr. McAdams was President and Publisher of SouthernCalifornia Publishing Co.  Prior toOctober 1987 and since 1961, Mr. McAdams has held various management positionswith publishing and direct marketing companies, including Senior Vice Presidentand Chief Operating Officer of ADVO Systems, Inc. from August 1981 to April1983. Wayne Boysen was Senior VicePresident of the Company since June 1991 until his retirement on January 1,1996 and has supervised the staff of the risk management divisions ofbusinesses owned by Stephen Adams, including the Company, since July 1988.  In addition, since their acquisition by theCompany in 1995, Mr. Boysen has served as Chairman of AB and Chairman of AINSuntil it was sold in December 1998. From 1966 through July 1988, Mr. Boysen owned or managed insuranceagencies and provided consulting services to property and casualty insuranceagencies.  Mr. Boysen has been adirector of the Company since 1993.

 

DavidFrith-Smith has served as managing partner of Biller, Frith-Smith &Archibald, Certified Public Accountants since 1988.  Mr. Frith-Smith was a principal with Maidy Biller Frith-Smith& Brenner, Certified Public Accountants from 1984 to 1988, and with Maidyand Lederman, Certified Public 

 

54

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Accountantsfrom 1980 to 1984.  Mr. Frith-Smith hasbeen a director of the Company since November 1996.  Mr. Frith-Smith is also a director of Adams Outdoor AdvertisingInc., the managing general partner of Adams Outdoor Advertising LimitedPartnership which is controlled by Stephen Adams, and various private andnon-profit corporations.

 

Michael Schneider has been Chief Operating Officer ofAGI since 1996.  Prior thereto, Mr.Schneider served as Senior Vice President and General Counsel of the Companysince January 1993 and was responsible for administrative areas, development ofnew corporate ventures and portions of the RV publication business and theadvertising and sales departments. Prior to January 1993 and since 1977, Mr. Schneider has held a varietyof senior management positions in the AGI’s publication business.

 

Mark J.Boggess has been Vice President and Chief Financial Officer of the Companysince June 1993.  From June 1992 throughMay 1993, Mr. Boggess was Vice President and Chief Financial Officer of HyproCorporation, a privately owned manufacturer of fluid transfer pumps.  From June 1989 through June 1992, Mr.Boggess was Treasurer of Adams Communications Corporation, a holding companycontrolled by Stephen Adams which owned television and radio station operationsthroughout the United States.

 

Michael Blumer has been Senior Vice President of AGIsince January 1998.   Prior to 1998 and since 1996, Mr. Blumerserved as CIO at Primedia, Inc. and prior to that post he served as Senior VicePresident of Information 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 VicePresident-Marketing of AGI and oversees the marketing of all products, servicesand clubs for AGI.  He joined CampingWorld in 1978 and has served in various management positions including VicePresident-Mail Order, Vice President-Direct Marketing and Senior VicePresident-Marketing.  Prior to joiningCamping World, Mr. Coker was a consultant specializing in retail systems forManagement Design Associates and Deloitte & Touche.  He was the Data Systems Product Line Managerfor Pitney Bowes’ Monarch Marketing Systems Division and a Systems Engineer forIBM Corporation.

 

Thomas A. Donnelly has served asPresident of Camping World since 1986 and served as its Chief Executive Officerfrom 1988 until its acquisition by AGI. Mr. Donnelly joined Camping World in 1971 and served in variousmanagement positions until 1984, at which time he was promoted to Senior Vice President,Operations.  Mr. Donnelly is also adirector of Area Bank in Bowling Green, Kentucky.  Mr. Donnelly and Mr. Garvin are first cousins.

 

John Ehlert is the founder ofEhlert and has served as its President and Chief Executive Officer since 1976until its acquisition by AGI. Mr. Ehlert serves on the 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.  Mr. Garvin and Mr. Donnelly are first cousins.

 

George Parkeris the Senior Associate Dean for Academic Affairs and Director of the MBAProgram at the Graduate School of Business at Stanford University.  Prior to 1973, Mr. Parker was an Assistant/Associate Professor of Finance at the Graduate School of Business at ColumbiaUniversity.  He currently serves on theBoard of Directors for various companies including Continental Airlines, Inc.,Tejon Ranch Co., Dresdner/ RCM Mutual Funds, and Barclays Global InvestorsFunds Inc.  He also provides consultingservices to various corporations and banks on financial management andcorporate strategy, and has had numerous financial management works published.

 

Directors areelected for terms of one year or until their successors have been duly elected.

 

55

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**ITEM 11:  EXECUTIVECOMPENSATION**

 

**Executive Compensation**

 

The following table provides certainsummary information concerning the compensation paid by the Company to the Company’sChief Executive Officer and each of the four other highest compensated executiveofficers (determined as of the Company’s year ended December 31, 2001) and forthe previous two years.

 

**SUMMARY COMPENSATION TABLE**

 
|                             |   |     |   | **Annual Compensation** |    |         |   |                                 |   |
|----------------------------------|--------|----------|--------|-------------------------|---------|--------------|--------|--------------------------------------|--------|
| **Name and Principal  Position** |   | **Year** |   | **Salary**              |    | **Bonus(1)** |   | **Other Annual  Compensation(1)(2)** |   | **All Other  Compensation(3)** |   |
| Stephen Adams                    |   | 2001     |   | $                       | 699,992 |         | $      | 1,567,770                            |   |   |   | $ | 20,658 |   |
| Chairman of the Board            |   | 2000     |   | 699,996                 |    | 1,578,540    |   |                                 |   | 36,503 |   |
|                             |   | 1999     |   | 726,914                 |    | 1,781,040    |   |                                 |   | 35,132 |   |
|                             |   |     |   |                    |    |         |   |                                 |   |   |   |
| Joe McAdams, President           |   | 2001     |   | 100,000                 |    | 522,590      |   |                                 |   | 6,332 |   |
| Chief Executive Officer          |   | 2000     |   | 100,000                 |    | 526,180      |   | 447,856  (4                          | )      | 7,696 |   |
|                             |   | 1999     |   | 103,846                 |    | 593,680      |   | 1,319,608  (4                        | )      | 9,527 |   |
|                             |   |     |   |                    |    |         |   |                                 |   |   |   |
| Thomas A. Donnelly               |   | 2001     |   | 225,000                 |    | 261,295      |   |                                 |   | 7,920  |   |
| President of Camping World       |   | 2000     |   | 225,000                 |    | 263,090      |   |                                 |   | 8,055 |   |
|                             |   | 1999     |   | 233,654                 |    | 296,840      |   |                                 |   | 7,899 |   |
|                             |   |     |   |                    |    |         |   |                                 |   |   |   |
| Michael Schneider                |   | 2001     |   | 210,000                 |    | 261,295      |   |                                 |   | 8,345 |   |
| Chief Operating Officer          |   | 2000     |   | 210,000                 |    | 263,090      |   | 405,667  (4                          | )      | 8,716 |   |
|                             |   | 1999     |   | 218,077                 |    | 296,840      |   | 56,333  (4                           | )      | 8,477 |   |
|                             |   |     |   |                    |    |         |   |                                 |   |   |   |
| Murray S. Coker                  |   | 2001     |   | 196,000                 |    | 172,455      |   |                                 |   | 8,838 |   |
| Senior Vice President of AGI     |   | 2000     |   | 195,885                 |    | 173,639      |   |                                 |   | 9,126 |   |
|                             |   | 1999     |   | 197,038                 |    | 184,447      |   |                                 |   | 9,342 |   |
|                                  |        |          |        |                         |         |              |        |                                      |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1)                          Compensation defined as “Bonus”and “Other Annual Compensation” is eligible, at the election of the employee,to be contributed to the AGHC Key Employee Security Option Plan(“KEYSOP”).  See “ManagementAgreements with Executive Officers”.

 

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

 

(3)                          Represents company contributionsto 401(k) and split dollar life insurance economic benefit.

 

(4)                          Under the terms of the phantom stockagreements, Mr. Schneider received $405,667 in 2000 and $56,333 in 1999; andMr. McAdams received $447,856 in 2000 and $1,319,608 in 1999.   All 2000 and 1999 payments were contributedto the KEYSOP.

 

The Company does not have any outstandingstock options or restricted stock grants. The Company has phantom stock agreements and a non-qualified deferredcompensation plan for certain of its 

 

56

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officers. See “Agreements with Executive Officers”.

** **

**Agreements with Executive Officers**

 

Mr. Adams and the Company are parties toan amended employment agreement providing for his employment as the Chairman ofthe Company through September 1, 2002. The base salary for Mr. Adams is $700,000 and his incentive compensationis 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-qualifieddeferred compensation plan allows key employees the option to contribute specificcompensation, including bonuses, incentive compensation, and phantom stockpayments to the KEYSOP.  Contributions to the KEYSOP from AGHIemployees totaled $0.8 million and $3.4 million in 2001 and 2000, respectively.

 

In January 1992, the Company introduced aphantom stock 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, 2001.  As of December 31, 2001, the aggregateaccrued liability under this program was approximately $3.3 million, of which$1.1 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%                |
| Thomas A. Donnelly   |   | 1.80%                |   | 1.73%                |
| Mark Boggess         |   | 1.30%                |   | 1.30%                |
| Murray S. Coker      |   | 1.00%                |   | 0.96%                |
| All Other Employees  |   | 0.30%                |   | 0.24%                |

 

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The executive’s base salary and annual bonus aredetermined from time to time by the Board of Directors.  In the event the executive’s employment isterminated without cause, the phantom stock agreements provide for severancebenefits of up to one year’s base salary plus the accrued bonus for the year inwhich such termination occurs.

 

**Compensation Committee Interlock and Insider Participation**

 

The Company’s Board of Directorsdetermines the compensation of the executive officers.  The executive officers of the Company thatserve on the Board of Directors are Stephen Adams, Joe McAdams and Thomas A.Donnelly.

 

Stephen Adams, the Chairman and a director of theCompany, has an amended employment agreement with AGI through September 1, 2002under which Mr. Adams receives a base salary of $700,000 plus incentivecompensation of 3% of operating profits (as defined).

 

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Joe McAdams, the President and Chief ExecutiveOfficer and a director of the Company, has phantom stock agreements with AGIpursuant to which Mr. McAdams holds a 2.5% phantom stock interest which isfully vested.

 

Pursuant to the management incentive agreementwhich the Company entered into with Mr. Donnelly and Mr. Coker at the timeof the acquisition of Camping World in 1997, the Company agreed, subject toCamping World achieving certain operating goals, to pay up to $6.6 million and$1.2 million to Mr. Donnelly and Mr. Coker, respectively, over thesubsequent five years.  Mr. Donnelly andMr. Coker received $1,760,000 and $320,000, respectively, of this amountthrough 2001.

 

Messrs. Garvin, McAdams, Donnelly, Boggess, Cokerand Blumer are partners in various partnerships that lease nine facilitiesunder long-term leases to Camping World. For the years ended December 31, 2001 and 2000, payments under theseleases were approximately $3.50 million and $2.59 million, respectively.  The leases expire during the period December2005 and December 2015, subject to the right of Camping World to exercise renewaloptions.  The Company believes that suchleases contain lease terms as favorable as lease terms that would be obtainedfrom independent third parties.

 

On December 5, 2001, the Company sold eleven realestate properties to eleven separate wholly-owned subsidiaries of AGRP HoldingCorp., a wholly-owned subsidiary of the Company’s parent, AGI Holding Corp.,for $52.3 million in cash and a note receivable.  The properties have been leased back to the Company on a triplenet basis.  Both the sales price andlease rates were based on market rates determined by third party independentappraisers engaged by the mortgage lender and approved by the AGI Senior CreditFacility agent bank.  These leases havean initial term of 25 to 27 years with two five-year options at the thencurrent market rent*. *Paymentsunder these leases were $0.2 million in 2001.

 

John Ehlert, a director of the Company, is apartner in a partnership that leases to Ehlert its research facility under along-term lease.  For the year ended December 31,2001 and 2000, the rental payments for such facility were $38,329 and $46,610,respectively.  The lease expired inOctober 2001 and was not renewed.

 

**Bonus Plan**

 

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 Sections 401(a) and 401(k) of the InternalRevenue Code of 1986, as amended (the “Code”). All employees over age 21 who have completed one year of service(including 1,000 hours) are eligible to participate in the 401(k) Plan.   Eligible employees may contribute to the401(k) Plan up to 15% of their salary subject to an annual maximum establishedunder the Code and the Company matches these employee contributions at the rateof 75% up to the first 6% of the employee’s salary.  Employees may also make additional voluntary contributions.  Effective January 1, 1999, the vestingschedule was revised from 7 years of employment to 5 years.

 

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**Other Benefit 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.

 

**Director Compensation**

 

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

 

**Report on 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 compensation is through the bonus program.  The executive officers, including Mr.McAdams, receive bonuses based on their respective assigned percentage ofoperating income of the Company or the operations in which the executive isemployed.  The percentage assigned toeach executive officer depends upon the level of his responsibilities or, inthe case of Mr. Adams, as prescribed in their respective employment agreement.

 

In addition, the executive officers, otherthan Mr. Adams who owns over 95% of the stock of the parent corporation,have received phantom stock grants under the agreements described above underthe caption “Agreements with Executive Officers.”  The purpose of the phantom stock agreements is to provide theexecutive officers with an incentive to enhance the long term value of theCompany with payments of the amounts earned by the executive officers providedas deferred compensation over several years.

 
| BOARD  OF DIRECTORS |
|---------------------|
| Stephen Adams       |   | Joe McAdams |   | Wayne Boysen |   | David Frith-Smith |
|                |   |   |   |   |   |   |
| Thomas A. Donnelly  |   | John Ehlert |   | David B. Garvin |   | George Parker |

 

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**ITEM 12:  SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

 

The Company is a wholly-owned subsidiaryof AGI Holding Corporation (“AGHC”), a privately-owned corporation.  The following table sets forth, as ofDecember 31, 2001, certain information with respect to the beneficial ownershipof the Common Stock of AGHC by each shareholder who is known to the Company tobeneficially own more than 5% of the outstanding shares, each executive officerand the current sole director of AGHC, and all executive officers and directorsof 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, CA 93001   |   | 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                        | %      |

 

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(1) Except as otherwise indicated, the beneficial owners have sole votingand investment power with respect to the shares in the table.

(2) Does not include 50 shares owned by members of the Adams’ family who donot reside with him.

 

**ITEM 13:  CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS**

 

During the fourth quarter of 1998, the Company’s Board of Directorsadopted a 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 received 17,100 shares of Series A Preferredstock of the purchaser, ABH, having a value of $18,631,000.  In the fourth quarter of 1999, AGHTC agreedto convert and exchange the preferred stock for a Capital Note.  The Capital Note principal balance was equalto the preference amount of the preferred stock as of the conversion date andaccrues interest at the rate of 11% per annum until maturity on October 14,2014.  On October 31, 2000, AGTHC sold,at face value, a $1.5 million participation in the Capital Note to an affiliateof Mr. Adams.

 

As of December 31, 2001, Mr. Adams has a 96.1% shareholder interest inthe parent company of National Alliance Insurance Company (“NAIC”).  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.  The agreement runs through 

 

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December 31, 2018 or may be terminated sooner by either party afterJune 30, 2007 with a minimum of 18 months notice.   In 2001, 2000 and 1999 marketing fees earned by the Companytotaled $2.5 million, $2.5 million, and $2.6 million, respectively.  Further, Mr. Wayne Boysen, a director ofAGHI, also serves as director of NAIC and its parent.

 

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.  Theproperties have 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 Bank Holdings,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.

 

For a description of the employment,consulting, non-competition, management incentive and phantom stock agreementswith the Company and persons serving as an executive officer or director of theCompany see “Management - Agreements with Executive Officers” and “Management -Compensation Committee Interlock and Insider Participation.”

 

For a description of leases whichsubsidiaries of the Company have with partnerships in which a director of theCompany has a partnership interest, see “Management - Compensation CommitteeInterlock and Insider Participation.”

** **

 

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**PART IV**

 

**ITEM 14:  EXHIBITS,FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K**

 

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

 

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

 

(a)    (3)    Listingof Exhibits:

 

The exhibitsrequired to be a part of this report are listed in the Index to Exhibits whichfollows the signature page.

 

(b)    Reports on Form 8-K:

 

The Form 8-Krequired to be a part of this report are listed in the Index to Exhibits which followsthe signature page.

 

(c)    Exhibits:

 

Included inItem 14 (a) (3) above.

 

(d)    Financial Statement Schedules

 

Included inItem 14 (a) (2) above.

 

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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 11, 2002.

 

AFFINITY GROUP HOLDING, INC.

 

 
| By                      | /s/    |   |
|-------------------------|--------|--------|
| Joe B. McAdams          |   |
| Chief Executive Officer |   |

 

Pursuant to the requirements of theSecurities Act of 1934, this Report has been signed below by the followingpersons on behalf of the Company in the capacities and on the dates indicated.

 
| /s/            | Chief Executive Officer and Director | March  11, 2002 |
|----------------|--------------------------------------|-----------------|
| Joe B. McAdams | (Principal Executive Officer)        |            |

 
| /s/             | Senior Vice President and Chief  Financial Officer | March  11, 2002 |
|-----------------|----------------------------------------------------|-----------------|
| Mark J. Boggess | (Principal Financial and Accounting  Officer)      |            |

 
| *             | Director | March  11, 2002 |
|---------------|----------|-----------------|
| Stephen Adams |     |            |

 
| *                 | Director | March  11, 2002 |
|-------------------|----------|-----------------|
| David Frith-Smith |     |            |

 
| *            | Director | March  11, 2002 |
|--------------|----------|-----------------|
| Wayne Boysen |     |            |

 
| *                  | Director | March  11, 2002 |
|--------------------|----------|-----------------|
| Thomas A. Donnelly |     |            |

 

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| *               | Director | March  11, 2002 |
|-----------------|----------|-----------------|
| David B. Garvin |     |            |

 
| *           | Director | March  11, 2002 |
|-------------|----------|-----------------|
| John Elhert |     |            |

 
| *             | Director | March  11, 2002 |
|---------------|----------|-----------------|
| George Parker |     |            |

 
| /s/                                  | Director | March  11, 2002 |
|--------------------------------------|----------|-----------------|
| (Mark J. Boggess   Attorney-in-Fact) |     |            |

 

Mark J. Boggess, pursuant to Powers ofAttorney executed by each of the officers and directors listed above whose nameis marked by an “*” and filed as an exhibit hereto, by signing his name heretodoes hereby sign and execute this Report of Affinity Group Holding, Inc. onbehalf of each of such officers and directors in the capacities in which thenames of each appear above.

 

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**AFFINITY GROUP HOLDING, INC.**

 

**EXHIBIT INDEX TO ANNUAL REPORT**

**ON FORM 10-K**

 

**For Fiscal Year Ended December 31, 2001**

 
| Item                                                                                                                                                            |   | Regulation  S-K Exhibit  TableReference |   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|--------|
| 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                                    |   |   |
| 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                                   |   |   |

 

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| Item                                                                                                                                                        |   | Regulation  S-K Exhibit  TableReference |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|--------|
| 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                                   |   |   |

 

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| Item                                                                                                                                          |   | Regulation  S-K Exhibit  TableReference |   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|--------|
| 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                                   |   |   |
| Amendment to Employment Agreement dated August 1, 1993 between  Stephen Adams and the Company                                                 |   | 10.47                                   |   |   |
| Phantom Sotck Amendment dated December 5, 2001 between Joe  McAdams and the Company                                                           |   | 10.48                                   |   |   |
| Subsidiaries of the Registrant                                                                                                                |   | 21                                      |   |   |
| Power of Attorney                                                                                                                             |   | 24                                      |   |   |

 

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(1)    Filedwith the Company’s Annual Report on Form 10-K for the year ended December 31,1993 and incorporated by reference 

herein.

 

(2)    Filedwith the Company’s Registration Statement No. 33-67272 and incorporated byreference herein.

 

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

 

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

 

(5)    Filedwith the Company’s Annual Report on Form 10-K for the year ended December 31,1994 and incorporated by reference 

herein.

 

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

 

(7)    Filed with the Company’sAnnual Report on Form 10-K for the year ended December 31, 1995 andincorporated by reference 

herein.

 

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(8)   Filed with the Company’s Report on Form 8-K dated April 2, 1997 andincorporated by reference herein.

 

(9)    Filedwith the Company’s Annual Report on Form 10-K for the year ended December 31,1997 and incorporated 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’sAnnual Report on Form 10-Q for the year ended September 30, 2001 andincorporated by reference 

herein.

 

(14)  Filed with the Company’sAnnual Report on Form 8-K dated December 5, 2001 and incorporated by referenceherein.

 

A copy of anyof these exhibits will be furnished at a reasonable cost to any person uponreceipt from such person of a written request for such exhibit.  Such request should be sent to AffinityGroup, Inc., 64 Inverness Drive East, Englewood, Colorado  80112, Attention:  Chief FinancialOfficer

 

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