Affinity Group Holding 10-Q 2005 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

Quarterly Report Under Section 13 or 15 (d) of

The Securities Exchange Act of 1934

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

AFFINITY GROUP HOLDING, INC.

(Exact name of registrant as specified in its charter)

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

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

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

10-7/8% Senior Notes Due 2012

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

YES   o NO   ý

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

YES   ý NO   o

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

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

DOCUMENTS INCORPORATED BY REFERENCE:  None

AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES

INDEX

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

AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30, 2005 and December 31, 2004

(In Thousands)

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

See notes to consolidated financial statements.

1

AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands)

(Unaudited)

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

See notes to consolidated financial statements.

2

AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands)

(Unaudited)

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

See notes to consolidated financial statements.

3

AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

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

See notes to consolidated financial statements.

4

AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

(1) BASIS OF PRESENTATION

Principles of Consolidation — The consolidated financial statements included herein include the accounts of Affinity Group Holding, Inc. (“AGHI”), its wholly-owned subsidiary, Affinity Group, Inc (“AGI”), and AGI’s subsidiaries (collectively the “Company”), in accordance with U.S. generally accepted accounting principles, and pursuant to the rules and regulations of the Securities and Exchange Commission.  AGHI was formed on March 2, 2005, at which time all of the stock of AGI was contributed to AGHI from its parent, AGI Holding Corp. (“AGHC”) a privately-owned corporation.  On April 27, 2004, AGI’s previous parent, Affinity Group Holding, Inc. (“AGH”) was merged into AGI, with AGI being the surviving entity after the merger.  The merger was accounted for as a combination of entities under common control using historical costs.  The balance sheet as of December 31, 2004 is that of AGI prior to the formation of AGHI on March 2, 2005.  The nine months ended September 30, 2004 have been restated to reflect the combined financial position and results of operations of AGI and AGH.  These interim consolidated financial statements should be read in conjunction with AGI’s consolidated financial statements and notes for the year ended December 31, 2004 included in the Registration Statement on Form S-4 filed April 15, 2005.  Certain balances in the prior year consolidated financial statements were reclassified to conform to the current year presentation.  In the opinion of management of the Company, these consolidated financial statements contain all adjustments of a normal recurring nature necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented.

(2) DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

The Company’s three principal lines of business are Membership Services, Publications, and Retail.  The Membership Services segment operates the Good Sam Club, Coast to Coast Club, and Camping World’s President’s Club for recreational vehicle (“RV”) owners, campers and outdoor vacationers, and the Golf Card Club for golf enthusiasts.  The Publications segment publishes a variety of publications for selected markets in the recreation and leisure industry, including general circulation periodicals, directories, and RV and powersports industry trade magazines.  The Retail segment sells specialty retail merchandise and services for RV owners primarily through retail supercenters and mail order catalogs.  The Company evaluates performance based on profit or loss from operations before income taxes.

The reportable segments are strategic business units that offer different products and services.  They are managed separately because each business requires different technology, management expertise and marketing strategies.

5

The Company does not allocate income taxes or unusual items to segments.  Financial information by reportable business segment is summarized as follows (in thousands):

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

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

6

The following is a reconciliation of income from operations to the Company’s consolidated financial statements for the three and nine months ended September 30, (in thousands):

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

The following is a reconciliation of assets of reportable segments to the Company’s consolidated financial statements as of September 30, 2005 and December 31, 2004 (in thousands):

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

Total assets for the retail segment increased $87.8 million from December 31, 2004 primarily due to the acquisition of a preferred membership interest in FreedomRoads Holding Company, LLC, a related party, (See Note 5).

(3) STATEMENTS OF CASH FLOWS

Supplemental disclosures of cash flow information for the nine months ended September 30 (in thousands):

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

7

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

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

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

(4) GOODWILL AND INTANGIBLE ASSETS

The Company reviews goodwill and indefinite-lived intangible assets for impairment at least annually.  The Company performs its annual impairment review during the fourth quarter.  Based on the results of the annual impairment test, the Company determined that no impairment of goodwill existed as of December 31, 2004.

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

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

8

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

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

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

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

(5) RECENT EVENTS

On March 24, 2005 in a private placement, the Company issued $88.2 million principal amount of its 10-7/8% senior notes due 2012 (the “AGHI Notes”) at a $3.2 million original issue discount.  The Company completed a registered exchange of the AGHI Notes under the Securities Act of 1933 on June 8, 2005.  The AGHI Notes are unsecured obligations of the Company, and its subsidiaries have not guaranteed payment of principal or interest on the AGHI Notes.  Interest on the AGHI Notes is payable semi-annually on February 15 and August 15 commencing August 15, 2005 and the entire $88.2 million principal amount of the AGHI Notes are due in full on February 15, 2012.  For interest payments on and prior to February 15, 2008, AGHI may elect to pay interest on the AGHI Notes in cash or by the issuance of additional notes of the same tenor as the AGHI Notes.  Any additional AGHI Notes issued in payment of interest are due in full on or before March 15, 2010.  The AGHI Notes cannot be redeemed prior to February 15, 2008.  Although the only source of the cash payment of the AGHI Notes is dividends from its subsidiary, there are certain restrictions on the payment of dividends under AGI’s senior secured credit facility (the “AGI

9

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

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

The preferred membership interest acquired by CWFR has a face amount of $88.2 million and is entitled to receive a preferred payment from FreedomRoads Holding at 10-7/8% per annum when and as declared by the Board of Governors of FreedomRoads from any source legally available therefor.  Any portion of the preferred payment not paid will accumulate and will be compounded semi-annually until paid.  FreedomRoads Holding may redeem the preferred membership interest upon the payment of $88.2 million plus the accrued and unpaid preferred return to the date of redemption.  FreedomRoads Holding will be required to redeem the preferred membership interest at that same redemption price if there is a sale or reorganization of the membership interests of FreedomRoads Holding or a sale of substantially all of the assets of FreedomRoads Holding.  According to the terms of the preferred membership interest, FreedomRoads Holding cannot make distributions with respect to membership interests other than (a) distributions with respect to the preferred membership interest, (b) distributions for the members’ estimated tax liabilities from earnings of FreedomRoads Holding and (c) distributions in the aggregate not to exceed 50% of the amount of (i) FreedomRoads Holding’s net profit for the period from January 1, 2005 through the end of the fiscal quarter next preceding the distribution date less (ii) the aggregate amount of tax distributions made during the period from January 1, 2005 through the end of the fiscal quarter next preceding the distribution date.  CWFR may not sell, pledge or otherwise transfer the preferred membership interest.  The preferred membership interest does not provide CWFR with any voting rights in FreedomRoads Holding.  The preferred membership interest FreedomRoads Holding is being carried at cost and is reviewed periodically for impairment.

10

(6) CONTINGENCIES

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

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

11

ITEM 2:

AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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

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

12

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

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

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RESULTS OF OPERATIONS

Three Months Ended September 30, 2005

Compared With Three Months Ended September 30, 2004

Revenues

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

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

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

Retail revenues of $75.7 million increased $4.2 million, or 5.9%, over the third quarter of 2004.  Store merchandise sales increased $3.8 million over the third quarter of 2004 primarily due to a $3.6 million revenue increase from the addition of eight new stores over the past eighteen months.  Same store sales increased $0.2 million, or 0.4%, compared to a 6.1% increase in the third quarter of 2004.  Same store sale calculations for a given period include only those stores that were open both at the end of that period and at the beginning of the preceding fiscal year.  Additionally, revenue from other installation fees, supplies and services revenue increased $0.4 million.

Costs Applicable to Revenues

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

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

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

Publication costs and expenses of $10.4 million for the third quarter of 2005 increased $0.8 million, or 8.5%, from the comparable period in 2004 primarily due to increased costs attributable to the newly acquired magazine title, Powerboat Magazine, and consumer shows purchased through the acquisition of ARU Inc. (“ARU”) in December 2004, and reduced operating expenses for various titles.  These increases were partially offset by the disposition of archery-related titles in the third quarter of 2004.

Retail costs applicable to revenues increased $2.3 million, or 5.4%, to $45.4 million primarily due to new store openings.  The retail gross profit margin of 40.1% for the third quarter of 2005 increased from 39.8% from the comparable period in 2004 primarily due to favorable freight and other vendor credits in the third quarter of 2005.

Operating Expenses

Selling, general and administrative expenses of $31.8 million for the third quarter of 2005 increased $1.2 million compared to the third quarter of 2004 primarily due to increases in retail selling, general and administrative expenses of approximately $0.5 million consisting mostly of an increase in retail labor, a $0.2 million increase in deferred executive compensation and a $0.5 million increase in other executive wages and hurricane relief contributions.

Depreciation and amortization expense of $4.1 million for the third quarter of 2005 remained relatively unchanged from the prior year, decreasing approximately $0.1 million versus the comparable period in 2004.

Income from Operations

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

Non-Operating Items

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

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Income before Income Taxes

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

Income Tax Expense

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

Net Income

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

Segment Profit

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

Membership services segment profit of $9.3 million for the third quarter of 2005 decreased $0.1 million, or 1.4%, from the third quarter of 2004.  This decrease is largely attributable to a $0.3 million decrease in marketing fee income recognized on RV financing products, a $0.3 million increase in new product development expenses, a $0.2 million decrease in dealer marketing profit and $0.2 million increase in other operating expenses, partially offset by a $0.5 million increase in profit from the extended warranty program, and a $0.4 million increase in profit from emergency road service products.

Publication segment profit of $2.2 million for the third quarter of 2005 decreased by $0.4 million, or 15.4%, from the third quarter of 2004.  This decrease was primarily attributable to reduced profit for the outdoor powersports publications due to reduced issues published, increased book sizes, timing of various titles, and a reduction in profit related to the disposition of the archery related titles, partially offset by an increase in profit from the recreational vehicle related titles.

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

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Nine Months Ended September 30, 2005

Compared With Nine Months Ended September 30, 2004

Revenues

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

Membership services revenues of $101.9 million for the first nine months of 2005 increased by approximately $1.6 million, or 1.6%, from the comparable period in 2004.  This revenue increase was largely attributable to a $3.6 million increase in extended vehicle warranty program revenue due to continued growth in the sales of one-year warranty products, and a $1.0 million increase in emergency road service revenue due to increased enrollment, partially offset by a $1.4 million reduction in membership services revenue, primarily associated with reduced enrollment in the Coast to Coast Club and Golf Card Club, a $1.0 million reduction in marketing fee income recognized on RV financing, and a $0.6 million reduction in dealer program marketing revenue.

Publication revenues of $46.5 million for the first nine months of 2005 decreased $0.7 million, or 1.5%, from the comparable period in 2004 primarily resulting from a $2.0 million revenue reduction due to the disposition of archery-related publication titles in the third quarter of 2004, a $0.7 million reduction in revenue from reduced promotion of the campground atlas, a $0.8 million reduction associated with reduced issues of snow and regional publications, and a $0.3 million reduction in ad revenue for the motorcycle titles.  These decreases were partially offset by a $1.8 million revenue increase associated with the acquisition of consumer shows, acquired through the acquisition of ARU in December 2004 and the newly acquired Powerboat Magazine title, a $0.9 million increase in advertising revenue in the recreational vehicle related titles and $0.4 million revenue increase in the powersports related titles due to the timing of issues published.

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

Costs Applicable to Revenues

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

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

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enrollment in the extended vehicle warranty and emergency road service programs, partially offset by a $1.5 million decrease in membership services costs, primarily due to reduced marketing and program expenses of the Coast to Coast Club and Golf Card Club, and a $0.7 million reduction in dealer marketing expenses associated with reduced revenue.

Publication costs and expenses of $32.2 million for the first nine months of 2005 decreased $0.5 million from the comparable period in 2004 primarily due to a $1.7 million reduction from the disposition of archery-related titles in the third quarter of 2004, a $0.9 million reduction in costs associated with the campground atlas, and a $0.5 million reduction associated with reduced issues of the regional publications.  These decreases were partially offset by $1.6 million of additional costs attributable to the newly acquired operations of ARU and the Powerboat Magazine title and a $1.0 million increase in operating expenses of the powersports related titles.

Retail costs applicable to revenues increased $11.2 million, or 9.4%, to $129.7 million primarily due to the opening of eight new stores over the past twenty-one months.  The retail gross profit margin of 40.6% for the first nine months of 2005 increased slightly from 40.4% for the comparable period in 2004.

Operating Expenses

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

Depreciation and amortization expense of $11.7 million increased approximately $1.5 million over the prior year primarily due to increased depreciation on capital expenditures at Camping World, amortization of intangible assets associated with the purchase of ARU and Powerboat Magazine, costs associated with the issuance of $200.0 million in 9% Senior Subordinated Notes in February 2004, and amortization of financing costs associated with the AGHI Notes.

Income from Operations

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

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Non-Operating Items

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

Income before Income Taxes

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

Income Tax Expense

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

Net Income

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

Segment Profit

Segment profit of $45.0 million for the first nine months of 2005 (before unallocated depreciation and amortization, general and administrative, interest, debt restructuring, and income tax expense) increased $3.1 million, or 7.4%, from the comparable period in 2004.

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

19

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

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Contractual Obligations and Commercial Commitments

The following table reflects the Company’s contractual obligations and commercial commitments by maturity period at September 30, 2005, in thousands.

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

On June 24, 2003, AGI entered into an Amended and Restated Credit Agreement and a Senior Secured Floating Rate Note Purchase Agreement (as amended, the AGI Senior Credit Facility).  The AGI Senior Credit Facility provides for a revolving credit facility of $35.0 million and term loans (“Term B1 and Term B2 loans”) in the aggregate of $140.0 million.  Proceeds from the AGI Senior Credit Facility were used to refinance the existing senior secured indebtedness, pay a dividend of $13.7 million to the Company’s parent AGI Holding Corp. and redeem $30.0 million principal amount of the AGH senior notes due 2007 (“AGH Notes”) at 103.667% of par in 2003.  As of September 30, 2005, $31.9 million and $79.6 million were outstanding under the Term B1 and Term B2 loans, respectively.  No borrowings were outstanding on the revolving credit facility as of September 30, 2005.  Reborrowings under the term loans are not permitted.  The interest on borrowings under the AGI Senior Credit Facility is at variable rates based on the ratio of total cash flow to outstanding indebtedness (as defined).  Interest rates float with prime and the London Interbank Offered Rates, or LIBOR, plus an applicable margin ranging from 1.50% to 3.50% over the stated rates.  As of September 30, 2005, the average interest rate on the term loans was 6.84%, and permitted borrowings under the undrawn revolving facility were $27.8 million.  AGI also pays a commitment fee of 0.5% per annum on the unused amount of the revolving credit facility.  The aggregate quarterly scheduled payments on the term loans are $350,000.  The revolving credit facility matures on June 24, 2008, and the Term B1 and Term B2 loans mature on June 24, 2009.  The funds available under the AGI Senior Credit Facility may be utilized for borrowings or letters of credit; however, a maximum of $12.5 million may be allocated to such letters of credit.  As of September 30, 2005, AGI had letters of credit in the aggregate amount of $7.2 million outstanding.  The AGI Senior Credit Facility is secured by virtually all of the Company’s assets and a pledge of the Company’s stock and the stock of the Company’s subsidiaries.

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

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loans under the AGI Senior Credit Facility, pay a $60.0 million dividend distribution, create a $15.0 million segregated cash account, pay certain prepayment and transaction costs and for general corporate purposes.  The amount held in this segregated account, including any earnings thereon, was available to pay stockholder dividends upon satisfaction of a leverage test specified in the AGI Senior Credit Facility.  In August and November of 2004, AGI satisfied the specific leverage test and paid $3.6 million and $11.5 million in dividends, respectively.  The segregated account replenishment requirement has been permanently eliminated.

In November 2004, AGI amended the AGI Senior Credit Facility dated June 24, 2003.  The interest rates on the Term B1 and Term B2 loans were reduced by 1.00%.  The applicable interest margin on the LIBOR and Prime Rate loans was reduced from 4.00% to 3.00% and 3.00% to 2.00%, respectively.

On March 24, 2005 in a private placement, the Company issued $88.2 million principal amount of its 10-7/8% senior notes due 2012 (the “AGHI Notes”) at a $3.2 million original issue discount.  The Company completed a registered exchange of these AGHI Notes under the Securities Act of 1933 in June 2005.  The AGHI Notes are unsecured obligations of the Company and its subsidiaries have not guaranteed payment of principal or interest on the AGHI Notes.  Interest on the AGHI Notes is payable semi-annually on February 15 and August 15 commencing August 15, 2005 and the entire $88.2 million principal amount of the AGHI Notes are due in full on February 15, 2012.  For interest payments on and prior to February 15, 2008, AGHI may elect to pay interest on the AGHI Notes in cash or by the issuance of additional notes of the same tenor as the AGHI Notes.  Any additional AGHI Notes issued in payment of interest are due in full on or before March 15, 2010.  The AGHI Notes cannot be redeemed prior to February 15, 2008.  Although the source of the cash payment of the AGHI Notes is dividends from AGI, its wholly-owned subsidiary, there are certain restrictions on the payment of dividends under the AGI Senior Credit Facility and the AGI Indenture.

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

The AGI Indenture pursuant to which the AGI Notes were issued and the AGI Senior Credit Facility contain certain restrictive covenants relating to, but not limited to, mergers, changes in the nature of the business, acquisitions, additional indebtedness, sale of

22

assets, investments, and the payment of dividends subject to certain limitations and minimum operating covenants.  AGI was in compliance with all debt covenants at September 30, 2005.

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

For the nine months ended September 30, 2005, the Company incurred $2.9 million of deferred executive compensation expense under the phantom stock agreements and made payments of $0.9 million on the pay-out provisions of existing phantom stock agreements.  The earned incentives under these agreements are scheduled to be paid at various times over the next seven years.  Phantom stock payments of $0.6 million are scheduled tobe made over the remainder of the calendar year.

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

CRITICAL ACCOUNTING POLICIES

General

The discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  On an on-going basis, the Company evaluates its estimates, including those related to membership programs and incentives, bad debts, inventories, intangible assets, employee health insurance benefits, income taxes, restructuring, contingencies and litigation.  The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements.

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Revenue Recognition

Merchandise revenue is recognized when products are sold in the retail stores, shipped for mail and internet orders, or when services are provided to customers.  Publication advertising and newsstand sales, net of estimated provision for returns, are recorded at time of delivery.  Subscription sales of publications are deferred and recognized over the lives of the subscriptions.  Revenues from the emergency road service program (“ERS”) are deferred and recognized over the life of the membership.  ERS claim expenses are recognized when incurred.  Advances on third party credit card fee revenues are deferred and recognized based primarily on a percentage of credit card receivables held by third parties.  Membership revenue is generated from annual, multi-year and lifetime memberships.  The revenue and expenses associated with these memberships are deferred and amortized over the membership period.  For lifetime memberships, an 18-year period is used, which is the actuarially determined estimated fulfillment period.  Promotional expenses, consisting primarily of direct mail advertising, are deferred and expensed over the period of expected future benefit.  Renewal expenses are expensed at the time related materials are mailed.  Recognized revenues and profit are subject to revisions as the membership progresses to completion.  Revisions to membership period estimates would change the amount of income and expense amortized in future accounting periods.

Accounts Receivable

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

Inventory

The Company states inventories at the lower of cost or market.  In assessing the ultimate realization of inventories, the Company is required to make judgments as to future demand requirements and compare that with the current or committed inventory levels.  The Company has recorded changes in required reserves in recent periods due to changes in strategic direction, such as discontinuances of product lines as well as changes in market conditions due to changes in demand requirements.  It is possible that changes in required inventory reserves may continue to occur in the future due to the market conditions.

Long-Lived Assets

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

Long-lived assets, such as property, plant and equipment and purchased intangible assets with finite lives are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”  The Company assesses the fair value of the assets based on the future cash flow the assets are

24

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

The Company has evaluated the remaining useful lives of its finite-lived purchased intangible assets to determine if any adjustments to the useful lives were necessary or if any of these assets had indefinite lives and were therefore not subject to amortization.  The Company determined that no adjustments to the useful lives of its finite-lived purchased intangible assets were necessary.  The finite-lived purchased intangible assets consist of membership customer lists, resort and golf course agreements, non-compete and deferred consulting agreements and deferred financing costs which have weighted average useful lives of approximately 6 years, 23 years, 15 years and 7 years, respectively.

Indefinite Lived Intangible Assets

The Company evaluates indefinite lived intangible assets for impairment at least annually or when events indicate that an impairment exists in accordance with SFAS No. 142.  The impairment test for goodwill and other indefinite-lived intangible assets is calculated annually using fair value measurement techniques.

Determining the fair value of a reporting unit and the fair value of individual assets and liabilities of a reporting unit is judgmental in nature and often involves the use of significant estimates and assumptions.  These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and also the extent of such charge.  The Company’s estimates of fair value utilized in goodwill and other indefinite-lived intangible asset tests may be based upon a number of factors, including assumptions about the projected future cash flows, discount rate, growth rate, determination of market comparables, technological change, economic conditions or changes to the Company’s business operations.  Such changes may result in impairment charges recorded in future periods.

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

Based on the results of the annual impairment tests, the Company determined that no impairment of goodwill existed as of December 31, 2004.  However, future goodwill impairment tests could result in a charge to earnings.  The Company will continue to evaluate goodwill on an annual basis and whenever events and changes in circumstances indicate that there may be a potential impairment.

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ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks relating to fluctuations in interest rates.  Our objective of financial risk management is to minimize the negative impact of interest rate fluctuations on our earnings and cash flows.  Interest rate risk is managed through the use of a combination of fixed and variable interest debt as well as the periodic use of interest rate collar contracts.

The following information discusses the sensitivity to our earnings.  The range of changes chosen for this analysis reflects our view of changes which are reasonably possible over a one-year period.  These forward-looking disclosures are selective in nature and only address the potential impacts from financial instruments.  They do not include other potential effects which could impact our business as a result of these interest rate fluctuations.

Interest Rate Sensitivity Analysis

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

Credit Risk

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

ITEM 4: CONTROL AND PROCEDURES

Within 90 days prior to the filing of this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Regulation 13a-14 under the Securities Exchange Act of 1934.  Based upon that evaluation, the President and Chief Executive Officer along with the Senior Vice President and Chief Financial Officer concluded that the disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the periodic SEC filings.  There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date the Company carried out its evaluation.

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PART II:  OTHER INFORMATION

None

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SIGNATURES:

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

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

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