UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-K

 

 

AFFINITY GROUP HOLDING, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

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

 

 

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 subsidiaries.

 

The Company is a member-based direct marketing organization with complementary retail outlets across the country.  The Company’s club members form a receptive audience to which it sells products, services, merchandise and publications targeted to the recreational interests of club members.  The Company’s three principal lines of business are (i) club memberships and related products, services and club magazines, (ii) specialty retail merchandise distributed primarily through its Camping World retail supercenters, mail order catalogs and the Internet, and (iii) subscription magazines and other publications including directories.  The Company’s affinity groups are principally comprised of recreational vehicle owners, campers, outdoor recreationists and, to a lesser extent, golfers.  See Footnote 12 in the Notes to Consolidated Financial Statements for financial information about the Company’s segments.

 

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

 

 

Business Strategy

 

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

 

Enhance Club Membership Enrollment

 

The Company seeks to increase the number of its club members through maximizing renewals by establishing an optimal mix of channels for soliciting new members and re-acquiring inactive members.  These channels include an internet presence through RV.Net.  Management believes that the participation levels and renewal rates of club members reflect the benefits derived from membership.  In order to maintain high participation rates in its clubs, the Company continuously evaluates member satisfaction and actively responds to changing member preferences through the enhancement or introduction of new membership benefits including products and services.  The Company also uses alternative channels for acquiring club members.  This is achieved through the use of two separate call centers, promotion in the publication titles it owns, through the national

 

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network of Camping World supercenters, mail order catalogs, and the Internet.

 

Acquire and Develop Other Affinity Groups

 

The Company believes that the experience it has accumulated in managing its existing recreational affinity groups is applicable to the management of other recreational interest organizations.  As a result, the Company conducts ongoing evaluations for developing or acquiring affinity groups for which it can build membership enrollment and to which it can market products and services.

 

Increase Sales of Products and Services

 

The Company seeks to increase the sale of its products and services due to their profitability and the favorable impact such programs have on club membership growth and retention.  Management continues to pursue the substantial opportunity which exists in marketing its clubs and ancillary products and services through the national network of Camping World supercenters and mail order catalogs.  This cross-club potential is exemplified by the significant percentage of Good Sam Club members which currently subscribe to one or more of the Company’s products and services, such as the emergency road service program and the extended vehicle warranty program.  Management also believes that the Good Sam Club members who are not currently members of Camping World’s President’s Club represent a focused group of customers to which it will market Camping World’s RV accessory merchandise.  The Company regularly studies the feasibility of introducing new products and services.

 

Management also believes a substantial opportunity exists to expand the number of Camping World stores by developing retail partnerships with RV dealerships across North America.  By establishing Camping World stores alongside or within existing independent dealerships, an expanded number of customers are provided with access to the vast array of products and services available under the Affinity Group umbrella and traffic is increased for our dealer partners.

 

Improve Operating Performance

 

The Company seeks to achieve operating efficiencies by selectively acquiring and developing recreational affinity groups which enable the Company to increase membership enrollment and to realize cost savings.  The Company also seeks to enhance its importance with third party providers of products and services 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 presence as a dominant publisher in select recreational niches through the introduction of new magazine formats and the acquisition of other publications in its market or in complementary recreational market niches.  Publications in complementary niches may also provide the Company with the opportunity to launch new membership clubs, to market its products and services to members of new clubs and to develop other products and services which meet the special needs of such members.  The Company believes overall circulation of its magazines is an important factor in determining the amount of revenues it can obtain from advertisers.

 

RV Industry

 

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

 

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and services may be influenced by a number of factors including general economic conditions, the availability and price of propane and gasoline, and the total number of RVs.  The Company believes that both the installed base of RVs and the type of RV owned (full service vehicles excluding van conversions) are the most important factors affecting the demand for its membership clubs, merchandise, products and services.  Based on the most recent survey conducted in 2001 by the National Survey of the RV Consumer of the University of Michigan (the “Survey”), the number of households owning RVs is projected to increase from 6.9 million in 2001 to nearly 8.0 million in 2010.  The Survey also indicates that the percentage of households owning RVs during this period will rise slightly from 7.6% to 7.8%.

 

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

 

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

 

Membership Clubs

 

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

 

The following table sets forth the number of members at December 31, 2002, annual membership dues and average annual renewal rates during the period of 1998 to 2002 for each club:

 

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

 

(1)               Also Includes multi-year and lifetime members.

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

(3)               Excludes members having lifetime memberships.

 

In addition to regular memberships, the Company also sells multi-year memberships.  Management believes that multi-year memberships provide several advantages, including the up-front receipt of dues in cash, reduced membership costs and a strengthened member commitment.

 

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

 

Good Sam Club

 

The Good Sam Club, founded in 1966, is a membership organization for owners of recreation vehicles.  The Good Sam Club is the largest RV club in North America with approximately 960,600 member families and over 1,900 local chapters as of December 31, 2002.  The average renewal rate for Good Sam Club members was approximately 70% during the period 1998 through 2002.  The Company has focused on selling higher margin multi-year memberships which, among other advantages, reduces the cost of membership renewal.  At December 31, 2002, the average length of time for participation in the Good Sam Club was almost 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 approximately 1,650 participating RV parks and campgrounds; discounts on the purchase of supplies and accessories for recreation vehicles at nearly 100 RV service centers; a free annual subscription to Highways, the club’s regular news magazine; discounts on other Company publications; trip routing and mail-forwarding; and access to products and services developed for club members.  Based on typical usage patterns, the Company estimates that Good Sam Club members realize estimated annual savings from discounts of $158.

 

The Good Sam Club establishes quality standards for RV parks and campgrounds participating in its discount program.  Campgrounds and parks participating in the Good Sam program benefit from increased occupancy and sales of camping related products.  The Company believes it has established considerable penetration of those for-profit RV parks and campgrounds which meet its quality standards for participation in the discount program.

 

The following table lists the number of club members and RV parks and campgrounds from 1998 through 2002 at which discounts for members were available at December 31st of the respective year:

 

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

 

(1)               A member consists of a household.

 

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Coast to Coast

 

The Coast to Coast Club operates the largest reciprocal use network of private RV resorts in North America.  The Company offers a series of membership benefits depending upon pricing and program type under the Coast to Coast name.  Members of Coast to Coast belong to a private RV resort owned and operated by parties unrelated to the Company.  Club members may use the participating resorts in the Coast to Coast network on a reservation or space available basis.  At December 31, 2002, there were over 139,800 member families in the Coast to Coast Club.  Approximately 383 private RV resorts nationwide participated in the Coast to Coast reciprocal use programs as well as a network of about 572 open to the public affiliated campgrounds.  These private resorts are designed primarily for RV owners, but typically provide camping or lodging facilities, comprised of RVs, cabins, park models, and condominiums.  For an initial membership fee plus annual maintenance fees, both paid by the customer to the resort, the private resorts provide an RV site with water, sewer and electrical hook-ups and recreational amenities, such as swimming, tennis or fishing, or proximity to theme parks or other recreational activities.  The Company has established quality criteria for 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 for overnight stays at participating resorts and campgrounds; an annual subscription to Coast to Coast Magazine; the Coast to Coast Directory providing information on the participating resorts; discounts on other Company publications; access to discount hotels and travel services; and access to ancillary products and services developed for club members.

 

The Company believes that resorts participating in the Coast to Coast networks view access to reciprocating member resorts as an incentive for their customers to join their resort.  Because a majority of Coast to Coast club members own RVs, access to participating resorts throughout North America can be an important complement to local resort membership.  Based on typical use patterns, the Company estimates that Coast to Coast members realize estimated annual savings from these discounts of over $200 from discounted overnight stay accommodations at participating resorts.  The average annual renewal rate for members of the Coast to Coast Club after the initial one-year membership (which is generally paid by the member resort not the club member) was approximately 71% during the period 1998 through 2002.

 

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

 

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

 

Membership in the Coast to Coast Club declined 11.1% from 2001 to 2002, and 39.2% from 1998 to 2002.  Changing travel patterns, and an increase in RV production and sales for 2003 and beyond, are positive indicators for growth in this sector of the travel and leisure industry.  With the advent of mixing park models and certain types of manufactured homes in traditional membership parks, current participating resorts are selling to more non-RV’ers with positive results.

 

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President’s Club

 

Camping World’s President’s Club program, which was established in 1986, has grown to 626,000 members.  President’s Club memberships may initially be obtained for one, two 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 88% are enrolled for one year.  President’s Club members receive a 10% discount on the purchase of all of Camping World’s merchandise and installation fees and also receive special mailings, including newsletters and flyers offering selected products and services at special prices.

 

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

 

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

 

(1)  Includes supercenters and one 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 79,400 members at December 31, 2002.  The major attraction for membership is the financial savings which members receive when playing at one of over 3,800 participating golf courses located throughout the US and Canada. The annual membership fee varies with the length and type (single or double) of membership.  The Company believes that the participating golf courses providing playing privileges to club members represent the largest number of golf courses participating in a discount program in North America.  None of the participating golf courses are owned or operated by the Company.

 

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

 

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

 

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

 

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

 

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

 

		Year Ended December 31
		2002		2001		2000		1999		1998