**UNITEDSTATES**

##### **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** |
|--------------------------|------------|-----------------------------|
| **March 31,  2009** | ** ** | **333-124109**              |

 

----

 

**AFFINITY GROUP HOLDING, INC.**

(Exact name ofregistrant as specified in its charter)

 

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

 

SECURITIESREGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: **NONE**

SECURITIESREGISTERED 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) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the Registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.

 
| YES  x |   | NO  o |
|------------------|--------|-----------------|

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files). Yes o No x

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.  (Check one):

 
| Large accelerated filer                       | o      |   | Accelerated filer         | o |
|-----------------------------------------------|--------|--------|---------------------------|---|
| Non-accelerated filer                         | x      |   | Smaller reporting company | o |
| (Do not check if a smaller reporting company) |   |   |

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).
| YES  o |   | NO  x |
|------------------|--------|-----------------|

 

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

 

|                         |       | **Outstanding as of** |
|------------------------------|------------|-----------------------|
| **Class**                    | ** ** | **June 5, 2009**      |
| Common Stock, $.01 par value |       | 100                   |

 

**DOCUMENTSINCORPORATED BY REFERENCE: None**

 

 

 

----

 

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

** **

**INDEX**

 
| ** **        |                                                                                                           | **Page**   |
|-------------------|----------------------------------------------------------------------------------------------------------------|------------|
| **Part I.**  | Financial Information                                                                                          | ** ** |
|              |                                                                                                           |       |
|              | **Item 1: Financial Statements**                                                                               |       |
|              |                                                                                                           |       |
|              | Consolidated  Balance Sheets  as of March 31, 2009 (unaudited) and December 31, 2008                 | 1          |
|              |                                                                                                           |       |
|              | Unaudited Consolidated Statements of Operations  for the three months ended March 31, 2009 and 2008       | 2          |
|              |                                                                                                           |       |
|              | Unaudited Consolidated Statements of Cash Flows  for the three months ended March 31, 2009 and 2008       | 3          |
|              |                                                                                                           |       |
|              | Notes to Unaudited Consolidated Financial Statements                                                           | 4          |
|              |                                                                                                           |       |
| ** **        | **Item 2:   Management’s Discussion and Analysis of Financial Condition and  Results of Operations** | 21         |
|              |                                                                                                           |       |
|              | **Item 3:   Quantitative and Qualitative Disclosures about Market Risk**                                  | 35         |
|              |                                                                                                           |       |
|              | **Item  4:  Controls and Procedures**                                                                     | 35         |
|              |                                                                                                           |       |
| **Part II.** | Other Information                                                                                              | 36         |
|              |                                                                                                           |
| **Signatures**    | 37                                                                                                             |
|                   |                                                                                                                |            |  |

 

----

 

AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 31, 2009 and December 31, 2008

(In thousands except shares and par value)

 
| ** **                                                                                      | ** ** | **3/31/2009**   | ** ** | **12/31/2008** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|
| ** **                                                                                      | ** ** | **(Unaudited)** | ** ** | ** **     | ** ** |
| **ASSETS**                                                                                      |       |            |       |           |       |
| CURRENT ASSETS:                                                                                 |       |            |       |           |       |
| Cash and cash equivalents                                                                       |       | $               | 22,441     |           | $          | 10,777 |   |
| Accounts receivable, less allowance for doubtful  accounts of $2,187 in 2009 and $2,147 in 2008 |       | 35,748          |       | 40,191         |       |
| Inventories                                                                                     |       | 57,966          |       | 57,137         |       |
| Prepaid expenses and other assets                                                               |       | 15,832          |       | 13,547         |       |
| Total current assets                                                                            |       | 131,987         |       | 121,652        |       |
|                                                                                            |       |            |       |           |       |
| PROPERTY AND EQUIPMENT, net                                                                     |       | 42,218          |       | 44,077         |       |
| NOTE FROM AFFILIATE                                                                             |       | 4,596           |       | 4,608          |       |
| INTANGIBLE ASSETS, net                                                                          |       | 20,455          |       | 22,389         |       |
| GOODWILL                                                                                        |       | 96,828          |       | 96,828         |       |
| DEFERRED TAX ASSETS, net                                                                        |       | 4,569           |       | 4,569          |       |
| OTHER ASSETS                                                                                    |       | 2,605           |       | 2,035          |       |
| Total assets                                                                                    |       | $               | 303,258    |           | $          | 296,158 |   |
|                                                                                            |       |            |       |           |       |
| **LIABILITIES AND STOCKHOLDER’S DEFICIT**                                                  |       |            |       |           |       |
| CURRENT LIABILITIES:                                                                            |       |            |       |           |       |
| Accounts payable                                                                                |       | $               | 31,376     |           | $          | 23,950 |   |
| Accrued interest                                                                                |       | 4,127           |       | 11,581         |       |
| Accrued income taxes                                                                            |       | 1,217           |       | 1,165          |       |
| Accrued liabilities                                                                             |       | 25,773          |       | 27,009         |       |
| Deferred revenues and gains                                                                     |       | 58,129          |       | 60,569         |       |
| Current portion of long-term debt                                                               |       | 173,152         |       | 12,391         |       |
| Total current liabilities                                                                       |       | 293,774         |       | 136,665        |       |
|                                                                                            |       |            |       |           |       |
| DEFERRED REVENUES AND GAINS                                                                     |       | 35,995          |       | 35,855         |       |
| LONG-TERM DEBT, net of current portion                                                          |       | 239,439         |       | 391,487        |       |
| OTHER LONG-TERM LIABILITIES                                                                     |       | 30,245          |       | 30,156         |       |
|                                                                                            |       | 599,453         |       | 594,163        |       |
|                                                                                            |       |            |       |           |       |
| COMMITMENTS AND CONTINGENCIES                                                                   |       |            |       |           |       |
|                                                                                            |       |            |       |           |       |
| STOCKHOLDER’S DEFICIT:                                                                     |       |            |       |           |       |
| Common stock, $.01 par value, 3,000 shares  authorized, 100 shares issued and outstanding       |       | 1               |       | 1              |       |
| Additional paid-in capital                                                                      |       | 18,220          |       | 12,041         |       |
| Accumulated deficit                                                                             |       | (304,322        | )          | (299,710       | )          |
| Accumulated other comprehensive loss                                                            |       | (10,094         | )          | (10,337        | )          |
| Total stockholder’s deficit                                                                |       | (296,195        | )          | (298,005       | )          |
| Total liabilities and stockholder’s deficit                                                |       | $               | 303,258    |           | $          | 296,158 |   |

 

See notes toconsolidated financial statements.

 

1

----

 

AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OFOPERATIONS

(In Thousands)

(Unaudited)

 
| ** **                               | ** ** | **THREE MONTHS ENDED** | ** ** |
|------------------------------------------|------------|------------------------|------------|
| ** **                               | ** ** | **3/31/2009**          | ** ** | **3/31/2008** | ** ** |
|                                     |       |                   |       |   |   |
| REVENUES:                                |       |                   |       |   |   |
| Membership services                      |       | $                      | 35,232     |   | $ | 35,545 |   |
| Media                                    |       | 17,420                 |       | 26,256 |   |
| Retail                                   |       | 52,401                 |       | 63,184 |   |
|                                     |       | 105,053                |       | 124,985 |   |
|                                     |       |                   |       |   |   |
| COSTS APPLICABLE TO REVENUES:            |       |                   |       |   |   |
| Membership services                      |       | 20,330                 |       | 23,141 |   |
| Media                                    |       | 13,484                 |       | 17,217 |   |
| Retail                                   |       | 31,536                 |       | 36,863 |   |
|                                     |       | 65,350                 |       | 77,221 |   |
|                                     |       |                   |       |   |   |
| GROSS PROFIT                             |       | 39,703                 |       | 47,764 |   |
|                                     |       |                   |       |   |   |
| OPERATING EXPENSES:                      |       |                   |       |   |   |
| Selling, general and administrative      |       | 29,939                 |       | 36,439 |   |
| Depreciation and amortization            |       | 4,964                  |       | 5,131 |   |
|                                     |       | 34,903                 |       | 41,570 |   |
|                                     |       |                   |       |   |   |
| INCOME FROM OPERATIONS                   |       | 4,800                  |       | 6,194 |   |
|                                     |       |                   |       |   |   |
| NON-OPERATING ITEMS:                     |       |                   |       |   |   |
| Interest income                          |       | 130                    |       | 143 |   |
| Interest expense                         |       | (9,042                 | )          | (9,182 | ) |
| Gain on derivative instrument            |       | 20                     |       | — |   |
| Other non-operating items, net           |       | (83                    | )          | 2 |   |
|                                     |       | (8,975                 | )          | (9,037 | ) |
|                                     |       |                   |       |   |   |
| LOSS FROM OPERATIONS BEFORE INCOME TAXES |       | (4,175                 | )          | (2,843 | ) |
|                                     |       |                   |       |   |   |
| INCOME TAX EXPENSE                       |       | (396                   | )          | (299 | ) |
|                                     |       |                   |       |   |   |
| NET LOSS                                 |       | $                      | (4,571     | ) | $ | (3,142 | ) |

 

Seenotes to consolidated financial statements.

 

2

----

 

AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OFCASH FLOWS

(In Thousands)

(Unaudited)

 
| ** **                                                                   | ** ** | **THREE MONTHS ENDED** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                   | ** ** | **3/31/2009**          | ** ** | **3/31/2008** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                        |       |                   |       |   |   |
| Net loss                                                                     |       | $                      | (4,571     | ) | $ | (3,142 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |       |                   |       |   |   |
| Depreciation                                                                 |       | 3,031                  |       | 2,999 |   |
| Amortization                                                                 |       | 1,933                  |       | 2,132 |   |
| Provision for losses on accounts receivable                                  |       | 370                    |       | 262 |   |
| Deferred compensation                                                        |       | —                 |       | (300 | ) |
| Loss on sale of property and equipment                                       |       | 82                     |       | 26 |   |
| Non-cash interest on AGHI Notes                                              |       | —                 |       | 1,465 |   |
| Accretion of original issue discount                                         |       | 129                    |       | 112 |   |
| Changes in operating assets and liabilities                                  |       |                   |       |   |   |
| Accounts receivable                                                          |       | 4,073                  |       | 1,602 |   |
| Inventories                                                                  |       | (829                   | )          | (3,219 | ) |
| Prepaid expenses and other assets                                            |       | (2,855                 | )          | (1,864 | ) |
| Accounts payable                                                             |       | 7,426                  |       | 1,569 |   |
| Accrued and other liabilities                                                |       | (2,263                 | )          | (6,136 | ) |
| Deferred revenues and gains                                                  |       | (2,300                 | )          | (3,438 | ) |
| Net cash provided by operating activities                                    |       | 4,226                  |       | (7,932 | ) |
|                                                                         |       |                   |       |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                        |       |                   |       |   |   |
| Capital expenditures                                                         |       | (1,261                 | )          | (3,515 | ) |
| Net proceeds from sale of property and equipment                             |       | 7                      |       | 1 |   |
| Investment in affiliate                                                      |       | 12                     |       | 10 |   |
| Acquisitions, net of cash received                                           |       | —                 |       | (3,409 | ) |
| Net cash used in investing activities                                        |       | (1,242                 | )          | (6,913 | ) |
|                                                                         |       |                   |       |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                        |       |                   |       |   |   |
| Borrowings on long-term debt                                                 |       | 11,000                 |       | 22,400 |   |
| Payment of debt issue costs                                                  |       | 1                      |       | — |   |
| Principal payments of short-term debt                                        |       | (2,321                 | )          | (15,216 | ) |
| Net cash provided by financing activities                                    |       | 8,680                  |       | 7,184 |   |
|                                                                         |       |                   |       |   |   |
| NET CHANGE IN CASH AND CASH EQUIVALENTS                                      |       | 11,664                 |       | (7,661 | ) |
|                                                                         |       |                   |       |   |   |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                             |       | 10,777                 |       | 8,566 |   |
|                                                                         |       |                   |       |   |   |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                   |       | $                      | 22,441     |   | $ | 905 |   |

 

See notes to consolidatedfinancial statements.

 

3

----

 

**AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES**

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

**(1) BASISOF PRESENTATION**

 

*Principles of Consolidation*–**Theconsolidated financial statements included herein include the accounts ofAffinity Group Holding, Inc. (“AGHI”), its wholly-owned subsidiary,Affinity Group, Inc. (“AGI”), and AGI’s subsidiaries (collectively the “Company”),presented in accordance with U.S. generally accepted accounting principles, andpursuant to the rules and regulations of the Securities and ExchangeCommission.  In November 2007, AGIHolding Corp. (“AGHC”) formed a holding company, AGI Intermediate Holdco, LLC (“AGII”),at which time AGHC contributed 100% of the outstanding shares of common stockof AGHI to AGII.  AGII is the parentcompany of AGHI.

 

These interimconsolidated financial statements should be read in conjunction with theCompany’s consolidated financial statements and notes in the Company’s 10-Kreport for the year ended December 31, 2008 as filed with the Securitiesand Exchange Commission.  In the opinionof management of the Company, these consolidated financial statements containall adjustments of a normal recurring nature necessary to present fairly thefinancial position, results of operations and cash flows of the Company for theinterim periods presented.

 

*Basisfor Presentation**–*The accompanying financial statementshave been prepared on the basis that the Company will continue as a goingconcern.  With respect to the AGHI Notes,AGI has not paid any dividends to AGHI to fund payment of interest on the AGHINotes.  Currently, the AGI Senior CreditFacility and the AGI Indenture impose limitations on the ability ofsubsidiaries of AGHI to make dividend distributions or loans to AGHI to payinterest on the AGHI Notes.  AGHI madethe interest payments due on August 15, 2005, February 15, 2006, August 15,2006, February 15, 2007, and February 15, 2008 through the issuanceof additional notes and AGHI paid the interest on the AGHI Notes due August 15,2007 and 2008 from proceeds of capital contributions made by AGHI’s parent,AGHC.  The August 15, 2009 interestpayment is expected to be paid from proceeds of capital contributions made byAGHC.

 

OnJune 5, 2009, AGI entered into an amendment to its AGI Senior CreditFacility pursuant to which the maturity date was extended from June 24,2009 to March 31, 2010, the revolving credit portion of the facility wasreduced by $10.0 million to $25.0 million, the outstanding term loan borrowingswere repaid by $8.0 million, the financial covenants in effect through theextended maturity date were revised and the borrowing rate was increased toprime rate plus 7.0% or LIBOR plus 8.0% with a LIBOR floor of 2.75%.  Concurrent with the amendment to the AGISenior Credit Facility, AGI obtained a $9.7 million Second Lien Loan, the netproceeds of which were used to purchase $14.6 million in principal amount ofAGI Senior Notes.  The Second Lien Loancarries an interest rate of 9.0% and matures on July 31, 2010.  See Long Term Debt Note #6.

 

4

----

 

**(1) BASISOF PRESENTATION (continued)**

 

Theamended AGI Senior Credit Facility also revised the Company’s financialcovenants in effect through the extended maturity date.  The Company’s forecast for 2009 anticipatescompliance with all required covenants throughout 2009.  Significant cost reductions have beenimplemented in 2008, including the elimination of personnel, suspension of 401(k) employercontributions, salary cutbacks, hiring and capital expenditure spendingfreezes, satellite office closures, and magazine size and frequencyreductions.  Further cost reductions areset to be unveiled in 2009.  The Companybelieves that the amended bank financing, new secured loans, as well asforecasted cash flow will provide the cash flow needed to continue as a goingconcern through at least January 1, 2010.

 

**(2) RECENTACCOUNTING PRONOUNCEMENTS**

 

In December 2007,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 141 (revised 2007), “Business Combinations” (“SFAS141(R)”).  SFAS 141(R) establishesprinciples and requirements for how an acquirer recognizes and measures in itsfinancial statements the identifiable assets acquired, the liabilities assumed,any noncontrolling interest in the acquiree and the goodwill acquired.  SFAS 141(R) also establishes disclosurerequirements to enable the evaluation of the nature and financial effects ofthe business combination.  SFAS 141(R) iseffective for fiscal years beginning after December 15, 2008.  The Company adopted SFAS 141(R) in thefirst quarter of fiscal 2009 and will apply the provisions of the Statement forany acquisition after the adoption date.

 

In December 2007,the FASB issued SFAS No. 160, “Accounting and Reporting of Non-controllingInterests in Consolidated Financial Statements – an amendment of AccountingResearch Bulletin No. 51” (“SFAS 160”). This standard will significantly change the accounting and reporting forbusiness combination transactions and non-controlling (minority) interests inconsolidated financial statements, including capitalizing at the acquisitiondate the fair value acquired from in-process research and development, and re-measuringand writing down these assets, if necessary, in subsequent periods during theirdevelopment.  This new standard will beapplied for business combinations that occur on or after January 1, 2009and presentation and disclosure requirements of SFAS 160 shall be appliedretrospectively.

 

In January 2008,the Company adopted the provisions of SFAS No. 157, “Fair ValueMeasurements” (“SFAS 157”).  SFAS 157defines fair value, establishes a framework and gives guidance regarding themethod used for measuring fair value, and expands disclosures about fair valuemeasurements.  SFAS 157 requirescompanies to disclose the fair value of their financial instruments accordingto a fair value hierarchy, as defined, and may require companies to provideadditional disclosures based on that hierarchy. SFAS 157 is effective for financial statements issued for fiscal yearsbeginning after November 15, 2007, and interim periods within those fiscalyears.  The adoption of the provisions ofSFAS 157 did not have a material impact on the Company’s consolidated financialstatements.

 

In February 2008,the FASB issued SFAS No. 157-2 which defers the effective date of SFAS No. 157for all non-financial assets and liabilities, except those items recognized ordisclosed at

 

5

----

 

**(2) RECENTACCOUNTING PRONOUNCEMENTS (continued)**

 

fair value on anannual or more frequent recurring basis, until years beginning after November 15,2008.  The Company’s adoption of SFAS No. 157-2for its non-financial assets and liabilities that are not re-measured on arecurring basis on January 1, 2008 did not have a material impact on theCompany’s consolidated financial statements. There were no material re-measurements to fair value during the periodended March 31, 2009, of assets and liabilities that are not measured atfair value on a recurring basis.

 

In March 2008,the FASB issued SFAS Statement No. 161 (“SFAS 161”), “Disclosures aboutDerivative Instruments and Hedging Activities”. SFAS 161 requires companieswith derivative instruments to disclose information that should enablefinancial statement users to understand how and why a company uses derivativeinstruments, how derivative instruments and related hedged items are accountedfor under FASB Statement No. 133 “Accounting for Derivative Instrumentsand Hedging Activities” and how derivative instruments and related hedged itemsaffect a company’s financial position, financial performance and cash flows.SFAS 161 is effective for financial statements issued for fiscal years andinterim periods beginning after November 15, 2008.  The disclosure requirements of SFAS 161 wereadopted January 1, 2009.

 

**(3) DISCLOSURESABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION**

 

TheCompany’s three principal lines of business are Membership Services, Media(formerly known as Publications), and Retail. The Membership Services segment includes the operations of the Good SamClub, Coast to Coast Club, Camping World’s President’s Club, Camp Club USA andRV Handyman Club for recreational vehicle (“RV”) owners, campers and outdoorvacationers, and the Golf Card Club for golf enthusiasts.  The Media segment publishes a variety ofpublications for selected markets in the recreation and leisure industry,including general circulation periodicals, directories, and RV and powersportsindustry trade magazines, and produces outdoor recreational consumerevents.  The Retail segment sellsspecialty retail merchandise and services for RV owners primarily throughCamping World retail supercenters, mail order catalogs and its website.  The Company evaluates performance based onprofit or loss from operations before income taxes.

 

The reportablesegments are strategic business units that offer different products andservices.  They are managed separatelybecause each business requires different technology, management expertise andmarketing strategies.

 

6

----

 

**(3) DISCLOSURESABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (continued)**

 

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

 
| ** **                                 | ** ** | **Membership** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **       | ** ** |
|--------------------------------------------|------------|----------------|------------|------------|------------|------------|------------|------------------|------------|
| ** **                                 | ** ** | **Services**   | ** ** | **Media**  | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **QUARTER ENDED MARCH 31, 2009**      |       |           |       |       |       |       |       |             |       |
| Revenues from external customers           |       | $              | 35,232     |       | $          | 17,420     |       | $                | 52,401     |   | $ | 105,053 |   |
| Depreciation and amortization              |       | 806            |       | 1,323      |       | 2,189      |       | 4,318            |       |
| Loss on disposal of property and equipment |       | —         |       | (1         | )          | (81        | )          | (82              | )          |
| Interest income                            |       | 864            |       | —     |       | 2          |       | 866              |       |
| Interest expense                           |       | —         |       | 28         |       | 3,918      |       | 3,946            |       |
| Segment profit (loss)                      |       | 12,625         |       | 1,312      |       | (8,161     | )          | 5,776            |       |
|                                       |       |           |       |       |       |       |       |             |       |
| ** **                                 | ** ** | **Membership** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **       | ** ** |
| ** **                                 | ** ** | **Services**   | ** ** | **Media**  | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **QUARTER ENDED MARCH 31, 2008**      |       |           |       |       |       |       |       |             |       |
| Revenues from external customers           |       | $              | 35,545     |       | $          | 26,256     |       | $                | 63,184     |   | $ | 124,985 |   |
| Depreciation and amortization              |       | 737            |       | 1,463      |       | 2,352      |       | 4,552            |       |
| Loss on disposal of property and equipment |       | —         |       | —     |       | (26        | )          | (26              | )          |
| Interest income                            |       | 917            |       | —     |       | 11         |       | 928              |       |
| Interest expense                           |       | —         |       | 48         |       | 4,111      |       | 4,159            |       |
| Segment profit (loss)                      |       | 9,999          |       | 5,809      |       | (8,426     | )          | 7,382            |       |

 

Thefollowing is a reconciliation of (loss) profit from operations to the Company’sconsolidated financial statements for the three months ended March 31,2009 and 2008 (in thousands):

 
| ** **                                                     | ** ** | **THREE MONTHS ENDED** | ** ** |
|----------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                     | ** ** | **3/31/2009**          | ** ** | **3/31/2008** | ** ** |
| **(Loss) Profit From Operations Before Income  Taxes**         |       |                   |       |   |   |
| Total profit for reportable segments                           |       | $                      | 5,776      |   | $ | 7,382 |   |
| Unallocated G & A expense                                  |       | (3,493                 | )          | (3,838 | ) |
| Unallocated depreciation and amortization expense              |       | (646                   | )          | (579 | ) |
| Unallocated gain on derivative instrument                      |       | 20                     |       | — |   |
| Elimination of intercompany interest income                    |       | (736                   | )          | (785 | ) |
| Unallocated interest expense, net of intercompany  elimination |       | (5,096                 | )          | (5,023 | ) |
| Loss from operations before income taxes                       |       | $                      | (4,175     | ) | $ | (2,843 | ) |

 

7

----

 

**(3) DISCLOSURESABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (continued)**

 

Thefollowing is a reconciliation of assets of reportable segments to the Company’sconsolidated financial statements as of March 31, 2009 and December 31,2008 (in thousands):

 
| ** **                                          | ** ** | **3/31/2009** | ** ** | **12/31/2008** | ** ** |
|-----------------------------------------------------|------------|---------------|------------|----------------|------------|
| Membership services segment                         |       | $             | 228,375    |           | $          | 221,262 |   |
| Media segment                                       |       | 83,498        |       | 88,101         |       |
| Retail segment                                      |       | 115,574       |       | 110,964        |       |
| Total assets for reportable segments                |       | 427,447       |       | 420,327        |       |
| Capitalized finance costs not allocated to segments |       | 5,344         |       | 5,836          |       |
| Corporate unallocated assets                        |       | 3,109         |       | 3,237          |       |
| Elimination of intersegment receivable              |       | (132,642      | )          | (133,242       | )          |
| Total assets                                        |       | $             | 303,258    |           | $          | 296,158 |   |

 

 

**(4) STATEMENTS OF CASH FLOWS**

 

Supplementaldisclosures of cash flow information for the three months ended March 31(in thousands):

 
| ** **                       | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
| Cash paid during the period for: |       |     |       |     |       |
| Interest                         |       | $        | 16,367     |     | $          | 9,337 |   |
|                                  |            |          |            |          |            |  |  |

 

In January 2008,the Company assumed $0.6 million of liabilities and issued $0.4 million of debtin connection with the acquisition of nine RV and boat shows from MAC Events,LLC.

 

In February 2008,the Company assumed $0.5 million of liabilities and issued $0.5 million of debtin connection with the acquisition of three RV and boat shows from Mid AmericaExpositions, Inc.

 

In August 2008,AGHC paid the interest on the AGHI Notes of $6.2 million representing acontribution from AGHC and a payment of interest on the notes.

 

In December 2008,the Company recorded the fair value of the interest rate swaps in OtherLong-Term Liabilities of $12.7 million, in Accumulated Other Comprehensive Lossof $10.3 million, and ineffective portion in statement of operations of $2.4million.

 

In February 2009,AGHC paid the interest on the AGHI Notes of $6.2 million representing acontribution from AGHC and a payment of interest on the notes.

 

For the threemonths ended March 31, 2009, the Company recorded an adjustment to thefair value of the interest rate swap resulting in a $0.3 million decrease inboth Other Long-Term Liabilities and Other Comprehensive Loss.

 

8

----

 

**(5) GOODWILL AND INTANGIBLE ASSETS**

 

The Companyreviews goodwill and indefinite-lived intangible assets for impairment at leastannually and more often when impairment indicators are present.  The Company performs its annual impairmenttest during the fourth quarter.  Therewere no changes in the Company’s goodwill for the three months ended March 31,2009 and 2008, and no indicators of impairment.

 

The Company hasevaluated the remaining useful lives of its property and equipment andfinite-lived purchased intangible assets to determine if any adjustments to theuseful lives were necessary.  The Companydetermined that no adjustments to the useful lives of its property andequipment or finite-lived purchased intangible assets were necessary.  Under SFAS No. 142, Goodwill and OtherIntangible Assets, (“SFAS No. 142”) goodwill impairment is deemed to existif the net book value of a reporting unit exceeds its estimated fairvalue.  The Company’s reporting units aregenerally consistent with the operating segments underlying the reportingsegments identified in Note 3 - Segment Information.

 

In January 2008,AGI Productions, Inc. acquired consumer shows from MAC Events, LLC for$3.4 million.  As part of the purchase,the Company issued $0.4 million of debt and assumed $0.6 million ofliabilities.  In February 2008, AGIProductions, Inc. acquired consumer shows from Mid America Expositions, Inc.for $1.6 million.  As part of thepurchase, the Company issued $0.5 million of debt and assumed $0.5 million ofliabilities.

 

These acquisitionshave been accounted for as a purchase in accordance with SFAS No. 141, “BusinessCombinations,” and accordingly, the acquired assets and liabilities have beenrecorded at fair value.  The allocationsof purchase price to assets and liabilities include various finite-livedintangible assets (primarily customer lists) and no additional goodwill.  The operations of each entity are included inthe operations of the Company as of their respective acquisition dates.

 

Finite-lived intangible assets, related accumulated amortization andweighted average useful life consisted of the following at March 31, 2009(in thousands, except as noted):

 
| ** **                                      | ** ** | **Weighted**        | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|---------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                                      | ** ** | **Average Useful**  | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
| ** **                                      | ** ** | **Life (in years)** | ** ** | **Gross**  | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
|                                            |       |                |       |       |       |             |       |       |       |
| Membership and customer lists                   |       | 6                   |       | $          | 36,384     |             | $          | (23,316    | )          | $ | 13,068 |   |
| Resort and golf course participation agreements |       | 4                   |       | 13,376     |       | (13,369          | )          | 7          |       |
| Non-compete and deferred consulting agreements  |       | 15                  |       | 18,830     |       | (15,408          | )          | 3,422      |       |
| Deferred financing costs                        |       | 7                   |       | 14,226     |       | (10,268          | )          | 3,958      |       |
|                                            |       |                |       |       |       |             |       |       |       |
|                                            |       |                |       | $          | 82,816     |             | $          | (62,361    | )          | $ | 20,455 |   |

 

9

----

 

**(6) DEBT**

** **

SeniorSubordinated Notes

 

InFebruary 2004, AGI issued $200.0 million of 9% Senior Subordinated Notes(“Senior Subordinated Notes”) due 2012 pursuant to the AGI Indenture.  On June 8, 2006, AGI amended its Amendedand Restated Credit Agreement (“Senior Credit Facility”) to permit AGI topurchase up to $30.0 million of the Senior Subordinated Notes from time to timeas and when AGI determines.  AGI retired$29.9 million of the Senior Subordinated Notes in 2006. On February 27,2007, AGI amended its Senior Credit Facility to permit AGI to repurchase up toan additional $50.0 million of the Senior Subordinated Notes from time to time,as and when AGI determines, through the issuance of additional term loans of upto $50.0 million under the Senior Credit Facility.  On March 8, 2007, AGI purchased $17.7million of the Senior Subordinated Notes. As of March 31, 2009, $152.4 million of the Senior SubordinatedNotes remain outstanding.  Interest ispayable on the remaining Senior Subordinated Notes twice a year on February 15and August 15.  AGI’s present andfuture restricted subsidiaries will guarantee the Senior Subordinated Noteswith unconditional guarantees of payment that will rank junior in right ofpayment to their existing and future senior debt, but will rank equal in rightof payment to their existing and future senior subordinated debt.

 

AGHI Notes

 

On March 24, 2005 in a private placement, AGHI issued $88.2million principal amount of its 10-7/8% senior notes due 2012 (the “AGHINotes”) at a $3.2 million original issue discount.  The Company completed a registered exchangeof these AGHI Notes under the Securities Act of 1933 in June 2005.  The AGHI Notes are unsecured obligations ofAGHI and its subsidiaries have not guaranteed payment of principal or intereston the AGHI Notes.  Interest on the AGHINotes 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 infull on February 15, 2012.  Forinterest payments on and prior to February 15, 2008, AGHI had the optionto pay interest on the AGHI Notes in cash or by the issuance of additionalnotes of the same tenor as the AGHI Notes, except the maturity date of theadditional notes ($25.4 million) is March 15, 2010.  AGI has not paid any dividends to AGHI tofund payment of interest on the AGHI Notes and AGHI made the interest paymentsdue on August 15, 2005, February 15, 2006, August 15, 2006, February 15,2007, and February 15, 2008 through the issuance of additional notes.  AGHI paid the interest on the AGHI Notes due August 15,2007, August 15, 2008 and February 15, 2009 from proceeds ofcontributions made by AGHI’s parent, AGHC, of $5.9 million, $6.2 million and$6.2 million, respectively.  As of March 31,2009, $111.9 million of AGHI Notes remain outstanding.  Currently, the AGI Senior Credit Facility andthe AGI Indenture impose limitations on the ability of subsidiaries of AGHI tomake dividend distributions or loans to AGHI to pay interest on the AGHI Notes.

 

Senior CreditFacility

 

OnJune 24, 2003, AGI entered into an Amended and Restated Credit Agreementand a Senior Secured Floating Rate Note Purchase Agreement (as amended, the“AGI Senior Credit Facility”).  TheSenior Credit Facility provides for a revolving credit facility of $35.0million and term loans in the aggregate of $140.0 million.  As of March 31, 2009, $19.5 million wasoutstanding under the revolving credit facility and $126.5 million wasoutstanding under the term loans. Reborrowings under the term loans are not permitted.  The interest on borrowings

 

10

----

 

**(6) DEBT (continued)**

 

under the AGI Senior Credit Facility was at variable rates based on theratio of total cash flow to outstanding indebtedness (as defined).  Interest rates float with prime and theLondon Interbank Offered Rates, or LIBOR, plus an applicable margin rangingfrom 1.50% to 2.50% over the stated rates. After consideration of fixed rates under the interest rate swapagreements, (discussed in Note 8), as of March 31, 2009, the averageinterest rates on the term loans and the revolving credit facility were 7.27%and 5.25%, respectively, and permitted borrowings under the revolving facilitywere $27.5 million.  AGI also pays acommitment fee of 0.5% per annum on the unused amount of the revolving credit facility.  The aggregate quarterly scheduled payments onthe term loans are $0.4 million.  Boththe revolving credit facility and the term loans mature on March 31,2010.  The funds available under the AGISenior Credit Facility may be utilized for borrowings or letters of credit;however, a maximum of $7.5 million may be allocated to such letters ofcredit.  As of March 31, 2009, AGIhad letters of credit in the aggregate amount of $7.5 million outstanding.  The AGI Senior Credit Facility is secured byvirtually all of AGI’s assets and a pledge of AGI’s stock and the stock of AGI’ssubsidiaries.

 

On September 8, 2008, the Company amended its Senior CreditFacility to permit Letters of Credit (“LC’s”) issued under the existing CreditAgreement to have an expiration or termination date on or after the revolvingcredit maturity date of June 24, 2009, limit the maximum amount of LC’s to$7.5 million, and requiring any LC’s in place 90 days prior to the revolvingcredit maturity date to be cash collateralized. As of March 31, 2009, $7.8 million of the cash balance has beenplaced in a collateral account.

 

On June 5, 2009, AGI entered into anamendment to its AGI Senior Credit Facility pursuant to which the maturity datewas extended from June 24, 2009 to March 31, 2010, the revolvingcredit portion of the facility was reduced by $10.0 million to $25.0 million,the outstanding term loan borrowings were repaid by $8.0 million, the financialcovenants in effect through the extended maturity date were revised and theborrowing rate was increased to prime rate plus 7.0% or LIBOR plus 8.0% with aLIBOR floor of 2.75%.  As a condition tothe amendment, the shareholder of the ultimate parent of the Company, wasrequired to arrange for the purchase of approximately $26.6 million inprincipal amount of the term portion of the AGI Senior Credit Facility by newlenders, enhance the yield to such new lenders, purchase AGHI Notes held by oneof such new lenders at a premium to the most recent market price, contribute $5.0million in capital and guarantee two required principal payments on the termloans under the AGI Senior Credit Facility, aggregating $15.0 million.  In consideration of such support, AGI enteredinto an option agreement with the shareholder of the ultimate parent of theCompany pursuant to which AGI granted such shareholder or his assigns anoption, exercisable on or before March 1, 2010, to purchase the Company’sCamping World subsidiary for $55.0 million, being the fair value of suchsubsidiary as determined by an appraisal of Houlihan Smith & Company, Inc.dated as of March 1, 2009.  AGI alsoagreed to pay the shareholder of the ultimate parent, upon successfulrefinancing of AGI’s secured debt, including the AGI Senior Credit Facility, asuccess fee equal in amount to the fair value, as determined by an independentfinancial advisor of such credit support, taking into account the fair value ofthe option to purchase Camping World.  Inthe event the fair value of the Camping World purchase option exceeds the fairvalue of such credit support, the shareholder will pay the amount of suchexcess to AGI.

 

11

----

 

**(6) DEBT (continued)**

 

Concurrent with the amendment to the AGISenior Credit Facility, AGI obtained a $9.7 million Second Lien Loan, the netproceeds of which were used to purchase $14.6 million in principal amount ofAGI Senior Notes.  The Second Lien Loancarries an interest rate of 9.0% and matures on July 31, 2010.

 

In addition, AGI agreed to use its bestefforts to secure an asset-based loan of at least $18.5 million secured by theinventory and receivables of its subsidiary, Camping World, Inc. (the “CampingWorld Financing”), the proceeds of which would be used to further reduce theamounts outstanding under the AGI Senior Credit Facility.  The senior lenders agreed to subordinatetheir liens to such financing.  If aCamping World Financing has not been consummated by September 15, 2009,the borrowing rate on revolving credit loans, swing loans and terms loansincrease to prime rate plus 9.0% or LIBOR plus 10.0%.

 

The amended AGI Senior Credit Facility alsorevised the Company’s financial covenants in effect through the extendedmaturity date.  The Company’s forecastfor 2009 anticipates compliance with all required covenants throughout2009.  Significant cost reductions havebeen implemented in 2008, including the elimination of personnel, suspension of401(k) employer contributions, salary cutbacks, hiring and capitalexpenditure spending freezes, satellite office closures, and magazine size andfrequency reductions.  Further costreductions are set to be unveiled in 2009. The Company believes that the amended bank financing, new secured loans,as well as forecasted cash flow will provide the cash flow needed to continueas a going concern through at least January 1, 2010.

 

**(7) INCOME TAXES**

 

Thefollowing table summarizes the activity related to unrecognized tax benefits(in thousands):

 
| Balance at December 31, 2008                                                        |   | $      | 14,493 |   |
|------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Gross increases in unrecognized tax benefits due to  prior year positions                |   | — |   |
| Gross decreases in unrecognized tax benefits due to  prior year positions                |   | — |   |
| Gross increases in unrecognized tax benefits due to  current year positions              |   | — |   |
| Gross decreases in unrecognized tax benefits due to  current year positions              |   | — |   |
| Gross decreases in unrecognized tax benefits due to  settlements with taxing authorities |   | — |   |
| Gross decreases in unrecognized tax benefits due to  statute expirations                 |   | — |   |
| Other                                                                                    |   | 26     |   |
| Unrecognized tax benefits at March 31, 2009                                         |   | $      | 14,519 |   |

 

The Company accrues interest and penaltiesrelated to unrecognized tax benefits in its income tax provision.  The Company recorded interest and penaltiesof $0.3 million related to unrecognized tax benefits during the first threemonths of 2009 and the liability for penalties and interest was $2.7million.  This amount was included inother long-term liabilities.  The Companydoes not expect its unrecognized tax benefits to change significantly over thenext twelve months.

 

12

----

 

**(7) INCOME TAXES (continued)**

 

The Company and its subsidiaries file income taxreturns in the U.S. and various states. With few exceptions, the Company is no longer subject to U.S. federal,state, and local income tax examinations by tax authorities for years before2002.

 

**(8) INTEREST RATE SWAP AGREEMENTS**

 

The Company isexposed to certain risks related to its business operations.  The primary risks that we managed by usingderivatives is interest rate risk.  Weuse financial instruments, including interest rate swap contracts, to reduceour risk to this exposure.  We do not usederivatives for speculative trading purposes and are not a party to leveragedderivatives.

 

We recognize allof our derivative instruments as either assets or liabilities at fairvalue.  Fair value is determined inaccordance with SFAS 157 (see Note 9, “Fair Value Measurements”). Theaccounting for changes in the fair value of a derivative instrument depends onwhether it has been designated and qualifies as part of a hedging relationshipand, further, on the type of hedging relationship.  For derivatives designated as hedges underSFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”(“SFAS 133”), we formally assess, both at inception and periodicallythereafter, whether the hedging derivatives are highly effective in offsettingchanges in either the fair value or cash flows of the hedged item.  Our derivatives that are not designated anddo not qualify as hedges under SFAS 133 are adjusted to fair value throughcurrent earnings.

 

On October 15,2007, AGI entered into a five-year interest rate swap agreement with a notionalamount of $100.0 million from which it will receive periodic payments at the 3month LIBOR-based variable rate (1.17% at March 31, 2009, based upon the January 31,2009 reset date) and make periodic payments at a fixed rate of 5.135%, withsettlement and rate reset dates every January 31, April 30, July 31,and October 31.  The interest rateswap agreement was effective beginning October 31, 2007 and expires on October 31,2012.  AGI entered into the interest rateswaps to limit the effect of increases on our floating rate debt.

 

On March 19,2008, the Company entered into a 4.5 year interest rate swap agreementeffective April 30, 2008, with a notional amount of $35.0 million fromwhich it will receiveperiodic payments at the 3 month LIBOR-based variable rate (1.17% at March 31,2009 based upon the January 31, 2009 reset date) and make periodicpayments at a fixed rate of 3.43%, with settlement and rate reset dates every January 31,April 30, July 31, and October 31.  The interest rate swap was effectivebeginning April 30, 2008 and expires on October 31, 2012.

 

Due to the potential sale of Camping World, in the fourth quarter of2008 a highly effective hedge on the $35.0 million outstanding debt by the$35.0 million notional amount interest rate swap agreement was deemed to be nolonger probable and is now deemed to be reasonably possible.  As a result, changes in the value of the$35.0 million interest rate swap agreement are included in earnings beginningon October 1, 2008.  Change in valuefrom January 1, 2009 to March 31, 2009 on the $35.0 million interestrate swap was $20,000.  Included in othercomprehensive loss is $0.5 million related to the $35.0 million interest rateswap which will be included in earnings when the underlying transaction beinghedged is probable not to occur.  Ahighly-effective hedge on the $100.0 million outstanding debt by the $100.0million notional amount of interest rate swap agreement is still deemed to beprobable, as the Company will maintain its LIBOR-based debt at a minimum of$100.0 million until the interest swap expire date of

 

13

----

 

**(8) INTEREST RATE SWAP AGREEMENTS (continued)**

 

October 31,2012.  Changes in value from January 1,2009 to March 31, 2009 on the $100.0 million interest rate swap were $0.2million and are included as a component of other comprehensive loss instockholders’ deficit.

 

The fair value of these swaps included in other long-term liabilitieswas $12.5 million of which the $10.1 million effective portion is inaccumulated other comprehensive loss, the $2.4 million prior year ineffectiveportion is in retained earnings, and the $20,000 current year ineffectiveportion is in “Gain on derivative instrument” on the statement of operations atMarch 31, 2009.  No amounts havebeen recognized in income for the effective portion of the hedges.  The fair value of these swaps included inother long-term liabilities was $12.7 million of which $10.3 million is inaccumulated other comprehensive loss and $2.4 million in the statement ofoperations at December 31, 2008.

 

**(9) FAIR VALUE MEASUREMENTS**

 

The Company has adopted the provisions of SFAS 157 as of January 1,2008, for financial instruments. Although the adoption of SFAS 157 did not materially impact itsfinancial condition, results of operations, or cash flow, the Company is nowrequired to provide additional disclosures as part of its financial statements.

 

SFAS 157 establishes a three-tier fair value hierarchy, whichprioritizes the inputs used in measuring fair value.  These tiers include: Level 1, defined asobservable inputs such as quoted prices in active markets; Level 2, defined asinputs other than quoted prices in active markets that are either directly orindirectly observable; and Level 3, defined as unobservable inputs in whichlittle or no market data exists, therefore requiring an entity to develop itsown assumptions.

 

As of March 31, 2009, AGI holds interest rate swap contracts thatare required to be measured at fair value on a recurring basis.  AGI’s interest rate swap contracts are nottraded on a public exchange.  See Note 9for further information on the interest rate swap contracts.  The fair value of these interest rate swapcontracts are determined based on inputs that are readily available in publicmarkets or can be derived from information available in publicly quotedmarkets.  Therefore, the Company hascategorized these swap contracts as Level 2.

 

The Company recorded an impairment charge of $81.0 million in the thirdquarter of 2008 that wrote down to zero the carrying value of the preferredinterest (the “FreedomRoads Preferred Interest”) held by an indirect subsidiaryof Camping World in FreedomRoads Holding Company, LLC (“FreedomRoads”), aholding company whose subsidiaries sell and service new and used recreationalvehicles.  The fair value of theFreedomRoads Preferred Interest was based on the valuation report (“ValuationReport”) prepared in the third quarter of 2008 by Houlihan Smith and CompanyInc., a nationally recognized firm, in anticipation of the potential sale ofCamping World, and was recordedas a result of declining performance of the recreational vehicle industry drivenby overall weakening of the economy and a significant decline in consumerconfidence, in addition to limited credit available to consumers interested inpurchasing recreational vehicles. Therefore, the Company has categorized the FreedomRoads PreferredInterest as Level 3.

 

14

----

 

**(9) FAIRVALUE MEASUREMENTS (continued)**

 

The Company’s liability at March 31, 2009, measured at fair valueon a recurring basis subject to the disclosure requirements of SFAS 157, was asfollows:

 
| ** **                   | ** ** | ** **    | ** ** | **Fair Value Measurements at Reporting Date Using**         | ** ** |
|------------------------------|------------|---------------|------------|-------------------------------------------------------------|------------|
| **(in thousands)**           | ** ** | ** **    | ** ** | **Quoted Prices in  Active Markets  for Identical  Assets** | ** ** | **Significant  Other  Observable  Inputs** | ** ** | **Significant  Unobservable  Inputs** | ** ** |
| **Description**              | ** ** | **3/31/2009** | ** ** | **(Level  1)**                                              | ** ** | **(Level  2)** | ** ** | **(Level  3)** | ** ** |
|                         |       |          |       |                                                        |       |   |   |   |   |
| Interest Rate Swap Contracts |       | $             | (12,509    | )                                                           | $          | — |   | $ | (12,509 | ) | $ | — |   |
| Investment in FreedomRoads   |       | —        |       | —                                                      |       | — |   | — |   |
|                              |            |               |            |                                                             |            |  |  |  |  |  |  |  |  |

 

**(10) SUBSEQUENT EVENT**

 

OnJune 5, 2009, AGI entered into an amendment to its AGI Senior CreditFacility pursuant to which the maturity date was extended from June 24,2009 to March 31, 2010, the revolving credit portion of the facility wasreduced by $10.0 million to $25.0 million, the outstanding term loan borrowingswere repaid by $8.0 million, the financial covenants in effect through theextended maturity date were revised and the borrowing rate was increased toprime rate plus 7.0% or LIBOR plus 8.0% with a LIBOR floor of 2.75%.  As a condition to the amendment, theshareholder of the ultimate parent of the Company, was required to arrange forthe purchase ofapproximately $26.6 million inprincipal amount of the term portion of the AGI Senior Credit Facility by newlenders, enhance the yield to such new lenders, purchase AGHI Notes held by oneof such new lenders at a premium to the most recent market price, contribute $5.0million in capital and guarantee two required principal payments on the termloans under the AGI Senior Credit Facility, aggregating $15.0 million.  In consideration of such support, AGI enteredinto an option agreement with the shareholder of the ultimate parent of theCompany pursuant to which AGI granted such shareholder or his assigns anoption, exercisable on or before March 1, 2010, to purchase the Company’sCamping World subsidiary for $55.0 million, being the fair value of suchsubsidiary as determined by an appraisal of Houlihan Smith & Company, Inc.dated as of March 1, 2009.  AGI alsoagreed to pay the shareholder of the ultimate parent, upon successfulrefinancing of AGI’s secured debt, including the AGI Senior Credit Facility, asuccess fee equal in amount to the fair value, as determined by an independentfinancial advisor of such credit support, taking into account the fair value ofthe option to purchase Camping World.  Inthe event the fair value of the Camping World purchase option exceeds the fairvalue of such credit support, the shareholder will pay the amount of suchexcess to AGI.

 

Concurrent with theamendment to the AGI Senior Credit Facility, AGI obtained a $9.7 million SecondLien Loan, the net proceeds of which were used to purchase $14.6 million inprincipal amount of AGI Senior Notes. The Second Lien Loan carries an interest rate of 9.0% and matures on July 31,2010.

 

15

----

 

**(10) SUBSEQUENT EVENT(continued)**

 

In addition, AGI agreed touse its best efforts to secure an asset-based loan of at least $18.5 millionsecured by the inventory and receivables of its subsidiary, Camping World, Inc.(the “Camping World Financing”), the proceeds of which would be used to furtherreduce the amounts outstanding under the AGI Senior Credit Facility.  The senior lenders agreed to subordinatetheir liens to such financing.  If aCamping World Financing has not been consummated by September 15, 2009,the borrowing rate on revolving credit loans, swing loans and terms loansincrease to prime rate plus 9.0% or LIBOR plus 10.0%.

 

In the event the CampingWorld purchase option is exercised and, subject to the consent of the lendersunder the AGI Senior Credit Facility, the sale of Camping World consummated,AGI would intend to use the net cash proceeds from the sale of Camping World torepay indebtedness outstanding under the AGI Senior Credit Facility, asamended.  As of March 31, 2009, anaggregate of $126.5 million was outstanding under the term loans and $19.5million was outstanding under the revolving credit facility of the AGI SeniorCredit Facility.

 

The financial statements forCamping World are different from the segment reporting in Footnote 3 becausethe Camping World President’s Club and other related ancillary products areincluded as part of the membership services segment in the segment reporting.

 

The following unaudited proforma condensed consolidated balance sheet as of March 31, 2009 and December 31,2008 and the statement of operations for the three months ended March 31,2009 and 2008 reflect the reclassification adjustments associated with theproposed disposal/sale of Camping World to SA. The pro forma adjustments related to the disposal are presented sincethe disposition did not meet the discontinued operations reporting requirementspursuant to SFAS Statement No. 144, “Accounting for the Impairment orDisposal of Long-Lived Assets,” (SFAS 144) as of March 31, 2009, but willmeet such requirements in 2010 when the transaction is completed.  Since the transaction is a sale to an entityunder common ownership with AGI such long-lived assets are considered disposedof when they are exchanged or distributed in accordance with SFAS 144.  The pro forma adjustments reflect thereclassification of assets and liabilities associated with Camping World tocurrent assets and liabilities to be disposed of in accordance with SFAS 144 asif the reporting requirements had been met at March 31, 2009.  In addition, the historical operating resultshave also been reclassified to reflect discontinued operations.

 

Corporate Expenses - Theallocation to Camping World of expenses for certain Affinity Group, Inc.corporate functions historically provided to Camping World are done inaccordance with Staff Accounting Bulletin No. 55, “Allocation of Expensesand Related Disclosures in Subsidiaries’ Financial Statements”, (“SAB 55”).  Such allocations were made on a specificidentification basis to the extent possible and otherwise based on relativepercentages, as compared to the Company’s other businesses, of headcount orother appropriate methods depending on the nature of each item of cost to beallocated.

 

Interest Expense - Theinterest expense included in discontinued operations below reflects theinterest allocated to Camping World based upon debt required to be repaid uponconsummation of this transaction.

 

16

----

 

**(10) ****SUBSEQUENT EVENT (continued)**

 

The unaudited pro formabalance sheet of AGHI reclassifying Camping World as of March 31, 2009 toassets and liabilities of discontinued operations is as follows (in thousandsexcept shares and par value):

 
| ** **                                                                                | ** ** | ** **     | ** ** | **Reclassification of** | ** ** | ** **    | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------|------------|-------------------------|------------|---------------|------------|
| ** **                                                                                | ** ** | **Historical** | ** ** | **Camping World**       | ** ** | **Pro Forma** | ** ** |
| **ASSETS**                                                                                |       |           |       |                    |       |          |       |
| CURRENT ASSETS:                                                                           |       |           |       |                    |       |          |       |
| Cash and cash equivalents                                                                 |       | $              | 22,441     |                    | $          | (1,246        | )          | $ | 21,195 |   |
| Accounts receivable, net                                                                  |       | 35,748         |       | (11,644                 | )          | 24,104        |       |
| Inventories                                                                               |       | 57,966         |       | (57,122                 | )          | 844           |       |
| Prepaid expenses and other assets                                                         |       | 15,832         |       | (3,611                  | )          | 12,221        |       |
| Assets of discontinued operations                                                         |       | —         |       | 115,574                 |       | 115,574       |       |
| Total current assets                                                                      |       | 131,987        |       | 41,951                  |       | 173,938       |       |
|                                                                                      |       |           |       |                    |       |          |       |
| PROPERTY AND EQUIPMENT, net                                                               |       | 42,218         |       | (32,955                 | )          | 9,263         |       |
| NOTE FROM AFFILIATE                                                                       |       | 4,596          |       | —                  |       | 4,596         |       |
| INTANGIBLE ASSETS, net                                                                    |       | 20,455         |       | (3,130                  | )          | 17,325        |       |
| GOODWILL                                                                                  |       | 96,828         |       | —                  |       | 96,828        |       |
| DEFERRED TAX ASSETS, net                                                                  |       | 4,569          |       | (4,569                  | )          | —        |       |
| OTHER ASSETS                                                                              |       | 2,605          |       | (1,297                  | )          | 1,308         |       |
| Total assets                                                                              |       | $              | 303,258    |                    | $          | —        |       | $ | 303,258 |   |
|                                                                                      |       |           |       |                    |       |          |       |
| **LIABILITIES AND STOCKHOLDER’S DEFICIT**                                            |       |           |       |                    |       |          |       |
| CURRENT LIABILITIES:                                                                      |       |           |       |                    |       |          |       |
| Accounts payable                                                                          |       | $              | 31,376     |                    | $          | (28,127       | )          | $ | 3,249 |   |
| Accrued interest                                                                          |       | 4,127          |       | —                  |       | 4,127         |       |
| Accrued income taxes                                                                      |       | 1,217          |       | 414                     |       | 1,631         |       |
| Accrued liabilities                                                                       |       | 25,773         |       | (12,749                 | )          | 13,024        |       |
| Deferred revenues and gains                                                               |       | 58,129         |       | (7,133                  | )          | 50,996        |       |
| Current portion of long-term debt                                                         |       | 173,152        |       | —                  |       | 173,152       |       |
| Liabilities of discontinued operations                                                    |       | —         |       | 70,224                  |       | 70,224        |       |
| Total current liabilities                                                                 |       | 293,774        |       | 22,629                  |       | 316,403       |       |
|                                                                                      |       |           |       |                    |       |          |       |
| DEFERRED REVENUES AND GAINS                                                               |       | 35,995         |       | (8,475                  | )          | 27,520        |       |
| LONG-TERM DEBT, net of current portion                                                    |       | 239,439        |       | —                  |       | 239,439       |       |
| OTHER LONG-TERM LIABILITIES                                                               |       | 30,245         |       | (14,154                 | )          | 16,091        |       |
|                                                                                      |       | 599,453        |       | —                  |       | 599,453       |       |
|                                                                                      |       |           |       |                    |       |          |       |
| COMMITMENTS AND CONTINGENCIES                                                             |       |           |       |                    |       |          |       |
|                                                                                      |       |           |       |                    |       |          |       |
| STOCKHOLDER’S DEFICIT :                                                              |       |           |       |                    |       |          |       |
| Common stock, $.01 par value, 3,000 shares authorized,  100 shares issued and outstanding |       | 1              |       | —                  |       | 1             |       |
| Additional paid-in capital                                                                |       | 18,220         |       |                    |       | 18,220        |       |
| Accumulated deficit                                                                       |       | (304,322       | )          | —                  |       | (304,322      | )          |
| Accumulated other comprehensive income                                                    |       | (10,094        | )          |                    |       | (10,094       | )          |
| Total stockholder’s deficit                                                          |       | (296,195       | )          | —                  |       | (296,195      | )          |
| Total liabilities and stockholder’s deficit                                          |       | $              | 303,258    |                    | $          | —        |       | $ | 303,258 |   |

 

17

----

 

**(10) ****SUBSEQUENT EVENT (continued)**

 

The unaudited proforma balance sheet of AGHI reclassifying Camping World as of December 31,2008 to assets and liabilities of discontinued operations is as follows (inthousands except shares and par value):

 
| ** **                                                                                | ** ** | ** **     | ** ** | **Reclassification of** | ** ** | ** **    | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------|------------|-------------------------|------------|---------------|------------|
| ** **                                                                                | ** ** | **Historical** | ** ** | **Camping World**       | ** ** | **Pro Forma** | ** ** |
| **ASSETS**                                                                                |       |           |       |                    |       |          |       |
| CURRENT ASSETS:                                                                           |       |           |       |                    |       |          |       |
| Cash and cash equivalents                                                                 |       | $              | 10,777     |                    | $          | (842          | )          | $ | 9,935 |   |
| Accounts receivable, net                                                                  |       | 40,191         |       | (9,084                  | )          | 31,107        |       |
| Inventories                                                                               |       | 57,137         |       | (55,908                 | )          | 1,229         |       |
| Prepaid expenses and other assets                                                         |       | 13,547         |       | (2,476                  | )          | 11,071        |       |
| Assets of discontinued operations                                                         |       | —         |       | 110,964                 |       | 110,964       |       |
| Total current assets                                                                      |       | 121,652        |       | 42,654                  |       | 164,306       |       |
|                                                                                      |       |           |       |                    |       |          |       |
| PROPERTY AND EQUIPMENT, net                                                               |       | 44,077         |       | (34,022                 | )          | 10,055        |       |
| NOTE FROM AFFILIATE                                                                       |       | 4,608          |       | —                  |       | 4,608         |       |
| INTANGIBLE ASSETS, net                                                                    |       | 22,389         |       | (3,391                  | )          | 18,998        |       |
| GOODWILL                                                                                  |       | 96,828         |       | —                  |       | 96,828        |       |
| DEFERRED TAX ASSETS, net                                                                  |       | 4,569          |       | (4,569                  | )          | —        |       |
| OTHER ASSETS                                                                              |       | 2,035          |       | (672                    | )          | 1,363         |       |
| Total assets                                                                              |       | $              | 296,158    |                    | $          | —        |       | $ | 296,158 |   |
|                                                                                      |       |           |       |                    |       |          |       |
| **LIABILITIES AND STOCKHOLDER’S DEFICIT**                                            |       |           |       |                    |       |          |       |
| CURRENT LIABILITIES:                                                                      |       |           |       |                    |       |          |       |
| Accounts payable                                                                          |       | $              | 23,950     |                    | $          | (19,383       | )          | $ | 4,567 |   |
| Accrued interest                                                                          |       | 11,581         |       | —                  |       | 11,581        |       |
| Accrued income taxes                                                                      |       | 1,165          |       | 372                     |       | 1,537         |       |
| Accrued liabilities                                                                       |       | 27,009         |       | (10,864                 | )          | 16,145        |       |
| Deferred revenues and gains                                                               |       | 60,569         |       | (7,254                  | )          | 53,315        |       |
| Current portion of long-term debt                                                         |       | 12,391         |       | —                  |       | 12,391        |       |
| Liabilities of discontinued operations                                                    |       | —         |       | 59,536                  |       | 59,536        |       |
| Total current liabilities                                                                 |       | 136,665        |       | 22,407                  |       | 159,072       |       |
|                                                                                      |       |           |       |                    |       |          |       |
| DEFERRED REVENUES AND GAINS                                                               |       | 35,855         |       | (8,500                  | )          | 27,355        |       |
| LONG-TERM DEBT, net of current portion                                                    |       | 391,487        |       | —                  |       | 391,487       |       |
| OTHER LONG-TERM LIABILITIES                                                               |       | 30,156         |       | (13,907                 | )          | 16,249        |       |
|                                                                                      |       | 594,163        |       | —                  |       | 594,163       |       |
|                                                                                      |       |           |       |                    |       |          |       |
| COMMITMENTS AND CONTINGENCIES                                                             |       |           |       |                    |       |          |       |
|                                                                                      |       |           |       |                    |       |          |       |
| STOCKHOLDER’S DEFICIT :                                                              |       |           |       |                    |       |          |       |
| Common stock, $.01 par value, 3,000 shares authorized,  100 shares issued and outstanding |       | 1              |       | —                  |       | 1             |       |
| Additional paid-in capital                                                                |       | 12,041         |       |                    |       | 12,041        |       |
| Accumulated deficit                                                                       |       | (299,710       | )          | —                  |       | (299,710      | )          |
| Accumulated other comprehensive income                                                    |       | (10,337        | )          |                    |       | (10,337       | )          |
| Total stockholder’s deficit                                                          |       | (298,005       | )          | —                  |       | (298,005      | )          |
| Total liabilities and stockholder’s deficit                                          |       | $              | 296,158    |                    | $          | —        |       | $ | 296,158 |   |

 

18

----

 

**(10) ****SUBSEQUENT EVENT (continued)**

 

Unaudited pro forma information relating to the operations of AGHIreclassifying Camping World for the three months ended March 31, 2009 todiscontinued operations is as follows (in thousands):

 
| ** **                                                                                | ** ** | **2009**       | ** ** | **Reclassification of** | ** ** | **2009**      | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------|------------|-------------------------|------------|---------------|------------|
| ** **                                                                                | ** ** | **Historical** | ** ** | **Camping World**       | ** ** | **Pro Forma** | ** ** |
|                                                                                      |       |           |       |                    |       |          |       |
| REVENUES:                                                                                 |       |           |       |                    |       |          |       |
| Membership services                                                                       |       | $              | 35,232     |                    | $          | (4,119        | )          | $ | 31,113 |   |
| Media                                                                                     |       | 17,420         |       | —                  |       | 17,420        |       |
| Retail                                                                                    |       | 52,401         |       | (52,401                 | )          | —        |       |
|                                                                                      |       | 105,053        |       | (56,520                 | )          | 48,533        |       |
|                                                                                      |       |           |       |                    |       |          |       |
| COSTS APPLICABLE TO REVENUES:                                                             |       |           |       |                    |       |          |       |
| Membership services                                                                       |       | 20,330         |       | (653                    | )          | 19,677        |       |
| Media                                                                                     |       | 13,484         |       | —                  |       | 13,484        |       |
| Retail                                                                                    |       | 31,536         |       | (31,536                 | )          | —        |       |
|                                                                                      |       | 65,350         |       | (32,189                 | )          | 33,161        |       |
|                                                                                      |       |           |       |                    |       |          |       |
| GROSS PROFIT                                                                              |       | 39,703         |       | (24,331                 | )          | 15,372        |       |
|                                                                                      |       |           |       |                    |       |          |       |
| OPERATING EXPENSES:                                                                       |       |           |       |                    |       |          |       |
| Selling, general and administrative                                                       |       | 29,939         |       | (25,414                 | )          | 4,525         |       |
| Depreciation and amortization                                                             |       | 4,964          |       | (2,189                  | )          | 2,775         |       |
|                                                                                      |       | 34,903         |       | (27,603                 | )          | 7,300         |       |
|                                                                                      |       |           |       |                    |       |          |       |
| INCOME FROM OPERATIONS                                                                    |       | 4,800          |       | 3,272                   |       | 8,072         |       |
|                                                                                      |       |           |       |                    |       |          |       |
| NON-OPERATING ITEMS:                                                                      |       |           |       |                    |       |          |       |
| Interest income                                                                           |       | 130            |       | (2                      | )          | 128           |       |
| Interest expense                                                                          |       | (9,042         | )          | 928                     |       | (8,114        | )          |
| Gain on derivative instrument                                                             |       | 20             |       | —                  |       | 20            |       |
| Other non-operating items                                                                 |       | (83            | )          | 81                      |       | (2            | )          |
|                                                                                      |       | (8,975         | )          | 1,007                   |       | (7,968        | )          |
|                                                                                      |       |           |       |                    |       |          |       |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME  TAXES AND DISCONTINUED OPERATIONS |       | (4,175         | )          | 4,279                   |       | 104           |       |
|                                                                                      |       |           |       |                    |       |          |       |
| INCOME TAX EXPENSE                                                                        |       | (396           | )          | 205                     |       | (191          | )          |
|                                                                                      |       |           |       |                    |       |          |       |
| LOSS FROM CONTINUING OPERATIONS                                                           |       | (4,571         | )          | 4,484                   |       | (87           | )          |
|                                                                                      |       |           |       |                    |       |          |       |
| DISCONTINUED OPERATIONS                                                                   |       |           |       |                    |       |          |       |
| Loss from operations of discontinued Camping World, Inc.                             |       | —         |       | (4,279                  | )          | (4,279        | )          |
| Income tax benefit                                                                        |       | —         |       | (205                    | )          | (205          | )          |
| Loss on discontinued operations                                                           |       | —         |       | (4,484                  | )          | (4,484        | )          |
|                                                                                      |       |           |       |                    |       |          |       |
| NET LOSS                                                                                  |       | $              | (4,571     | )                       | $          | —        |       | $ | (4,571 | ) |

 

19

----

 

**(10) ****SUBSEQUENT EVENT (continued)**

 

Unaudited proforma information relating the operations of AGHI reclassifying Camping Worldfor the three months ended March 31, 2008 to discontinued operations is asfollows (in thousands):

 
| ** **                                                                                | ** ** | **2008**       | ** ** | **Reclassification of** | ** ** | **2008**      | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------|------------|-------------------------|------------|---------------|------------|
| ** **                                                                                | ** ** | **Historical** | ** ** | **Camping World**       | ** ** | **Pro Forma** | ** ** |
|                                                                                      |       |           |       |                    |       |          |       |
| REVENUES:                                                                                 |       |           |       |                    |       |          |       |
| Membership services                                                                       |       | $              | 35,545     |                    | $          | (4,437        | )          | $ | 31,108 |   |
| Media                                                                                     |       | 26,256         |       | —                  |       | 26,256        |       |
| Retail                                                                                    |       | 63,184         |       | (63,184                 | )          | —        |       |
|                                                                                      |       | 124,985        |       | (67,621                 | )          | 57,364        |       |
|                                                                                      |       |           |       |                    |       |          |       |
| COSTS APPLICABLE TO REVENUES:                                                             |       |           |       |                    |       |          |       |
| Membership services                                                                       |       | 23,141         |       | (957                    | )          | 22,184        |       |
| Media                                                                                     |       | 17,217         |       | —                  |       | 17,217        |       |
| Retail                                                                                    |       | 36,863         |       | (36,863                 | )          | —        |       |
|                                                                                      |       | 77,221         |       | (37,820                 | )          | 39,401        |       |
|                                                                                      |       |           |       |                    |       |          |       |
| GROSS PROFIT                                                                              |       | 47,764         |       | (29,801                 | )          | 17,963        |       |
|                                                                                      |       |           |       |                    |       |          |       |
| OPERATING EXPENSES:                                                                       |       |           |       |                    |       |          |       |
| Selling, general and administrative                                                       |       | 36,439         |       | (31,150                 | )          | 5,289         |       |
| Depreciation and amortization                                                             |       | 5,131          |       | (2,352                  | )          | 2,779         |       |
|                                                                                      |       | 41,570         |       | (33,502                 | )          | 8,068         |       |
|                                                                                      |       |           |       |                    |       |          |       |
| INCOME FROM OPERATIONS                                                                    |       | 6,194          |       | 3,701                   |       | 9,895         |       |
|                                                                                      |       |           |       |                    |       |          |       |
| NON-OPERATING ITEMS:                                                                      |       |           |       |                    |       |          |       |
| Interest income                                                                           |       | 143            |       | (11                     | )          | 132           |       |
| Interest expense                                                                          |       | (9,182         | )          | 1,032                   |       | (8,150        | )          |
| Other non-operating items                                                                 |       | 2              |       | 26                      |       | 28            |       |
|                                                                                      |       | (9,037         | )          | 1,047                   |       | (7,990        | )          |
|                                                                                      |       |           |       |                    |       |          |       |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME  TAXES AND DISCONTINUED OPERATIONS |       | (2,843         | )          | 4,748                   |       | 1,905         |       |
|                                                                                      |       |           |       |                    |       |          |       |
| INCOME TAX BENEFIT (EXPENSE)                                                              |       | (299           | )          | 204                     |       | (95           | )          |
|                                                                                      |       |           |       |                    |       |          |       |
| (LOSS) INCOME FROM CONTINUING OPERATIONS                                                  |       | (3,142         | )          | 4,952                   |       | 1,810         |       |
|                                                                                      |       |           |       |                    |       |          |       |
| DISCONTINUED OPERATIONS                                                                   |       |           |       |                    |       |          |       |
| Loss from operations of discontinued Camping World, Inc.                             |       | —         |       | (4,748                  | )          | (4,748        | )          |
| Income tax benefit                                                                        |       | —         |       | (204                    | )          | (204          | )          |
| Loss on discontinued operations                                                           |       | —         |       | (4,952                  | )          | (4,952        | )          |
|                                                                                      |       |           |       |                    |       |          |       |
| NET LOSS                                                                                  |       | $              | (3,142     | )                       | $          | —        |       | $ | (3,142 | ) |

 

20

----

 

**ITEM 2:**

AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES

MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL

CONDITIONAND RESULTS OF OPERATIONS

 

The following table is derived from the Company’s ConsolidatedStatements of Operations and expresses the results from operations as apercentage of revenues and reflects the net increase (decrease) betweenperiods:

 
| ** **                               | ** ** | **THREE MONTHS ENDED** | ** ** |
|------------------------------------------|------------|------------------------|------------|
| ** **                               | ** ** | **3/31/2009**          | ** ** | **3/31/2008** | ** ** | **Inc/(Dec)** | ** ** |
| REVENUES:                                |       |                   |       |   |   |   |   |
| Membership services                      |       | 33.5                   | %          | 28.4 | % | (0.9 | )% |
| Media                                    |       | 16.6                   | %          | 21.0 | % | (33.7 | )% |
| Retail                                   |       | 49.9                   | %          | 50.6 | % | (17.1 | )% |
|                                     |       | 100.0                  | %          | 100.0 | % | (15.9 | )% |
| COSTS APPLICABLE TO REVENUES:            |       |                   |       |   |   |   |   |
| Membership services                      |       | 19.5                   | %          | 18.5 | % | (12.1 | )% |
| Media                                    |       | 12.8                   | %          | 13.8 | % | (21.7 | )% |
| Retail                                   |       | 29.9                   | %          | 29.5 | % | (14.5 | )% |
|                                     |       | 62.2                   | %          | 61.8 | % | (15.4 | )% |
|                                     |       |                   |       |   |   |   |   |
| GROSS PROFIT                             |       | 37.8                   | %          | 38.2 | % | (16.9 | )% |
|                                     |       |                   |       |   |   |   |   |
| OPERATING EXPENSES:                      |       |                   |       |   |   |   |   |
| Selling, general and administrative      |       | 28.5                   | %          | 29.2 | % | (17.8 | )% |
| Depreciation and amortization            |       | 4.7                    | %          | 4.0 | % | (3.3 | )% |
|                                     |       | 33.2                   | %          | 33.2 | % | (16.0 | )% |
|                                     |       |                   |       |   |   |   |   |
| INCOME FROM OPERATIONS                   |       | 4.6                    | %          | 5.0 | % | n/a |   |
|                                     |       |                   |       |   |   |   |   |
| NON-OPERATING ITEMS:                     |       |                   |       |   |   |   |   |
| Interest income                          |       | 0.1                    | %          | 0.1 | % | (9.1 | )% |
| Interest expense                         |       | (8.6                   | )%         | (7.4 | )% | (1.5 | )% |
| Gain on derivative instrument            |       | —                 |       | — |   | n/a |   |
| Other non-operating items, net           |       | (0.1                   | )%         | — |   | (4250.0 | )% |
|                                     |       | (8.6                   | )%         | (7.3 | )% | (0.7 | )% |
|                                     |       |                   |       |   |   |   |   |
| LOSS FROM OPERATIONS BEFORE INCOME TAXES |       | (4.0                   | )%         | (2.3 | )% | n/a |   |
|                                     |       |                   |       |   |   |   |   |
| INCOME TAX EXPENSE                       |       | (0.4                   | )%         | (0.2 | )% | 32.4 | % |
|                                     |       |                   |       |   |   |   |   |
| NET LOSS                                 |       | (4.4                   | )%         | (2.5 | )% | n/a |   |

 

21

----

 

**RESULTS OF OPERATIONS**

 

**ThreeMonths Ended March 31, 2009**

**ComparedWith Three Months Ended March 31, 2008**

 

*Revenues*

 

Revenuesof $105.1 million for the first quarter of 2009 decreased by $19.9 million, or15.9%, from the comparable period in 2008.

 

Membershipservices revenues of approximately $35.3 million for the first quarter of 2009decreased $0.3 million, or 0.9%, from the comparable period in 2008.  This revenue decrease was largelyattributable to a $1.5 million reduction in revenue for the Good Sam Club,Coast to Coast Club and Golf Card Club resulting from reduced membership filesize, and reduced advertising revenue in member publications, a $0.4 milliondecrease in marketing fee income for vehicle insurance products, a $0.4 millionreduction in revenue for consumer events and a $0.3 million reduction in dealerprogram marketing revenue.  Thesedecreases were partially offseta $1.2 million quarterly brand usage licensing fee charged to FreedomRoadsHolding LLC and its subsidiaries (collectively “FreedomRoads”), and increasedextended vehicle warranty programrevenue of $1.1 million resulting from continued growth and strong renewals ofcontracts in force.

 

Mediarevenues of $17.4 million for the first quarter of 2009 decreased $8.8 million,or 33.7%, from the comparable period in 2008. This decrease was primarily attributable to a $3.8 million reduction inconsumer show revenue mainly due to reduced exhibitor attendance, a $4.6million reduction in advertising revenue in the outdoor power sports magazinesand the RV-related magazines, and a $0.4 million reduction in revenue from theannual campground directories and atlas.

 

Retail revenues of$52.4 million decreased by $10.8 million, or 17.1%, from the comparable periodin 2008.  Store merchandise salesdecreased $7.8 million from the first quarter of 2008 due to a same store salesdecrease of $7.9 million, or 17.0%, compared to a 16.5% decrease in same storesales for the first quarter of 2008, and discontinued store revenue of $1.0million, was partially offset by a $1.1 million revenue increase from theopening of 6 new stores over the past fifteen months.  Same store sale calculations for a givenperiod include only those stores that were open both at the end of that periodand at the beginning of the preceding fiscal year.  Further, mail order sales decreased $1.1million, installation and service fees decreased $0.7 million and supplies andother sales decreased $1.2 million.

 

*CostsApplicable to Revenues*

 

Costsapplicable to revenues totaled $65.4 million for the first quarter of 2009, adecrease of $11.9 million, or 15.4%, from the comparable period in 2008.

 

Membershipservices costs and expenses of approximately $20.4 million decreased $2.8million, or 12.1%, from the comparable period in 2008.  This decrease consisted of $1.1 million ofreduced marketing, program and overhead costs related to the Good Sam Club,Camp Club USA, Coast to Coast Club and Golf Card Club, a $1.0 million reductionin various 

 

22

----

 

overheadcosts and wage-related expenses, a $0.5 million reduction in marketing costsrelated to vehicle insurance products, a $0.3 million decrease in events costsrelated to reduced revenue, and a $0.2 million reduction in dealer program marketingcosts related to reduced revenue.  Thesedecreases in membership services costs were partially offset by $0.3 million ofincremental costs associated with increased extended vehicle warranty programrevenue.

 

Mediacosts and expenses of $13.5 million for the first quarter of 2009 decreased$3.7 million, or 21.7%, from the comparable period in 2008 primarily related toreduced costs of $2.0 million in the RV-related magazines and outdoorpowersports magazines resulting from decreased circulation and productioncosts, reduced consumer show costs of $1.1 million related to reduced revenue,a $0.6 million reduction in costs related to the annual campground directoriesand atlas.

 

Retailcosts applicable to revenues decreased $5.3 million, or 14.5%, to $31.5 millionprimarily as a result of the decrease in retail revenue.  The retail gross profit margin of 39.8% forthe first quarter of 2009 decreased from 41.7% for the comparable period in2008 primarily due to general price decreases.

 

*OperatingExpenses*

 

Selling,general and administrative expenses of approximately $29.9 million for thefirst quarter of 2009 decreased $6.5 million compared to the first quarter of2008.  This decrease was due to a $5.7million decrease in retail general and administrative expenses consisting ofdecreases in labor, selling and other general and administrative expenses.  In addition, other general and administrativeexpense reductions resulted in savings of $1.1 million, partially offset by a2008 deferred executive compensation adjustment of $0.3 million.

 

Depreciationand amortization expense of $5.0 million decreased approximately $0.2 millionfrom the prior year primarilydue to completed amortization of the Poole customer list in September 2008.

 

*Incomefrom Operations*

 

Incomefrom operations for the first quarter of 2009 totaling $4.8 million decreased$1.4 million compared to the first quarter of 2008.  This decrease was primarily due to reducedgross profit for retail and media operations of $5.5 million and $5.1 million,respectively, partially offset by reduced operating expenses of $6.7 millionand increased gross profit for the membership services operations of $2.5million.

 

*Non-OperatingItems*

 

Non-operatingitems of $9.0 million for the first quarter of 2009 decreased $0.1 million fromthe first quarter of 2008 due to a decrease in net interest expense resultingfrom reduced interest rates.

 

23

----

 

*Lossbefore Income Taxes*

 

Lossbefore income taxes for the first quarter of 2009 was $4.2 million, or $1.3million lower than the first quarter of 2008. This decrease was primarily attributable to the $1.4 million decrease inincome from operations mentioned above partially offset by the $0.1 milliondecrease in net interest expense.

 

*IncomeTax Expense*

 

TheCompany recorded income tax expense of approximately $0.4 million for the firstquarter of 2009, compared to $0.3 million for the first quarter of 2008.

 

# *Net Loss*

# * *

Netloss in the first quarter of 2009 was $4.6 million compared to net loss of $3.1million for the same period in 2008 mainly due to the reasons discussed above.

 

*SegmentProfit (Loss)*

 

Segment profit of$5.8 million for the first quarter of 2009 (before unallocated depreciation andamortization, general and administrative, interest, and income tax expense)decreased $1.6 million from the comparable period in 2008.

 

Membershipservices segment profit of $12.6 million for the first quarter of 2009increased $2.6 million, or 26.3%, from the comparable period in 2008.  This increase was largely attributable to a$1.2 million brand licensing fee charged to FreedomRoads, a $1.1 millionincrease in profit from the extended vehicle warranty programs, associated withreduced marketing expenses, and $0.5 million of reduced overhead expenses,partially offset by a $0.2 million decrease in segment profit from Coast toCoast Club and Golf Card Club.

 

Media segmentprofit of approximately $1.3 million for the first quarter of 2009 decreased$4.5 million, or 77.4%, from the comparable period in 2008.  This decrease was largely attributed to a$2.4 million decrease in segment profit from our consumer shows group primarilyrelated to reduced exhibitor revenue, a $1.1 million decrease in segment profitrelated to our outdoor powersports magazine group, primarily driven by reducedadvertising revenue, and a $1.0 million decrease in profit in the RV-relatedpublications primarily related to reduced advertising revenue.

 

Retail segmentloss decreased $0.3 million from the first quarter of 2008 to a loss ofapproximately $8.1 million for the first quarter of 2009.  This decrease in segmentloss resulted primarily from a $5.8 million decrease in gross profit margin,offset by a $5.7 milliondecrease in selling, general and administrative expenses, a $0.2 milliondecrease in interest expense, and a $0.2 million decrease in depreciation andamortization expense.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

The Company hashistorically operated with a working capital deficit.  The working capital deficit as of March 31,2009 and December 31, 2008 was $161.7 million and $15.0 million, 

 

24

----

 

respectively.  The primary reason for the increase inworking capital deficit for 2009 is the classification of the debtassociated with the Amended and Restated Credit Agreement totaling $146.1million as a current liability, since the credit facility matures March 31,2010.  Deferred revenue and gains reported undercurrent liabilities was $58.1 million and $60.6 million as of March 31,2009 and December 31, 2008, respectively. Deferred revenue is primarily comprised of cash collected for clubmemberships in advance, which is amortized over the life of themembership.  The Company uses netproceeds from this deferred membership revenue to lower its long-termborrowings.  The Company anticipates thatit will be able to refinance or replace the existing credit facility before itsmaturity on March 31, 2010 and, assuming such refinancing, will havesufficient funds from its operations together with available borrowing underthe replacement credit facility to meet all of the Company’s debt service,capital requirements and working capital needs over the next twelve months.

 

*Contractual Obligations andCommercial Commitments*

 

The following table reflects our contractual obligations and commercialcommitments at March 31, 2009.  Thistable includes principal and future interest due under our debt agreementsbased on interest rates as of March 31, 2009 and assumes debt obligations willbe held to maturity.

 
| ** **                         | ** ** | **Payments Due by Period** | ** ** |
|------------------------------------|------------|----------------------------|------------|
| **(in  thousands)**                | ** ** | **Total**                  | ** ** | **Balance of  2009** | ** ** | **2010 and  2011** | ** ** | **2012 and  2013** | ** ** | **Thereafter** | ** ** |
|                               |       |                       |       |   |   |   |   |   |   |   |   |
| Long-term debt and future interest |       | $                          | 506,042    |   | $ | 33,997 |   | $ | 218,408 |   | $ | 253,637 |   | $ | — |   |
| Operating lease obligations        |       | 228,808                    |       | 17,282 |   | 43,752 |   | 36,629 |   | 131,145 |   |
| Standby letters of credit          |       | 7,467                      |       | 7,467 |   | — |   | — |   | — |   |
| Grand total                        |       | $                          | 742,317    |   | $ | 58,746 |   | $ | 262,160 |   | $ | 290,266 |   | $ | 131,145 |   |

 

AGI Senior CreditFacility

 

On June 24,2003, AGI entered into an Amended and Restated Credit Agreement and a SeniorSecured Floating Rate Note Purchase Agreement (as amended, the “AGI SeniorCredit Facility”).  The AGI Senior CreditFacility, as amended, provides for a revolving credit facility of $35.0 millionand term loans in the aggregate of $140.0 million.  As of March 31, 2009, $126.5 million wasoutstanding under the term loans and $19.5 million was outstanding under therevolving credit facility.  Reborrowingsunder the term loans are not permitted. The interest on borrowings under the AGI Senior Credit Facility is atvariable rates based on the ratio of total cash flow to outstandingindebtedness (as defined).  Interestrates float with prime and the London Interbank Offered Rates, or LIBOR, plusan applicable margin ranging from 1.50% to 2.50% over the stated rates.  After consideration of fixed rates under theinterest rate swap agreements, (discussed in Note 8), as of March 31,2009, the average interest rates on the term loans and the revolving creditfacility were 7.27% and 5.25%, respectively, and permitted borrowings under therevolving facility were $27.5 million. AGI also pays a commitment fee of 0.5% per annum on the unused amount ofthe revolving credit facility.  Theaggregate quarterly scheduled payments on the term loans are $0.4 million.  Both the revolving credit facility and theterm loans mature on March 31, 2010. The funds available under the AGI Senior Credit Facility may be utilizedfor borrowings or letters of credit; however, a maximum of $7.5 million may be allocatedto such letters of credit.  As of March 31,2009, AGI had letters of credit in the aggregate amount of $7.5 millionoutstanding.  The AGI Senior Credit 

 

25

----

 

Facility issecured by virtually all of the AGI’s assets and a pledge of AGI’s stock andthe stock of the AGI’s subsidiaries.

 

On March 3,2006, AGI amended its AGI Senior Credit Facility to revise the definition ofConsolidated Fixed Charges Ratio and Permitted Tax Distributions.  This amendment allows the Company todistribute taxes to its ultimate parent based on its stand-alone tax obligationrather than the tax obligation of its ultimate parent, AGHI, until such timethat AGHI pays interest on its 10-7/8% senior notes due 2012 (the “AGHI Notes”)in cash instead of by the issuance of additional notes and AGI makes adistribution to AGHI for purposes of paying that cash interest.  For the three months ended March 31,2009 and 2008, the Company did not distribute dividends to its ultimate parentto fund the Company’s tax obligations. Further, AGI amended the AGI Senior Credit Facility’s covenantrestrictions with affiliates to permit a joint venture arrangement betweenCamping World and FreedomRoads, an affiliate of the Company.

 

On February 27,2007, AGI amended its AGI Senior Credit Facility to extend the maturity of therevolving credit facility from June 24, 2008 to June 24, 2009,increase the consolidated senior leverage ratio from 1.9 to 3.5 times EBITDA,as defined, and fix the consolidated total leverage ratio at 5.0 times EBITDA,as defined.  Further, the amendmentpermits AGI to repurchase up to an additional $50.0 million of the AGI SeniorSubordinated Notes from time to time as and when AGI determines through theissuance of additional term loans of up to $50.0 million.  Any loan amounts not used for the repurchaseof the AGI Senior Subordinated Notes may be used for acquisitions or repayrevolving credit loans.

 

On June 5, 2009, AGIentered into an amendment to its AGI Senior Credit Facility pursuant to whichthe maturity date was extended from June 24, 2009 to March 31, 2010, therevolving credit portion of the facility was reduced by $10.0 million to $25.0million, the outstanding term loan borrowings were repaid by $8.0 million, the financialcovenants in effect through the extended maturity date were revised and theborrowing rate was increased to prime rate plus 7.0% or LIBOR plus 8.0% with aLIBOR floor of 2.75%.  As a condition tothe amendment, the shareholder of the ultimate parent of the Company, wasrequired to arrange for the purchase of approximately $26.6 million inprincipal amount of the term portion of the AGI Senior Credit Facility by newlenders, enhance the yield to such new lenders, purchase AGHI Notes held by oneof such new lenders at a premium to the most recent market price, contribute$5.0 million in capital and guarantee two required principal payments on theterm loans under the AGI Senior Credit Facility, aggregating $15.0 million.  In consideration of such support, AGI enteredinto an option agreement with the shareholder of the ultimate parent of theCompany pursuant to which AGI granted such shareholder or his assigns anoption, exercisable on or before March 1, 2010, to purchase the Company’sCamping World subsidiary for $55.0 million, being the fair value of suchsubsidiary as determined by an appraisal of Houlihan Smith & Company, Inc.dated as of March 1, 2009.  AGI alsoagreed to pay the shareholder of the ultimate parent, upon successfulrefinancing of AGI’s secured debt, including the AGI Senior Credit Facility, asuccess fee equal in amount to the fair value, as determined by an independentfinancial advisor of such credit support, taking into account the fair value ofthe option to purchase Camping World.  Inthe event the fair value of the Camping World purchase option exceeds the fairvalue of such credit support, the shareholder will pay the amount of suchexcess to AGI.

 

26

----

 

Concurrentwith the amendment to the AGI Senior Credit Facility, AGI obtained a $9.7million Second Lien Loan, the net proceeds of which were used to purchase $14.6million in principal amount of AGI Senior Notes.  The Second Lien Loan carries an interest rateof 9.0% and matures on July 31, 2010.

 

Inaddition, AGI agreed to use its best efforts to secure an asset-based loan ofat least $18.5 million secured by the inventory and receivables of itssubsidiary, Camping World, Inc. (the “Camping World Financing”), theproceeds of which would be used to further reduce the amounts outstanding underthe AGI Senior Credit Facility.  Thesenior lenders agreed to subordinate their liens to such financing.  If a Camping World Financing has not beenconsummated by September 15, 2009, the borrowing rate on revolving creditloans, swing loans and terms loans increase to prime rate plus 9.0% or LIBORplus 10.0%.

 

Theamended AGI Senior Credit Facility also revised AGI’s financial covenants ineffect through the extended maturity date. The Company’s forecast for 2009 anticipates compliance with all requiredcovenants throughout 2009.  Significantcost reductions have been implemented in 2008, including the elimination ofpersonnel, suspension of 401(k) employer contributions, salary cutbacks,hiring and capital expenditure spending freezes, satellite office closures, andmagazine size and frequency reductions. Further cost reductions are set to be unveiled in 2009.  The Company believes that the amended bankfinancing, new secured loans, as well as forecasted cash flow will provide thecash flow needed to continue as a going concern through at least January 1,2010.

 

AGI SeniorSubordinated Notes

 

In February 2004, AGI issued $200.0 million aggregate principalamount of 9% Senior Subordinated Notes due 2012 (“AGI Senior Subordinated Notes”).  AGI completed a registered exchange of theAGI Senior Subordinated Notes under the Securities Act of 1933 in August 2004.

 

On June 8,2006, AGI amended its AGI Senior Credit Facility to permit AGI to purchase up to$30.0 million of the AGI Senior Subordinated Notes from time to time as andwhen the Company determines.  During 2006AGI purchased $29.9 million of the AGI Senior Subordinated Notes. The purchasesof these notes were made with available cash, and the notes purchased have beenretired.

 

On March 8,2007, AGI purchased $17.7 million of the AGI Senior Subordinated Notes.  AGI funded the purchase through the issuanceof the $25.0 million in additional incremental term loans as permitted underthe February 27, 2007 amendment to the AGI Senior Credit Facility.  The balance of the $25.0 million issued wasused to pay down AGI’s revolving credit facility by $6.5 million and to payassociated loan fees and transaction expenses. The terms on the additional incremental loans are consistent with theremaining term loan outstanding under the AGI Senior Credit Facility.  As of March 31, 2009, $152.4 million ofAGI Senior Subordinated Notes remain outstanding.

 

The AGI Indenture,pursuant to which the AGI Senior Subordinated Notes were issued, and the AGISenior Credit Facility contain certain restrictive covenants relating to, butnot limited to, mergers, changes in the nature of the business, acquisitions,additional indebtedness, sale of assets, investments, and the payment ofdividends subject to certain limitations and minimum operating covenants.

 

27

----

 

AGHI Notes

 

On March 24, 2005, in a private placement, AGHI issued $88.2million 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 underthe Securities Act of 1933 in June 2005. The AGHI Notes are unsecured obligations of the Company and its subsidiarieshave not guaranteed payment of principal or interest on the AGHI Notes.  Interest on the AGHI Notes is payablesemi-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 infull on February 15, 2012.  Forinterest payments on and prior to February 15, 2008, AGHI had the electionto pay interest on the AGHI Notes in cash or by the issuance of additionalnotes of the same tenor as the AGHI Notes, except the maturity date of theadditional notes ($25.4 million) is March 15, 2010.  AGI has not paid any dividends to AGHI tofund payment of interest on the AGHI Notes and AGHI made the interest paymentsdue on August 15, 2005, February 15, 2006, August 15, 2006, February 15,2007, and February 15, 2008 through the issuance of additional notes.  The Company paid the interest on the AGHINotes due August 15, 2007, August 15, 2008 and February 15, 2009from proceeds of contributions made by AGHI’s parent, AGHC, of $5.9 million,$6.2 million and $6.2 million, respectively. If the source of the cash payment of the AGHI Notes is dividends fromAGI, its wholly-owned subsidiary, there are certain restrictions on the paymentof dividends under the AGI Senior Credit Facility and the AGI Indenture.  As of March 31, 2009, $111.9 million ofAGHI Notes remain outstanding. Currently, the AGI Senior Credit Facility and the AGI Indenture imposelimitations on the ability of subsidiaries of AGHI to make dividenddistributions or loans to AGHI to pay interest on the AGHI Notes.  The August 15, 2009 interest payment isexpected to be paid from proceeds of capital contributions made by AGHC.

 

The Companycontributed 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 itswholly-owned subsidiary, Camping World. Camping World then made an equity capital contribution in the sameamount to its wholly-owned subsidiary, CWI, Inc. (“CWI”).  CWI created a new wholly-owned subsidiarynamed CWFR Capital Corp., a Delaware corporation (“CWFR”) which is an “unrestrictedsubsidiary” under the AGHI Notes, and the AGI Indenture.  Since CWFR is an unrestricted subsidiary, itsoperations are not restricted by either the AGI Indenture or the AGHINotes.  CWI made an equity capitalcontribution to CWFR in an equal amount to the capital contribution that itreceived from Camping World.  CWFR usedthe proceeds from the equity capital contribution to acquire a preferredmembership interest in FreedomRoads, a Minnesota limited liability companyowned 90% by The Stephen Adams Living Trust, which also indirectly owns 100% ofthe outstanding capital stock of AGHC and indirectly AGHI.  The Company recorded an impairment charge of$81.0 million in the third quarter of 2008 that wrote down to zero the carryingvalue of the preferred membership interest.

 

Interest Rate Swap Agreements

 

On October 15, 2007, AGI entered into a five-year interest rateswap agreement with a notional amount of $100.0 million from which it willreceive periodic payments at the 3 month LIBOR-based variable rate (1.17% at March 31,2009 based upon the January 31, 2009 reset date) and make periodicpayments at a fixed rate of 5.135%, with settlement and rate reset 

 

28

----

 

dates every January 31, April 30, July 31, and October 31.  On March 19, 2008, AGI entered into aninterest rate swap agreement with a notional amount of $35.0 million from whichit will receive periodic payments at the 3 month LIBOR-based variable rate(1.17% at March 31, 2009 based upon the January 31, 2009 reset date)and make periodic payments at a fixed rate of 3.430%, with settlement and ratereset dates every January 31, April 30, July 31, and October 31.  The interest rate swap was effectivebeginning April 30, 2008 and expires on October 31, 2012.  The fair value of the swap contracts werezero at inception.  The Company enteredinto the interest rate swap contracts to limit the effect of increases on ourfloating rate debt.  The interest rateswap contracts are designated as a cash flow hedge of the variable rateinterest payments due on $135.0 million of the term loans and the revolvingcredit facility issued June 24, 2003, and accordingly, gains and losses onthe fair value of the interest rate swap agreements are reported in accumulatedother comprehensive loss and reclassified to earnings in the same period inwhich the hedged interest payment affects earnings.  The interest rate swap agreements expire on October 31,2012.  The fair value of these swapsincluded in other long-term liabilities was $12.5 million of which $10.1million is in accumulated other comprehensive loss, $2.4 million in retainedearnings, and $20,000 in the statement of operations at March 31,2009.  The fair value of these swapsincluded in other long-term liabilities was $12.7 million of which $10.3million is in accumulated other comprehensive loss and $2.4 million in thestatement of operations at December 31, 2008.

 

Due to thepotential sale of Camping World, in the fourth quarter of 2008 a highlyeffective hedge on the $35.0 million outstanding debt by the $35.0 millionnotional amount interest rate swap agreement is deemed to be no longer probableand is now deemed to be reasonably possible. As a result, changes in the value of the $35.0 million interest rateswap agreement are included in earnings beginning on October 1, 2008.  Change in value from January 1, 2009 to March 31,2009 on the $35.0 million interest rate swap was $20,000.  Included in other comprehensive loss is $0.5million related to the $35.0 million interest rate swap which will be includedin earnings when the underlying transaction being hedged is probable not tooccur.  A highly-effective hedge on the$100.0 million outstanding debt by the $100.0 million notional amount ofinterest rate swap agreement is still deemed to be probable as the Company willmaintain its LIBOR-based debt at a minimum of $100.0 million until the interestswap expire date of October 31, 2012. Changes in value from January 1, 2009 to March 31, 2009 on the$100.0 million interest rate swap were $0.2 million and are included as acomponent of other comprehensive loss in stockholders’ deficit.

 

Other ContractualObligations and Commercial Commitments

 

In January 2008,AGI Productions, Inc. acquired nine consumer shows from MAC Events, LLCfor $3.4 million.  As part of thepurchase, the Company issued $0.4 million of debt and assumed $0.6 million inliabilities.  In February 2008, AGIProductions, Inc. acquired three consumer shows from Mid AmericaExpositions, Inc. for $1.6 million. As part of the purchase, the Company issued $0.5 million in debt andassumed $0.5 million in liabilities.

 

For the threemonths ended March 31, 2009, the Company incurred no deferred executivecompensation expense under the phantom stock agreements, and made payments of$1.4 million under the terms of the vested phantom stock agreements.  The earned incentives under these agreementsare scheduled to be paid at various times over the next four years.  No phantom stock payments are scheduled to**be made for the remainder of 2009.

 

Capitalexpenditures for the first three months of 2009 totaling $1.3 million decreased$2.3 million from the first three months of 2008 primarily due to a slow downof new retail store

 

29

----

 

openings.  Additional capital expenditures of $2.2million are anticipated for the balance of 2009 primarily for one more CampingWorld store and equipment, software enhancements, information technologyupgrades and further website development.

 

**CRITICAL ACCOUNTINGPOLICIES**

 

*General*

 

The discussion andanalysis of the Company’s financial condition and results of operations arebased upon the Company’s consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States.  The preparation of thesefinancial statements requires the Company to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses, andrelated disclosure of contingent assets and liabilities.  On an on-going basis, the Company evaluatesits 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 historicalexperience and on various other assumptions that are believed to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. Actual results may differ from these estimates under differentassumptions or conditions.

 

The Companybelieves the following critical accounting policies affect the more significantjudgments and estimates used in the preparation of the Company’s consolidatedfinancial statements.

 

*Revenue Recognition*

 

Merchandiserevenue is recognized when products are sold in the retail stores, shipped formail and Internet orders, or when services are provided to customers.  Publication advertising and newsstand sales,net of estimated provision for returns, are recorded at time of delivery.  Subscription sales of publications aredeferred and recognized over the lives of the subscriptions.  Revenues from the emergency road serviceprogram (“ERS”) are deferred and recognized over the life of themembership.  ERS claim expenses arerecognized when incurred.  Advances onthird party credit card fee revenues are deferred and recognized based primarilyon a percentage of credit card receivables held by third parties.  Membership revenue is generated from annual,multi-year and lifetime memberships.  Therevenue and expenses associated with these memberships are deferred andamortized over the membership period. For lifetime memberships, an 18-year period is used, which is theactuarially determined estimated fulfillment period.  Promotional expenses, consisting primarily ofdirect mail advertising, are deferred and expensed over the period of expectedfuture benefit.  Renewal expenses areexpensed at the time related materials are mailed.  Recognized revenues and profit are subject torevisions as the membership progresses to completion.  Revisions to membership period estimateswould change the amount of income and expense amortized in future accountingperiods.  Revenue and related expensesfor consumer shows are recognized when the show occurs.

 

30

----

 

*Accounts Receivable*

 

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

 

*Inventory*

 

The Company statesinventories at the lower of cost or market. In assessing the ultimate realization of inventories, the Company isrequired to make judgments as to future demand requirements and compare thatwith the current or committed inventory levels. The Company has recorded changes in required reserves in recent periodsdue to changes in strategic direction, such as discontinuances of product linesas well as changes in market conditions due to changes in demandrequirements.  It is possible thatchanges in required inventory reserves may continue to occur in the future dueto the market conditions.

 

*Long-LivedAssets*

 

Purchasedintangible assets with finite lives are amortized using the straight-linemethod over the estimated economic lives of the assets, ranging from one tofifteen years.

 

Long-lived assets,such as property, plant and equipment and purchased intangible assets withfinite lives are evaluated for impairment whenever events or changes incircumstances indicate the carrying value of an asset may not be recoverable inaccordance with SFAS No. 144, “Accounting for the Impairment or Disposalof Long-Lived Assets.”  The Companyassesses the fair value of the assets based on the future cash flow the assetsare expected to generate and recognize an impairment loss when estimatedundiscounted future cash flow expected to result from the use of the asset plusnet proceeds expected from disposition of the asset (if any) are less than thecarrying value of the asset.  When animpairment is identified, the Company reduces the carrying amount of the assetto its estimated fair value based on a discounted cash flow approach or, whenavailable and appropriate, comparable market values.

 

In 2005, AGHI issued $88.2 million principal amount of its 10-7/8%Senior Notes due 2012 (the “AGHI Notes”) and contributed the net proceeds,approximately $81.0 million, to the Company and in turn, the Company made anequity contribution to Camping World. Camping World then made an equity capital contribution in the sameamount to its wholly-owned subsidiary, CWI, Inc. that created a newwholly-owned subsidiary named CWFR Capital Corp. (“CWFR”) which is an “unrestrictedsubsidiary” under the AGHI Notes, and the AGI Indenture, and made an equitycapital contribution to CWFR in an equal amount to the capital contributionthat it received from Camping World. Since CWFR is an unrestricted subsidiary, its operations are notrestricted by either the AGI Indenture or the AGHI Notes.  CWFR used the proceeds from the equitycapital contribution to acquire the FreedomRoads Preferred Interest.  FreedomRoads is owned 90% by The StephenAdams Living Trust, which also indirectly owns 100% of the outstanding capitalstock of AGHC and indirectly AGHI.

 

31

----

 

Based on theresults of the Valuation Report, the Company recorded an impairment charge of$81.0 million in the third quarter of 2008 that wrote down to zero the carryingvalue of the preferred interest (the “FreedomRoads Preferred Interest”) held byan indirect subsidiary of Camping World in FreedomRoads Holding Company, LLC (“FreedomRoads”),a holding company whose subsidiaries sell and service new and used recreationalvehicles.  The $81.0 million impairmentcharge was recorded as a result of declining performance of the recreationalvehicle industry driven by overall weakening of the economy and a significant declinein consumer confidence, in addition to limited credit available to consumersinterested in purchasing recreational vehicles.

 

The Company hasevaluated the remaining useful lives of its finite-lived purchased intangibleassets to determine if any adjustments to the useful lives were necessary or ifany of these assets had indefinite lives and were therefore not subject toamortization.  The Company determinedthat no adjustments to the useful lives of its finite-lived purchasedintangible assets were necessary.  Thefinite-lived purchased intangible assets consist of membership customer lists,resort and golf course agreements, non-compete and deferred consultingagreements and deferred financing costs which have weighted average usefullives of approximately 6 years, 4 years, 15 years and 7 years, respectively.

 

*Indefinite-LivedIntangible Assets*

 

The Companyevaluates indefinite-lived intangible assets for impairment at least annuallyor when events indicate that an impairment exists in accordance with SFAS No. 142,“Goodwill and Other Intangibles.”  Theimpairment test for goodwill and other indefinite-lived intangible assets iscalculated annually using fair value measurement techniques.

 

Determining thefair value of a reporting unit and the fair value of individual assets andliabilities of a reporting unit is judgmental in nature and often involves theuse of significant estimates and assumptions. These estimates and assumptions could have a significant impact onwhether or not an impairment charge is recognized and also the extent of suchcharge.  The Company’s estimates of fairvalue utilized in goodwill and other indefinite-lived intangible asset testsmay be based upon a number of factors, including assumptions about theprojected future cash flows, discount rate, growth rate, determination ofmarket comparables, technological change, economic conditions or changes to theCompany’s business operations.  Suchchanges may result in impairment charges recorded in future periods.

 

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

 

In the thirdquarter of 2008, the Company noted continued reduction in same store sales atCamping World, Inc. (“Camping World”) as well as deterioration of generaleconomic conditions and consumer confidence. Based on the above, the Company determined that there were identifiedindicators of impairment in the Camping World reporting unit.

 

32

----

 

The results of theValuation Report prepared in the third quarter of 2008 indicated that theestimated fair value of the Camping World reporting unit was less than bookvalue.  The excess of the carrying valueover the estimated fair value of the Camping World reporting unit was primarilydue to the decline in the recreational vehicle and camping retail marketsleading to lower expected future cash flows for the business and lower marketcomparables. In determining the fair value, the Company used a weighted averageof the income valuation approach and market valuation approaches.

 

In performing thesecond step of the goodwill impairment test, the Company allocated the estimatedfair values of the Camping World reporting units determined in step one of theimpairment test, to the assets and liabilities of the respective reporting unitin accordance with SFAS No. 141 “Business Combinations”. The Companymeasured the impairment for the Camping World reporting unit to be equal to thecarrying value of its goodwill, or $47.6 million.  The Company recorded an impairment charge of$47.6 million in the third quarter of 2008 related to Camping World, which ispart of the retail segment.

 

Determining thefair value of a reporting unit under the first step of the goodwill impairmenttest and determining the fair value of individual assets and liabilities of areporting unit under the second step of the goodwill impairment test isjudgmental in nature and often involves the use of significant estimates andassumptions. These estimates and assumptions could have a significant impact onwhether or not an impairment charge is recognized and also the extent of suchcharge. The Company’s estimates of fair value utilized in goodwill test may bebased upon a number of factors, including assumptions about the projectedfuture cash flows, discount rate, growth rate, determination of marketcomparables, economic conditions, or changes to the Company’s businessoperations. Such changes may result in impairment charges recorded in futureperiods.

 

The Company hasevaluated the remaining useful lives of its property and equipment andfinite-lived purchased intangible assets to determine if any adjustments to theuseful lives were necessary.  The Companydetermined that no adjustments to the useful lives of its property andequipment or finite-lived purchased intangible assets were necessary. Futuregoodwill impairment tests could result in a charge to earnings.  The Company will continue to evaluategoodwill on an annual basis and whenever events and changes in circumstancesindicate that there may be a potential impairment.

 

*AccumulatedOther Comprehensive Loss*

 

Accumulatedother comprehensive loss consists of unrealized losses on cash flowhedges.  At March 31, 2009,accumulated other comprehensive loss was $10.1 million.

 

*Derivative Financial Instruments*

 

TheCompany accounts for derivative instruments and hedging activities inaccordance with SFAS No. 133, “Accounting for Derivative Instruments andHedging Activities” (“SFAS 133”).  Allderivatives are recognized on the balance sheet at their fair value.  On the date that the Company enters into aderivative contract, management formally documents all relationships betweenhedging instruments and hedged items, as well as risk management objectives andstrategies for undertaking various hedge transactions.

 

33

----

 

Changes in the fair value of a derivative that ishighly effective and that is designated and qualifies as a cash flow hedge (a “swap”),to the extent that the hedge is effective, are recorded in accumulated othercomprehensive loss, until earnings are affected by the variability of cashflows of the hedged transaction.  TheCompany measures effectiveness of the swap at each quarter end using theHypothetical Derivative Method.  Underthis method, hedge effectiveness is measured based on a comparison of thechange in fair value of the actual swap designated as the hedging instrumentand the change in fair value of the hypothetical swap which would have theterms that identically match the critical terms of the hedged cash flows fromthe anticipated debt issuance.  Theamount of ineffectiveness, if any, recorded in earnings would be equal to theexcess of the cumulative change in the fair value of the swap over thecumulative change in the fair value of the plain vanilla swap lock, as definedin the accounting literature.  Once aswap is settled, the effective portion is amortized over the estimated life ofthe hedge item.

 

The Company utilizes derivative financialinstruments to manage its exposure to interest rate risks.  The Company does not enter into derivativefinancial instruments for trading purposes.

 

Due to thepotential sale of Camping World, in the fourth quarter of 2008 a highlyeffective hedge on the $35.0 million outstanding debt by the $35.0 millionnotional amount interest rate swap agreement is deemed to be no longer probableand is now deemed to be reasonably possible. As a result, changes in the value of the $35.0 million interest rateswap agreement are included in earnings prospectively beginning October 1,2008.  Changes in value from January 1,2009 to March 31, 2009 on the $35.0 million interest rate swap was$20,000.  A highly-effective hedge on the$100.0 million outstanding debt by the $100.0 million notional amount ofinterest rate swap agreement is still deemed to be probable as the Company willmaintain its LIBOR-based debt at a minimum of $100.0 million until the interestswap expire date of October 31, 2012. Changes in value from January 1, 2009 to March 31, 2009 on the$100.0 million interest rate swap were $0.2 million and are included as acomponent of other comprehensive loss in stockholders’ deficit.

 

*FairValue Measurements*

 

As discussed in Note 2 to the unauditedcondensed consolidated financial statements, the Company adopted the provisionsof Statement 157 effective January 1, 2008.  The Company has determined that it utilizesobservable (Level 2) inputs in determining the fair value of its interest rateswap contracts which totaled $12.5 million at March 31, 2009.

 

*Income Taxes*

 

Significantjudgment is required in determining the Company’s tax provision and inevaluating its tax positions.  TheCompany establishes accruals for certain tax contingencies when, despite thebelief that the Company’s tax return positions are fully supported, the Companybelieves that certain positions may be challenged and that the Company’spositions may not be fully sustained.  The tax contingency accruals areadjusted in light of changing facts and circumstances, such as the progress oftax audits, case law and emerging legislation. The Company’s tax provision includes the impact of tax contingencyaccruals and changes to the accruals, including related interest and penalties,as considered appropriate by management.

 

34

----

 

**ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

We are exposed tomarket risks relating to fluctuations in interest rates.  Our objective of financial risk management isto minimize the negative impact of interest rate fluctuations on our earningsand cash flows.  Interest rate risk ismanaged through the use of a combination of fixed and variable interest debt aswell as the periodic use of interest rate collar contracts.

 

The followinginformation discusses the sensitivity to our earnings.  The range of changes chosen for this analysisreflects our view of changes which are reasonably possible over a one-yearperiod.  These forward-lookingdisclosures are selective in nature and only address the potential impacts fromfinancial instruments.  They do notinclude other potential effects which could impact our business as a result ofthese interest rate fluctuations.

 

*InterestRate Sensitivity Analysis*

 

At March 31,2009, we had debt totaling $412.6 million, comprised of $11.0 million ofvariable rate debt and $401.6 million of fixed rate debt, comprised of $135.0million of debt fixed through the interest rate swap agreements, $152.4 millionof Senior Notes, $111.9 million of AGHI Notes and $2.3 million of purchasedebt.  Holding other variables constant(such as debt levels), the earnings and cash flow impact of a one-percentage pointincrease/ decrease in interest rates would have an unfavorable/ favorableimpact of $0.1 million.

 

*CreditRisk*

 

We are exposed tocredit risk on accounts receivable.  Weprovide credit to customers in the ordinary course of business and performongoing credit evaluations. Concentrations of credit risk with respect to trade receivables arelimited due to the number of customers comprising our customer base.  We currently believe our allowance fordoubtful accounts is sufficient to cover customer credit risks.

 

**ITEM 4: CONTROLS 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 theparticipation of the Company’s management, including the President and ChiefExecutive Officer and the Senior Vice President and Chief Financial Officer, ofthe effectiveness of the design and operation of the Company’s disclosurecontrols and procedures pursuant to Regulation 13a-15(e) under theSecurities Exchange Act of 1934, as amended. Based upon that evaluation, the President and Chief Executive Officeralong with the Senior Vice President and Chief Financial Officer concluded thatthe disclosure controls and procedures are effective in timely alerting them tomaterial information relating to the Company (including its consolidatedsubsidiaries) required to be included in the periodic SEC filings.  Management determined that, as of March 31,2009, there have been no significant changes in the Company’s internal controlover financial reporting or in other factors that could significantly affectthese controls subsequent to the date the Company carried out its evaluation.

 

35

----

 

**PART II: OTHER INFORMATION.**

 

**ITEM 1A: RISK FACTORS**

 

The AGI SeniorCredit Facility matures on March 31, 2010. As of March 31, 2009, there was $146.0 million outstanding underthe AGI Senior Credit Facility and it is secured by a lien on all of theCompany’s assets and a pledge of the Company’s stock and the stock of itssubsidiaries.  Although the Company iscurrently seeking to refinance or replace the AGI Senior Credit Facility andhas received a number of proposals from prospective lenders, there can be noassurance that the Senior Credit Facility will be refinanced or replaced priorto its maturity.  The availability offinancing is limited due to the current uncertainties in the capitalmarkets.  In addition, the currentgeneral conditions in the U.S. economy had an adverse impact on the Company’soperations because consumers are reducing discretionary spending, includingspending on the recreational activities offered by the Company, and businessesare reducing advertising and marketing expenditures which have adverselyaffected the advertising revenues received by the Company.  As a result, it may be even more difficultfor the Company to refinance or replace the AGI Senior Credit Facility due tothe current deterioration in the Company’s operating results.  If the Company is not able to refinance orreplace the Senior Credit Facility prior to its maturity on March 31,2010, the lenders will be entitled to exercise their remedies to sell thecollateral securing the repayment of the AGI Senior Credit Facility, includingthe Company’s assets, the stock of the Company and the stock of the Company’ssubsidiaries.  Since the indebtednessowned under the AGI Senior Credit Facility is secured, it would be repaidbefore any of the unsecured or subordinated obligations of the Company and itssubsidiaries.  It is also possible thatthe interest rate payable on a new credit facility will be higher than theinterest rates under the current AGI Senior Credit Facility as amended June 5,2009  which will adversely affect theCompany’s cash flow and profitability (or increase losses).

 

**ITEM 5:OTHER INFORMATION**

 

None.

 

36

----

 

**SIGNATURES:**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrants have dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
| ** **               | **AFFINITY  GROUP HOLDING, INC.** |
|--------------------------|-----------------------------------|
| ** **               | ** **                        |
| ** **               | ** **                        |
|                     | /s/ Thomas F.  Wolfe              |
| Date: June 5,  2009 | Thomas F. Wolfe                   |
|                     | Senior Vice  President and        |
|                     | Chief Financial  Officer          |

 

37

----