**UNITEDSTATES**

##### **SECURITIESAND EXCHANGE COMMISSION**

###### **Washington, D.C.  20549**

**FORM 10-Q**

**Quarterly Report Under Section 13or 15 (d) of**

**TheSecurities Exchange Act of 1934**

| **For Quarter Ended:** |       | **Commission  File Number** |
|------------------------|------------|-----------------------------|
| **March 31, 2007**     | ** ** | **333-124109**              |

 

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**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)         |

 

SECURITIES REGISTEREDPURSUANT TO SECTION 12 (b) OF THE ACT:  **NONE**

SECURITIES REGISTEREDPURSUANT 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 reportsrequired to be filed by Section 13 or 15 (d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the Registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

YES   **x**                 NO   o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
| Large accelerated filer   o | Accelerated filer   o | Non-accelerated filer   **x** |
|--------------------------------------------|--------------------------------------|----------------------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct).

YES   o                  NO   **x**

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

|                               |   | **Outstanding as of** |
|-------------------------------|--------|-----------------------|
| **Class**                     |   | **May 9, 2007**       |
| Common Stock,  $.01 par value |   | 100                   |

 

**DOCUMENTSINCORPORATED BY REFERENCE:** None

 

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**AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES**

**INDEX**
|                | ** ** | ** **            | ** ** |
|----------------|------------|-----------------------|------------|
| **Part I.**    |       | Financial Information |       |
| ** **     |       |                  |       |
| ** **     | ** ** | **Item 1:**           | ** ** | **Financial Statements** |   |
| ** **     | ** ** | ** **            | ** ** | ** ** |   |
|           |       |                  |       | Consolidated Balance Sheets |   |
|           |       |                  |       | As of March 31, 2007  (unaudited) and December 31, 2006 |   |
|           |       |                  |       |   |   |
|           |       |                  |       | Unaudited  Consolidated Statements of Operations |   |
|           |       |                  |       | For the three  months ended March 31, 2007 and 2006 |   |
|           |       |                  |       |   |   |
|           |       |                  |       | Unaudited Consolidated  Statements of Cash Flows |   |
|           |       |                  |       | For the three  months ended March 31, 2007 and 2006 |   |
|           |       |                  |       |   |   |
|           |       |                  |       | Notes to Unaudited  Consolidated Financial Statements |   |
|           |       |                  |       |   |   |
| ** **     | ** ** | **Item 2:**           | ** ** | **Management’s Discussion  and Analysis of Financial Condition and Results of Operations** |   |
| ** **     | ** ** | ** **            | ** ** | ** ** |   |
| ** **     | ** ** | **Item 3:**           | ** ** | **Quantitative  and Qualitative Disclosures about Market Risk** |   |
| ** **     | ** ** | ** **            | ** ** | ** ** |   |
| ** **     | ** ** | **Item 4:**           | ** ** | **Controls and  Procedures** |   |
| ** **     | ** ** | ** **            | ** ** | ** ** |   |
| **Part II.**   |       | Other Information     |       |
| ** **     |       |                  |       |
| **Signatures** |       |

 

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AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March31, 2007 and December 31, 2006

(In thousands except sharesand par value)
| ** **                                                                                       | ** ** | **3/31/2007**   | ** ** | **12/31/2006** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|
| ** **                                                                                       | ** ** | **(Unaudited)** | ** ** | ** **     | ** ** |
| **ASSETS**                                                                                       |       |            |       |           |       |
| CURRENT ASSETS:                                                                                  |       |            |       |           |       |
| Cash and cash  equivalents                                                                       |       | $               | 2,537      |           | $          | 15,238 |   |
| Accounts  receivable, less allowance for doubtful accounts of $1,392 in 2007 and $1,193  in 2006 |       | 26,101          |       | 27,199         |       |
| Inventories                                                                                      |       | 64,108          |       | 52,703         |       |
| Prepaid expenses  and other assets                                                               |       | 16,004          |       | 13,006         |       |
| Deferred tax  assets                                                                             |       | 3,241           |       | 3,203          |       |
| Total current  assets                                                                            |       | 111,991         |       | 111,349        |       |
|                                                                                             |       |            |       |           |       |
| PROPERTY AND  EQUIPMENT, net                                                                     |       | 37,916          |       | 34,765         |       |
| INVESTMENT IN  AFFILIATE                                                                         |       | 81,005          |       | 81,005         |       |
| NOTE FROM  AFFILIATE                                                                             |       | 4,679           |       | 4,688          |       |
| INTANGIBLE  ASSETS, net                                                                          |       | 32,664          |       | 32,957         |       |
| GOODWILL                                                                                         |       | 144,429         |       | 144,429        |       |
| OTHER ASSETS                                                                                     |       | 2,020           |       | 1,704          |       |
| Total assets                                                                                     |       | $               | 414,704    |           | $          | 410,897 |   |
|                                                                                             |       |            |       |           |       |
| **LIABILITIES AND STOCKHOLDER’S  DEFICIT**                                                  |       |            |       |           |       |
| CURRENT  LIABILITIES:                                                                            |       |            |       |           |       |
| Accounts payable                                                                                 |       | $               | 27,812     |           | $          | 32,577 |   |
| Accrued interest                                                                                 |       | 1,889           |       | 5,936          |       |
| Accrued income  taxes                                                                            |       | 1,312           |       | 1,736          |       |
| Accrued liabilities                                                                              |       | 37,965          |       | 35,687         |       |
| Deferred  revenues and gains                                                                     |       | 61,882          |       | 62,906         |       |
| Current portion  of long-term debt                                                               |       | 4,580           |       | 7,271          |       |
| Total current  liabilities                                                                       |       | 135,440         |       | 146,113        |       |
|                                                                                             |       |            |       |           |       |
| DEFERRED  REVENUES AND GAINS                                                                     |       | 39,247          |       | 37,183         |       |
| LONG-TERM DEBT,  net of current portion                                                          |       | 395,553         |       | 381,510        |       |
| DEFERRED TAX  LIABILITY                                                                          |       | 1,165           |       | 15,724         |       |
| OTHER LONG-TERM  LIABILITIES                                                                     |       | 16,850          |       | 3,386          |       |
|                                                                                             |       | 588,255         |       | 583,916        |       |
|                                                                                             |       |            |       |           |       |
| COMMITMENTS AND  CONTINGENCIES                                                                   |       |            |       |           |       |
|                                                                                             |       |            |       |           |       |
| STOCKHOLDER’S  DEFICIT:                                                                     |       |            |       |           |       |
| Common stock,  $.01 par value, 3,000 shares authorized, 100 shares issued and outstanding        |       | 1               |       | 1              |       |
| Accumulated  deficit                                                                             |       | (173,552        | )          | (173,020       | )          |
| Total  stockholder’s deficit                                                                |       | (173,551        | )          | (173,019       | )          |
| Total liabilities and  stockholder’s deficit                                                |       | $               | 414,704    |           | $          | 410,897 |   |

 

See notes toconsolidated financial statements.

1

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AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(InThousands)

(Unaudited)
| ** **                                         | ** ** | **THREE MONTHS ENDED** | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|
| ** **                                         | ** ** | **3/31/2007**                    | ** ** | **3/31/2006** | ** ** |
|                                               |       |                             |       |   |   |
| REVENUES:                                          |       |                             |       |   |   |
| Membership services                                |       | $                                | 34,061     |   | $ | 32,948 |   |
| Publications                                       |       | 24,689                           |       | 23,103 |   |
| Retail                                             |       | 69,057                           |       | 60,819 |   |
|                                               |       | 127,807                          |       | 116,870 |   |
|                                               |       |                             |       |   |   |
| COSTS APPLICABLE  TO REVENUES:                     |       |                             |       |   |   |
| Membership services                                |       | 21,667                           |       | 21,116 |   |
| Publications                                       |       | 15,777                           |       | 14,575 |   |
| Retail                                             |       | 41,836                           |       | 36,403 |   |
|                                               |       | 79,280                           |       | 72,094 |   |
|                                               |       |                             |       |   |   |
| GROSS PROFIT                                       |       | 48,527                           |       | 44,776 |   |
|                                               |       |                             |       |   |   |
| OPERATING  EXPENSES:                               |       |                             |       |   |   |
| Selling, general and administrative                |       | 34,565                           |       | 30,233 |   |
| Depreciation and amortization                      |       | 4,903                            |       | 4,650 |   |
|                                               |       | 39,468                           |       | 34,883 |   |
|                                               |       |                             |       |   |   |
| INCOME FROM  OPERATIONS                            |       | 9,059                            |       | 9,893 |   |
|                                               |       |                             |       |   |   |
| NON-OPERATING  ITEMS:                              |       |                             |       |   |   |
| Interest income                                    |       | 174                              |       | 329 |   |
| Interest expense                                   |       | (9,137                           | )          | (9,267 | ) |
| Debt extinguishment expense                        |       | (775                             | )          | — |   |
| Other non-operating items, net                     |       | 49                               |       | 33 |   |
|                                               |       | (9,689                           | )          | (8,905 | ) |
|                                               |       |                             |       |   |   |
| (LOSS) INCOME  FROM OPERATIONS BEFORE INCOME TAXES |       | (630                             | )          | 988 |   |
|                                               |       |                             |       |   |   |
| INCOME TAX  BENEFIT (EXPENSE)                      |       | 98                               |       | (428 | ) |
|                                               |       |                             |       |   |   |
| NET (LOSS) INCOME                                  |       | $                                | (532       | ) | $ | 560 |   |

 

Seenotes to consolidated financial statements.

2

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AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(InThousands)

(Unaudited)
| ** **                                                                                          | ** ** | **THREE MONTHS ENDED** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                          | ** ** | **3/31/2007**                    | ** ** | **3/31/2006** | ** ** |
|                                                                                                |       |                             |       |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                              |       |                             |       |   |   |
| Net (loss) income                                                                                   |       | $                                | (532       | ) | $ | 560 |   |
| Adjustments to reconcile net (loss) income to net  cash (used in) provided by operating activities: |       |                             |       |   |   |
| Depreciation                                                                                        |       | 2,398                            |       | 2,494 |   |
| Amortization                                                                                        |       | 2,505                            |       | 2,156 |   |
| Provision for losses on accounts receivable                                                         |       | 283                              |       | 276 |   |
| Deferred compensation                                                                               |       | 120                              |       | — |   |
| Deferred tax benefit                                                                                |       | (413                             | )          | (426 | ) |
| Gain on sale of property and equipment                                                              |       | —                           |       | (11 | ) |
| Loss on early extinguishment of debt                                                                |       | 775                              |       | — |   |
| Non-cash interest on AGHI Notes                                                                     |       | 2,855                            |       | 2,568 |   |
| Accretion of original issue discount                                                                |       | 83                               |       | 59 |   |
| Changes in operating assets and liabilities                                                         |       |                             |       |   |   |
| Accounts receivable                                                                                 |       | 815                              |       | 1,607 |   |
| Inventories                                                                                         |       | (11,405                          | )          | (1,401 | ) |
| Prepaid expenses and other assets                                                                   |       | (3,032                           | )          | (2,631 | ) |
| Accounts payable                                                                                    |       | (4,765                           | )          | 5,894 |   |
| Accrued and other liabilities                                                                       |       | (3,033                           | )          | (6,211 | ) |
| Deferred revenues and gains                                                                         |       | 234                              |       | (640 | ) |
| Net cash (used in) provided by operating activities                                                 |       | (13,112                          | )          | 4,294 |   |
|                                                                                                |       |                             |       |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                              |       |                             |       |   |   |
| Capital expenditures                                                                                |       | (5,549                           | )          | (3,780 | ) |
| Net proceeds from sale of property and equipment                                                    |       | —                           |       | 52 |   |
| Additions to intangible assets                                                                      |       | (2                               | )          | (3 | ) |
| Acquisitions, net of cash received                                                                  |       | (304                             | )          | (1,334 | ) |
| Repayment of loans receivable                                                                       |       | 9                                |       | 9 |   |
| Net cash used in investing activities                                                               |       | (5,846                           | )          | (5,056 | ) |
|                                                                                                |       |                             |       |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                              |       |                             |       |   |   |
| Dividends paid                                                                                      |       | —                           |       | (1,046 | ) |
| Borrowings on long-term debt                                                                        |       | 39,000                           |       | — |   |
| Payment of debt issue costs                                                                         |       | (291                             | )          | — |   |
| Principal payments of long-term debt                                                                |       | (32,452                          | )          | (3,146 | ) |
| Net cash provided by (used in) financing activities                                                 |       | 6,257                            |       | (4,192 | ) |
|                                                                                                |       |                             |       |   |   |
| NET CHANGE IN  CASH AND CASH EQUIVALENTS                                                            |       | (12,701                          | )          | (4,954 | ) |
|                                                                                                |       |                             |       |   |   |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF PERIOD                                                   |       | 15,238                           |       | 25,061 |   |
|                                                                                                |       |                             |       |   |   |
| CASH AND CASH  EQUIVALENTS AT END OF PERIOD                                                         |       | $                                | 2,537      |   | $ | 20,107 |   |

 

See notes to consolidatedfinancial statements.

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**AFFINITY GROUP HOLDING, INC. ANDSUBSIDIARIES**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

**(1) BASIS OF PRESENTATION**

*Principles of Consolidation**–*The consolidated financial statementsincluded herein include the accounts of Affinity Group Holding, Inc. (“AGHI”),its wholly-owned subsidiary, Affinity Group, Inc (“AGI”), and AGI’ssubsidiaries (collectively the “Company”), presented in accordance with U.S.generally accepted accounting principles, and pursuant to the rules andregulations of the Securities and Exchange Commission.  The parent company of AGHI is AGI HoldingCorp. (“AGHC”), a privately-owned corporation.

Inthe second quarter of 2006, AGHC received approval from the Internal RevenueService to change its tax status from a Subchapter C corporation to aSubchapter S corporation (“S corporation”) to be effective as of January 1,2006.  The election for change in taxstatus to an S corporation included AGHC and all its subsidiaries with theexception of Camping World, Inc. and its wholly-owned subsidiaries, which areto remain Subchapter C corporations. Pursuant to FAS 109, “Accounting for Income taxes”, a change in taxstatus resulting from an S corporation election requires that all deferred taxaccounts be revalued upon formal approval of the S corporation status.  Accordingly, all deferred tax accounts ofAGHC and its subsidiaries, excluding Camping World, Inc. and its wholly ownedsubsidiaries, were revalued to account for the tax effect for the change to theS corporation status.

Theseinterim consolidated financial statements should be read in conjunction withthe Company’s consolidated financial statements and notes in the Company’s 10-Kreport for the year ended December 31, 2006 as filed with the Securities andExchange Commission.  In the opinion ofmanagement of the Company, these consolidated financial statements contain alladjustments of a normal recurring nature necessary to present fairly the financialposition, results of operations and cash flows of the Company for the interimperiods presented.

**(2) RECENT ACCOUNTINGPRONOUNCEMENTS**

The Company adopted theprovisions of FASB Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes — An Interpretation of FASB Statement No. 109” on January 1, 2007.  FIN No. 48 clarifies the accounting foruncertainty in income taxes recognized in an enterprise’s financial statementsin accordance with SFAS No. 109.  FIN No.48 also prescribes a recognition threshold and measurement attribute for thefinancial statement recognition and measurement of tax position taken orexpected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition, classification,interest and penalties, accounting in interim periods, disclosure, and transition.

At the date of adoptionof FASB Interpretation No. 48, the Company had $14.2 million of unrecognizedtax benefits.  Accounting for theunrecognized tax benefits had no affect on

4

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**(2) RECENT ACCOUNTINGPRONOUNCEMENTS (continued)**

current period earningsor retained earnings as the liability was reclassed from its existing long termdeferred tax liabilities.  As such, therewould be no affect on the effective tax rate if the unrecognized tax benefitswere recognized.  The Company did nothave any material increases in unrecognized tax benefits in the current periodand does not anticipate any material increases over the next twelvemonths.  At the date of adoption, theCompany had recorded $0.7 million of accrued interest and penalties related tounrecognized tax benefits.  During thecurrent period, the Company recorded an additional $0.2 million of accruedinterest and penalties related to the unrecognized tax benefits.  The Company’s policy is to classify interestand penalties as income taxes in the financial statements.

The Company and itssubsidiaries file income tax returns in the U.S. and various states.  With few exceptions, the Company is no longersubject to U.S. federal, state, and local income tax examinations by taxauthorities for years before 2002.

In September 2006, theFASB issued SFAS No. 157, Fair Value Measurements.  This standard provides guidance for usingfair value to measure assets and liabilities. The standard also responds to investors’ requests for expandedinformation about the extent to which companies measure assets and liabilitiesat fair value, the information used to measure fair value, and the effect offair value measurements on earnings.  Thestandard applies whenever other standards require (or permit) assets or liabilitiesto be measured at fair value, but does not expand the use of fair value in anynew circumstances.  SFAS No. 157 iseffective for financial statements issued for fiscal years beginning afterNovember 15, 2007, and interim periods within those fiscal years.  There are numerous previously issuedstatements dealing with fair values that are amended by SFAS No. 157.  We have not evaluated the impact, if any,that the adoption of SFAS No. 157 will have on our consolidated financialstatements.

**(3) DISCLOSURES ABOUT SEGMENTS OFAN ENTERPRISE AND RELATED INFORMATION**

TheCompany’s three principal lines of business are Membership Services,Publications, and Retail.  The MembershipServices segment includes the operations of the Good Sam Club, Coast to Coast Club,Camping World’s President’s Club and Camp Club USA for recreational vehicle (“RV”)owners, campers and outdoor vacationers, and the Golf Card Club for golfenthusiasts.  The Publications segmentpublishes a variety of publications for selected markets in the recreation andleisure industry, including general circulation periodicals, directories, andRV and powersports industry trade magazines, and produces outdoor recreationalconsumer events.  The Retail segmentsells specialty retail merchandise and services for RV owners primarily throughCamping World retail supercenters, mail order catalogs and its website.  For recent events regarding the Retailsegment, see Note 7 below.  The Companyevaluates performance based on profit or loss from operations before incometaxes.

5

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**(3) DISCLOSURES ABOUT SEGMENTS OFAN ENTERPRISE AND RELATED INFORMATION (continued)**

The reportable segmentsare strategic business units that offer different products and services.  They are managed separately because eachbusiness requires different technology, management expertise and marketingstrategies.

TheCompany does not allocate income taxes or unusual items to segments.  Financial information by reportable businesssegment is summarized as follows (in thousands):
| ** **                        | ** ** | **Membership** | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
|-----------------------------------|------------|----------------|------------|------------------|------------|------------|------------|------------------|------------|
| ** **                        | ** ** | **Services**   | ** ** | **Publications** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **QUARTER  ENDED MARCH 31, 2007** |       |           |       |             |       |       |       |             |       |
| Revenues from external customers  |       | $              | 34,061     |             | $          | 24,689     |       | $                | 69,057     |   | $ | 127,807 |   |
| Depreciation and amortization     |       | 894            |       | 1,240            |       | 1,885      |       | 4,019            |       |
| Interest income                   |       | 2,176          |       | —           |       | 32         |       | 2,208            |       |
| Interest expense                  |       | —         |       | 70               |       | 3,571      |       | 3,641            |       |
| Segment profit (loss)             |       | 11,151         |       | 6,410            |       | (3,739     | )          | 13,822           |       |
|                                   |            |                |            |                  |            |            |            |                  |            |  |  |  |  |

 
| ** **                             | ** ** | **Membership** | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
|----------------------------------------|------------|----------------|------------|------------------|------------|------------|------------|------------------|------------|
| ** **                             | ** ** | **Services**   | ** ** | **Publications** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **QUARTER  ENDED MARCH 31, 2006**      |       |           |       |             |       |       |       |             |       |
| Revenues from external customers       |       | $              | 32,948     |             | $          | 23,103     |       | $                | 60,819     |   | $ | 116,870 |   |
| Depreciation and amortization          |       | 910            |       | 1,020            |       | 1,977      |       | 3,907            |       |
| Gain on sale of property and equipment |       | —         |       | 5                |       | 6          |       | 11               |       |
| Interest income                        |       | 1,376          |       | —           |       | 5          |       | 1,381            |       |
| Interest expense                       |       | —         |       | 94               |       | 3,496      |       | 3,590            |       |
| Segment profit (loss)                  |       | 10,472         |       | 6,462            |       | (4,319     | )          | 12,615           |       |
|                                        |            |                |            |                  |            |            |            |                  |            |  |  |  |  |

 

Thefollowing is a reconciliation of income (loss) from operations to the Company’sconsolidated financial statements for the three months ended March 31, (inthousands):
|                                                                | ** ** | **THREE MONTHS ENDED** | ** ** |
|----------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                     | ** ** | **3/31/2007**                    | ** ** | **3/31/2006** | ** ** |
| **Income  (Loss) From Operations Before Taxes**                |       |                             |       |   |   |
| Total profit for  reportable segments                          |       | $                                | 13,822     |   | $ | 12,615 |   |
| Unallocated G  & A expense                                 |       | (5,263                           | )          | (4,155 | ) |
| Unallocated  depreciation and amortization expense             |       | (884                             | )          | (743 | ) |
| Unallocated  interest income, net of intercompany elimination  |       | (2,034                           | )          | (1,052 | ) |
| Unallocated  interest expense, net of intercompany elimination |       | (5,496                           | )          | (5,677 | ) |
| Unallocated debt  restructure expense                          |       | (775                             | )          | — |   |
| Income (loss)  from operations before taxes                    |       | $                                | (630       | ) | $ | 988 |   |

 

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**(3) DISCLOSURES ABOUT SEGMENTS OFAN ENTERPRISE AND RELATED INFORMATION (continued)**

The following is areconciliation of assets of reportable segments to the Company’s consolidatedfinancial statements as of March 31, 2007 and December 31, 2006 (in thousands):
|                                                      | ** ** | **3/31/2007** | ** ** | **12/31/2006** | ** ** |
|------------------------------------------------------|------------|---------------|------------|----------------|------------|
| Membership  services segment                         |       | $             | 172,483    |           | $          | 167,837 |   |
| Publications  segment                                |       | 87,488        |       | 87,122         |       |
| Retail segment                                       |       | 241,608       |       | 225,680        |       |
| Total assets for  reportable segments                |       | 501,579       |       | 480,639        |       |
| Capitalized  finance costs not allocated to segments |       | 9,980         |       | 10,836         |       |
| Corporate  unallocated assets                        |       | 8,486         |       | 6,596          |       |
| Elimination of  intersegment receivable              |       | (105,341      | )          | (87,174        | )          |
| Total assets                                         |       | $             | 414,704    |           | $          | 410,897 |   |

 

**(4)STATEMENTS OF CASH FLOWS**

Supplemental disclosuresof cash flow information for the three months ended March 31 (in thousands):
|                                              | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------------------|------------|----------|------------|----------|------------|
| Cash paid  (received) during the period for: |       |     |       |     |       |
| Interest                                     |       | $        | 10,246     |     | $          | 10,747 |   |
| Income taxes                                 |       | (186     | )          | 1,576    |       |
|                                              |            |          |            |          |            |  |  |

 

Income taxes paiddecreased in 2007 primarily due to the Company’s change to S corporation taxstatus election in the second quarter of 2006.

In January 2007, theCompany assumed $0.3 million of liabilities in the acquisition of the MadisonBoat Show from MAC Events, LLC.

In February 2007, theCompany assumed $0.6 million of liabilities and issued $1.5 million of debt inthe acquisition of five RV and Sportsman Shows from Industrial Expositions,Inc.

**(5)GOODWILL AND INTANGIBLE ASSETS**

The Company reviewsgoodwill and indefinite-lived intangible assets for impairment at leastannually.  The Company performs itsannual impairment test during the fourth quarter.  There were no changes in the Company’sgoodwill by business segment for the three months ended March 31, 2007 and2006.

7

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**(5) GOODWILL AND INTANGIBLEASSETS (continued)**

The Company completed twoacquisitions in the first quarter of 2007. These acquisitions have been accounted for as a purchase in accordancewith FASB No. 141, “Business Combinations,” and accordingly, the acquiredassets and liabilities have been recorded at fair value.  The allocations of purchase price to assetsand liabilities include various finite-lived assets and no additionalgoodwill.  The operations of each entityare included in the operations of the Company from the respective acquisitiondates.

Finite-lived intangibleassets, related accumulated amortization and weighted average useful lifeconsisted of the following at March 31, 2007 (in thousands, except as noted):
| ** **                                       | ** ** | **Weighted**                  | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|-------------------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                                       | ** ** | **Average Useful**       | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | **Life (in years)** | ** ** | **Gross**  | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
|                                             |       |                          |       |       |       |             |       |       |       |
| Membership and  customer lists                   |       | 6                             |       | $          | 31,279     |             | $          | (12,835    | )          | $ | 18,444 |   |
| Resort and golf  course participation agreements |       | 23                            |       | 13,462     |       | (12,734          | )          | 728        |       |
| Non-compete and  deferred consulting agreements  |       | 15                            |       | 18,830     |       | (12,971          | )          | 5,859      |       |
| Deferred  financing costs                        |       | 7                             |       | 13,956     |       | (6,323           | )          | 7,633      |       |
|                                             |       |                          |       |       |       |             |       |       |       |
|                                             |       |                          |       | $          | 77,527     |             | $          | (44,863    | )          | $ | 32,664 |   |

 

**(6) DEBT**

AGHI Notes

On March 24, 2005 in aprivate placement, AGHI issued $88.2 million principal amount of its 10-7/8%senior notes due 2012 (the “AGHI Notes”) at a $3.2 million original issuediscount.  The Company completed aregistered exchange of these AGHI Notes under the Securities Act of 1933 inJune 2005.  The AGHI Notes are unsecuredobligations of AGHI and its subsidiaries have not guaranteed payment ofprincipal or interest on the AGHI Notes. Interest on the AGHI Notes is payable semi-annually on February 15 andAugust 15 commencing August 15, 2005 and the entire $88.2 million principalamount of the AGHI Notes are due in full on February 15, 2012.  For interest payments on and prior toFebruary 15, 2008, AGHI may elect to pay interest on the AGHI Notes in cash orby issuance of additional notes of the same tenor as the AGHI Notes, except thematurity date is March 15, 2010.  TheCompany elected to issue additional notes in lieu of cash payments.  On August 15, 2005, February 15, 2006, August15, 2006 and February 15, 2007 the Company issued additional notes in theamount of $3.8 million, $5.0 million, $5.3 million and $5.6 million,respectively.

8

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**(6) DEBT(continued)**

SeniorSubordinated Notes

In February 2004, AGI issued $200.0 millionof 9% Senior Subordinated Notes (“Senior Subordinated Notes”) due 2012 pursuantto the AGI Indenture.  On June 8, 2006,AGI amended its Amended and Restated Credit Agreement (“Senior Credit Facility”)to permit AGI to purchase up to $30.0 million of the Senior Subordinated Notesfrom time to time as and when AGI determines. AGI purchased and retired $24.8 million, $4.9 million, and $0.2 millionof the Senior Subordinated Notes in June, July and August of 2006,respectively.  On February 27, 2007, theAGI amended its Senior Credit Facility to permit AGI to repurchase up to anadditional $50.0 million of the Senior Subordinated Notes from time to time asand when AGI determines through the issuance of additional term loans of up to$50.0 million under the Senior Credit Facility. On March 8, 2007, the AGI purchased $17.7 million of the SeniorSubordinated Notes.  As of March 31,2007, $152.4 million of the Senior Subordinated Notes remain outstanding.  Interest is payable on the remaining SeniorSubordinated Notes twice a year on February 15 and August 15.  AGI’s present and future restrictedsubsidiaries will guarantee the Senior Subordinated Notes with unconditionalguarantees of payment that will rank junior in right of payment to theirexisting and future senior debt, but will rank equal in right of payment totheir existing and future senior subordinated debt.

**(7)RECENT EVENTS**

On April 16, 2007, AGIentered into a stock purchase agreement with FreedomRoads Holding Company, LLC(“FreedomRoads”), an entity under common ownership with the Company’s ultimateparent corporation, pursuant to which the Company will, subject to satisfactionof certain conditions described below, sell all of the outstanding stock of itswholly-owned subsidiary Camping World, Inc. (“Camping World”) to FreedomRoadsfor $175.8 million subject to certain adjustments (the “Purchase Price”).  The Purchase Price (including the portionpaid by the assumption and discharge on the closing date by FreedomRoads of theintercompany indebtedness owed by Camping World to AGI) will be paid 75% inimmediately available funds at closing and 25% under a subordinated promissorynote bearing interest at 11.5% per annum. AGI intends to use the net cash proceeds from the sale of Camping Worldto repay indebtedness outstanding under AGI’s term notes issued under thesenior secured floating rate note purchase agreement dated June 24, 2003, asamended, and its revolving credit line under the credit agreement dated June24, 2003, as amended, with senior lenders (collectively the “Senior SecuredCredit Facility”).  As of March 31, 2007,an aggregate of $129.8 million was outstanding under the term loans and $11.3million was outstanding (including $7.3 million in letters of credit) under therevolving credit facility of the Senior Secured Credit Facility.

The financial statementsfor Camping World are different from the segment reporting in Footnote 3because the Camping World President’s Club and other related ancillary productsare treated as part of the membership services segment in the segmentreporting.

9

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**(7) RECENT EVENTS (continued)**

The following unauditedpro forma condensed consolidated balance sheet as of March 31, 2007 and thestatement of operations for the three months ended March 31, 2007 and 2006reflects the reclassification adjustments associated with the proposeddisposal/sale of Camping World to FreedomRoads. The pro forma adjustments related to the disposal are presented sincethe disposition did not meet the discontinued operations reporting requirementspursuant to FASB Statement No. 144, “Accounting for the Impairment or Disposalof Long-Lived Assets” (SFAS 144) as of March 31, 2007, but will meet suchrequirements in 2007 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, 2007.  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 Expenses andRelated 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.

10

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**(7) RECENT EVENTS (continued)**

Unaudited pro formainformation relating to the operations of AGHI excluding Camping World for thethree months ended March 31, 2007 is as follows (in thousands):
| ** **                                                    | ** ** | ** **     | ** ** | **Reclassification of** | ** ** | ** **         | ** ** |
|---------------------------------------------------------------|------------|----------------|------------|------------------------------|------------|--------------------|------------|
| ** **                                                    | ** ** | ** **     | ** ** | **Discontinued**             | ** ** | ** **         | ** ** |
| ** **                                                    | ** ** | **Historical** | ** ** | **Operations**               | ** ** | **Pro Forma** | ** ** |
|                                                          |       |           |       |                         |       |               |       |
| REVENUES:                                                     |       |           |       |                         |       |               |       |
| Membership services                                           |       | $              | 34,061     |                         | $          | (3,950             | )          | $ | 30,111 |   |
| Publications                                                  |       | 24,689         |       | —                       |       | 24,689             |       |
| Retail                                                        |       | 69,057         |       | (69,057                      | )          | —             |       |
|                                                          |       | 127,807        |       | (73,007                      | )          | 54,800             |       |
|                                                          |       |           |       |                         |       |               |       |
| COSTS APPLICABLE  TO REVENUES:                                |       |           |       |                         |       |               |       |
| Membership services                                           |       | 21,667         |       | (642                         | )          | 21,025             |       |
| Publications                                                  |       | 15,777         |       | —                       |       | 15,777             |       |
| Retail                                                        |       | 41,836         |       | (41,836                      | )          | —             |       |
|                                                          |       | 79,280         |       | (42,478                      | )          | 36,802             |       |
|                                                          |       |           |       |                         |       |               |       |
| GROSS PROFIT                                                  |       | 48,527         |       | (30,529                      | )          | 17,998             |       |
|                                                          |       |           |       |                         |       |               |       |
| OPERATING  EXPENSES:                                          |       |           |       |                         |       |               |       |
| Selling, general and administrative                           |       | 34,565         |       | (28,357                      | )          | 6,208              |       |
| Depreciation and amortization                                 |       | 4,903          |       | (1,885                       | )          | 3,018              |       |
|                                                          |       | 39,468         |       | (30,242                      | )          | 9,226              |       |
|                                                          |       |           |       |                         |       |               |       |
| INCOME FROM  OPERATIONS                                       |       | 9,059          |       | (287                         | )          | 8,772              |       |
|                                                          |       |           |       |                         |       |               |       |
| NON-OPERATING  ITEMS:                                         |       |           |       |                         |       |               |       |
| Interest income                                               |       | 174            |       | (32                          | )          | 142                |       |
| Interest expense                                              |       | (9,137         | )          | 2,668                        |       | (6,469             | )          |
| Debt extinguishment expense                                   |       | (775           | )          | —                       |       | (775               | )          |
| Other non-operating income (expense), net                     |       | 49             |       | —                       |       | 49                 |       |
|                                                          |       | (9,689         | )          | 2,636                        |       | (7,053             | )          |
|                                                          |       |           |       |                         |       |               |       |
| (LOSS) INCOME  FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |       | (630           | )          | 2,349                        |       | 1,719              |       |
|                                                          |       |           |       |                         |       |               |       |
| INCOME TAX  EXPENSE                                           |       | 98             |       | (211                         | )          | (113               | )          |
|                                                          |       |           |       |                         |       |               |       |
| (LOSS) INCOME  FROM CONTINUING OPERATIONS                     |       | (532           | )          | 2,138                        |       | 1,606              |       |
|                                                          |       |           |       |                         |       |               |       |
| DISCONTINUED  OPERATIONS                                      |       |           |       |                         |       |               |       |
| Loss from operations of discontinued Camping World,  Inc.     |       | —         |       | (2,349                       | )          | (2,349             | )          |
| Income tax benefit                                            |       | —         |       | 211                          |       | 211                |       |
| Loss on discontinued operations                               |       | —         |       | (2,138                       | )          | (2,138             | )          |
|                                                          |       |           |       |                         |       |               |       |
| NET LOSS                                                      |       | $              | (532       | )                            | $          | —             |       | $ | (532 | ) |

 

11

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**(7) RECENT EVENTS (continued)**

Unaudited pro formainformation relating the operations of AGHI excluding Camping World for thethree months ended March 31, 2006 is as follows (in thousands):
| ** **                                               | ** ** | ** **     | ** ** | **Reclassification of** | ** ** | ** **         | ** ** |
|----------------------------------------------------------|------------|----------------|------------|------------------------------|------------|--------------------|------------|
| ** **                                               | ** ** | ** **     | ** ** | **Discontinued**             | ** ** | ** **         | ** ** |
| ** **                                               | ** ** | **Historical** | ** ** | **Operations**               | ** ** | **Pro Forma** | ** ** |
|                                                     |       |           |       |                         |       |               |       |
| REVENUES:                                                |       |           |       |                         |       |               |       |
| Membership services                                      |       | $              | 32,948     |                         | $          | (3,794             | )          | $ | 29,154 |   |
| Publications                                             |       | 23,103         |       | —                       |       | 23,103             |       |
| Retail                                                   |       | 60,819         |       | (60,819                      | )          | —             |       |
|                                                     |       | 116,870        |       | (64,613                      | )          | 52,257             |       |
|                                                     |       |           |       |                         |       |               |       |
| COSTS APPLICABLE  TO REVENUES:                           |       |           |       |                         |       |               |       |
| Membership services                                      |       | 21,116         |       | (1,050                       | )          | 20,066             |       |
| Publications                                             |       | 14,575         |       | —                       |       | 14,575             |       |
| Retail                                                   |       | 36,403         |       | (36,403                      | )          | —             |       |
|                                                     |       | 72,094         |       | (37,453                      | )          | 34,641             |       |
|                                                     |       |           |       |                         |       |               |       |
| GROSS PROFIT                                             |       | 44,776         |       | (27,160                      | )          | 17,616             |       |
|                                                     |       |           |       |                         |       |               |       |
| OPERATING  EXPENSES:                                     |       |           |       |                         |       |               |       |
| Selling, general and administrative                      |       | 30,233         |       | (25,530                      | )          | 4,703              |       |
| Depreciation and amortization                            |       | 4,650          |       | (1,977                       | )          | 2,673              |       |
|                                                     |       | 34,883         |       | (27,507                      | )          | 7,376              |       |
|                                                     |       |           |       |                         |       |               |       |
| INCOME FROM  OPERATIONS                                  |       | 9,893          |       | 347                          |       | 10,240             |       |
|                                                     |       |           |       |                         |       |               |       |
| NON-OPERATING  ITEMS:                                    |       |           |       |                         |       |               |       |
| Interest income                                          |       | 329            |       | (5                           | )          | 324                |       |
| Interest expense                                         |       | (9,267         | )          | 2,453                        |       | (6,814             | )          |
| Other non-operating income (expense), net                |       | 33             |       | (6                           | )          | 27                 |       |
|                                                     |       | (8,905         | )          | 2,442                        |       | (6,463             | )          |
|                                                     |       |           |       |                         |       |               |       |
| INCOME FROM  CONTINUING OPERATIONS BEFORE INCOME TAXES   |       | 988            |       | 2,789                        |       | 3,777              |       |
|                                                     |       |           |       |                         |       |               |       |
| INCOME TAX  EXPENSE                                      |       | (428           | )          | (1,006                       | )          | (1,434             | )          |
|                                                     |       |           |       |                         |       |               |       |
| INCOME FROM  CONTINUING OPERATIONS                       |       | 560            |       | 1,783                        |       | 2,343              |       |
|                                                     |       |           |       |                         |       |               |       |
| DISCONTINUED  OPERATIONS                                 |       |           |       |                         |       |               |       |
| Loss from operations of discontinued Camping World, Inc. |       | —         |       | (2,789                       | )          | (2,789             | )          |
| Income tax benefit                                       |       | —         |       | 1,006                        |       | 1,006              |       |
| Loss on discontinued operations                          |       | —         |       | (1,783                       | )          | (1,783             | )          |
|                                                     |       |           |       |                         |       |               |       |
| NET INCOME                                               |       | $              | 560        |                         | $          | —             |       | $ | 560 |   |

 

12

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**(7) RECENT EVENTS (continued)**

The unaudited pro formabalance sheet of AGHI excluding Camping World as of March 31, 2007 is asfollows (in thousands except shares and par value):
| ** **                                                                                | ** ** | ** **     | ** ** | **Reclassification of** | ** ** | ** **         | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------|------------|------------------------------|------------|--------------------|------------|
| ** **                                                                                | ** ** | ** **     | ** ** | **Discontinued**             | ** ** | ** **         | ** ** |
| ** **                                                                                | ** ** | **Historical** | ** ** | **Operations**               | ** ** | **Pro Forma** | ** ** |
| **ASSETS**                                                                                |       |           |       |                         |       |               |       |
| CURRENT ASSETS:                                                                           |       |           |       |                         |       |               |       |
| Cash and cash equivalents                                                                 |       | $              | 2,537      |                         | $          | (1,766             | )          | $ | 771 |   |
| Accounts receivable, net                                                                  |       | 26,101         |       | (4,910                       | )          | 21,191             |       |
| Inventories                                                                               |       | 64,108         |       | (63,406                      | )          | 702                |       |
| Prepaid expenses and other assets                                                         |       | 16,004         |       | (4,229                       | )          | 11,775             |       |
| Deferred tax assets, net                                                                  |       | 3,241          |       | (3,241                       | )          | —             |       |
| Assets held for sale                                                                      |       | —         |       | 241,608                      |       | 241,608            |       |
| Total current assets                                                                      |       | 111,991        |       | 164,056                      |       | 276,047            |       |
|                                                                                      |       |           |       |                         |       |               |       |
| PROPERTY AND EQUIPMENT, net                                                               |       | 37,916         |       | (29,110                      | )          | 8,806              |       |
| INVESTMENT IN AFFILIATE                                                                   |       | 81,005         |       | (81,005                      | )          | —             |       |
| NOTE FROM AFFILIATE                                                                       |       | 4,679          |       | —                       |       | 4,679              |       |
| INTANGIBLE ASSETS, net                                                                    |       | 32,664         |       | (5,392                       | )          | 27,272             |       |
| GOODWILL                                                                                  |       | 144,429        |       | (47,601                      | )          | 96,828             |       |
| OTHER ASSETS                                                                              |       | 2,020          |       | (948                         | )          | 1,072              |       |
| Total assets                                                                              |       | $              | 414,704    |                         | $          | —             |       | $ | 414,704 |   |
|                                                                                      |       |           |       |                         |       |               |       |
| **LIABILITIES  AND STOCKHOLDER'S DEFICIT**                                                |       |           |       |                         |       |               |       |
| CURRENT LIABILITIES:                                                                      |       |           |       |                         |       |               |       |
| Accounts payable                                                                          |       | $              | 27,812     |                         | $          | (26,208            | )          | $ | 1,604 |   |
| Accrued interest                                                                          |       | 1,889          |       | —                       |       | 1,889              |       |
| Accrued income taxes                                                                      |       | 1,312          |       | (3                           | )          | 1,309              |       |
| Accrued liabilities                                                                       |       | 37,965         |       | (19,181                      | )          | 18,784             |       |
| Deferred revenues and gains                                                               |       | 61,882         |       | (8,165                       | )          | 53,717             |       |
| Current portion of long-term debt                                                         |       | 4,580          |       | —                       |       | 4,580              |       |
| Liabilities held for sale                                                                 |       | —         |       | 75,980                       |       | 75,980             |       |
| Total current liabilities                                                                 |       | 135,440        |       | 22,423                       |       | 157,863            |       |
|                                                                                      |       |           |       |                         |       |               |       |
| DEFERRED REVENUES AND GAINS                                                               |       | 39,247         |       | (9,148                       | )          | 30,099             |       |
| LONG-TERM DEBT, net of current portion                                                    |       | 395,553        |       | —                       |       | 395,553            |       |
| DEFERRED TAX LIABILITY                                                                    |       | 1,165          |       | (1,165                       | )          | —             |       |
| OTHER LONG-TERM LIABILITIES                                                               |       | 16,850         |       | (12,110                      | )          | 4,740              |       |
|                                                                                      |       | 588,255        |       | —                       |       | 588,255            |       |
|                                                                                      |       |           |       |                         |       |               |       |
| COMMITMENTS AND CONTINGENCIES                                                             |       |           |       |                         |       |               |       |
|                                                                                      |       |           |       |                         |       |               |       |
| STOCKHOLDER'S DEFICIT :                                                                   |       |           |       |                         |       |               |       |
| Common stock, $.01 par value, 3,000 shares authorized,  100 shares issued and outstanding |       | 1              |       | —                       |       | 1                  |       |
| Accumulated deficit                                                                       |       | (173,552       | )          | —                       |       | (173,552           | )          |
| Total stockholder's deficit                                                               |       | (173,551       | )          | —                       |       | (173,551           | )          |
| Total  liabilities and stockholder's deficit                                              |       | $              | 414,704    |                         | $          | —             |       | $ | 414,704 |   |

 

13

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**(7) RECENT EVENTS (continued)**

The unaudited pro formabalance sheet of AGHI excluding Camping World as of December 31, 2006 is asfollows (in thousands except shares and par value):
| ** **                                                                                | ** ** | ** **     | ** ** | **Reclassification of** | ** ** | ** **         | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------|------------|------------------------------|------------|--------------------|------------|
| ** **                                                                                | ** ** | ** **     | ** ** | **Discontinued**             | ** ** | ** **         | ** ** |
| ** **                                                                                | ** ** | **Historical** | ** ** | **Operations**               | ** ** | **Pro Forma** | ** ** |
| **ASSETS**                                                                                |       |           |       |                         |       |               |       |
| CURRENT ASSETS:                                                                           |       |           |       |                         |       |               |       |
| Cash and cash equivalents                                                                 |       | $              | 15,238     |                         | $          | (3,288             | )          | $ | 11,950 |   |
| Accounts receivable, net                                                                  |       | 27,199         |       | (3,742                       | )          | 23,457             |       |
| Inventories                                                                               |       | 52,703         |       | (51,736                      | )          | 967                |       |
| Prepaid expenses and other assets                                                         |       | 13,006         |       | (2,451                       | )          | 10,555             |       |
| Deferred tax assets, net                                                                  |       | 3,203          |       | (3,203                       | )          | —             |       |
| Assets held for sale                                                                      |       | —         |       | 225,680                      |       | 225,680            |       |
| Total current assets                                                                      |       | 111,349        |       | 161,260                      |       | 272,609            |       |
| PROPERTY AND EQUIPMENT, net                                                               |       | 34,765         |       | (26,341                      | )          | 8,424              |       |
| INVESTMENT IN AFFILIATE                                                                   |       | 81,005         |       | (81,005                      | )          | —             |       |
| NOTE FROM AFFILIATE                                                                       |       | 4,688          |       | —                       |       | 4,688              |       |
| INTANGIBLE ASSETS, net                                                                    |       | 32,957         |       | (5,695                       | )          | 27,262             |       |
| GOODWILL                                                                                  |       | 144,429        |       | (47,601                      | )          | 96,828             |       |
| OTHER ASSETS                                                                              |       | 1,704          |       | (618                         | )          | 1,086              |       |
| Total assets                                                                              |       | $              | 410,897    |                         | $          | —             |       | $ | 410,897 |   |
|                                                                                      |       |           |       |                         |       |               |       |
| **LIABILITIES  AND STOCKHOLDER'S DEFICIT**                                                |       |           |       |                         |       |               |       |
| CURRENT LIABILITIES:                                                                      |       |           |       |                         |       |               |       |
| Accounts payable                                                                          |       | $              | 32,577     |                         | $          | (25,129            | )          | $ | 7,448 |   |
| Accrued interest                                                                          |       | 5,936          |       | —                       |       | 5,936              |       |
| Accrued income taxes                                                                      |       | 1,736          |       | (535                         | )          | 1,201              |       |
| Accrued liabilities                                                                       |       | 35,687         |       | (17,722                      | )          | 17,965             |       |
| Deferred revenues and gains                                                               |       | 62,906         |       | (7,030                       | )          | 55,876             |       |
| Current portion of long-term debt                                                         |       | 7,271          |       | —                       |       | 7,271              |       |
| Liabilities held for sale                                                                 |       | —         |       | 72,557                       |       | 72,557             |       |
| Total current liabilities                                                                 |       | 146,113        |       | 22,141                       |       | 168,254            |       |
|                                                                                      |       |           |       |                         |       |               |       |
| DEFERRED REVENUES AND GAINS                                                               |       | 37,183         |       | (9,071                       | )          | 28,112             |       |
| LONG-TERM DEBT, net of current portion                                                    |       | 381,510        |       | —                       |       | 381,510            |       |
| DEFERRED TAX LIABILITY                                                                    |       | 15,724         |       | (12,916                      | )          | 2,808              |       |
| OTHER LONG-TERM LIABILITIES                                                               |       | 3,386          |       | (154                         | )          | 3,232              |       |
|                                                                                      |       | 583,916        |       | —                       |       | 583,916            |       |
|                                                                                      |       |           |       |                         |       |               |       |
| COMMITMENTS AND CONTINGENCIES                                                             |       |           |       |                         |       |               |       |
|                                                                                      |       |           |       |                         |       |               |       |
| STOCKHOLDER'S DEFICIT :                                                                   |       |           |       |                         |       |               |       |
| Common stock, $.01 par value, 3,000 shares authorized,  100 shares issued and outstanding |       | 1              |       | —                       |       | 1                  |       |
| Accumulated deficit                                                                       |       | (173,020       | )          | —                       |       | (173,020           | )          |
| Total stockholder's deficit                                                               |       | (173,019       | )          | —                       |       | (173,019           | )          |
| Total  liabilities and stockholder's deficit                                              |       | $              | 410,897    |                         | $          | —             |       | $ | 410,897 |   |

 

14

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**ITEM 2:**

AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OFOPERATIONS

The following table isderived from the Company’s Consolidated Statements of Operations and expressesthe results from operations as a percentage of revenues and reflects the netincrease (decrease) between periods:

 
| ** **                                         | ** ** | **THREE MONTHS ENDED** | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|
| ** **                                         | ** ** | **3/31/2007**                    | ** ** | **3/31/2006** | ** ** | **Inc/(Dec)** | ** ** |
|                                               |       |                             |       |   |   |   |   |
| REVENUES:                                          |       |                             |       |   |   |   |   |
| Membership  services                               |       | 26.7                             | %          | 28.2 | % | 3.4 | % |
| Publications                                       |       | 19.3                             | %          | 19.8 | % | 6.9 | % |
| Retail                                             |       | 54.0                             | %          | 52.0 | % | 13.5 | % |
|                                               |       | 100.0                            | %          | 100.0 | % | 9.4 | % |
|                                               |       |                             |       |   |   |   |   |
| COSTS APPLICABLE TO  REVENUES:                     |       |                             |       |   |   |   |   |
| Membership  services                               |       | 17.0                             | %          | 18.1 | % | 2.6 | % |
| Publications                                       |       | 12.3                             | %          | 12.5 | % | 8.2 | % |
| Retail                                             |       | 32.7                             | %          | 31.1 | % | 14.9 | % |
|                                               |       | 62.0                             | %          | 61.7 | % | 10.0 | % |
|                                               |       |                             |       |   |   |   |   |
| GROSS PROFIT                                       |       | 38.0                             | %          | 38.3 | % | 8.4 | % |
|                                               |       |                             |       |   |   |   |   |
| OPERATING EXPENSES:                                |       |                             |       |   |   |   |   |
| Selling, general  and administrative               |       | 27.1                             | %          | 25.8 | % | 14.3 | % |
| Depreciation and  amortization                     |       | 3.8                              | %          | 4.0 | % | 5.4 | % |
|                                               |       | 30.9                             | %          | 29.8 | % | 13.1 | % |
|                                               |       |                             |       |   |   |   |   |
| INCOME FROM OPERATIONS                             |       | 7.1                              | %          | 8.5 | % | (8.4 | )% |
|                                               |       |                             |       |   |   |   |   |
| NON-OPERATING ITEMS:                               |       |                             |       |   |   |   |   |
| Interest income                                    |       | 0.1                              | %          | 0.3 | % | (47.1 | )% |
| Interest expense                                   |       | (7.1                             | )%         | (8.0 | )% | (1.4 | )% |
| Debt  extinguishment expense                       |       | (0.6                             | )%         | — |   | 100.0 | % |
| Other  non-operating items, net                    |       | —                           |       | — |   | 48.5 | % |
|                                               |       | (7.6                             | )%         | (7.7 | )% | 8.8 | % |
|                                               | ** ** | ** **                       |       |   |   |   |   |
| INCOME (LOSS) FROM  OPERATIONS BEFORE INCOME TAXES |       | (0.5                             | )%         | 0.8 | % | (163.8 | )% |
|                                               | ** ** | ** **                       |       |   |   |   |   |
| INCOME TAX BENEFIT  (EXPENSE)                      |       | 0.1                              | %          | (0.3 | )% | (122.9 | )% |
|                                               |       |                             |       |   |   |   |   |
| NET INCOME (LOSS)                                  |       | (0.4                             | )%         | 0.5 | % | (195.0 | )% |

 

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**RESULTSOF OPERATIONS**

**Three Months Ended March 31, 2007**

**Compared With Three Months EndedMarch 31, 2006**

*Revenues*

Revenuesof $127.8 million for the first quarter of 2007 increased by $10.9 million, or9.4%, from the comparable period in 2006.

Membershipservices revenues of $34.1 million for the first quarter of 2007 increased by$1.1 million, or 3.4%, from the comparable period in 2006.  This revenue increase was largelyattributable to a $0.6 million increase in extended vehicle warranty programrevenue due to the continued growth of contracts in force, a $0.3 millionrevenue increase in emergency road service programs due to increasedenrollment, a $0.2 million revenue increase due to increased enrollment in CampClub USA, and a $0.2 million increase in Camping World President’s Clubrevenue, partially offset by a $0.2 million revenue reduction due to theelimination of the RV Today television program.

Publicationrevenues of $24.7 million for the first quarter of 2007 increased $1.6 million,or 6.9%, from the comparable period in 2006 primarily attributable to $1.8million of revenue associated with consumer shows acquired in the last fifteenmonths, and $0.6 million from revenue associated with the acquisition of thepublishing assets of American Guide Services, Inc. in August 2006.  These increases were partially offset by a$0.5 million decrease in campground atlas revenue, which is scheduled for itsbi-annual update and reprint in 2008, and a $0.3 million revenue decrease dueto three fewer issues of *Snow Week*magazines in 2007.

Retail revenues of $69.0 millionincreased approximately $8.2 million, or 13.5%, from the comparable period in2006.  Store merchandise sales increasedapproximately $6.8 million over the first quarter of 2006 due to a $7.4 millionrevenue increase from the addition of 27 new stores over the past fifteenmonths, partially offset by a same store sales decrease of $0.6 million, or1.2%, compared to a 1.8% decrease in same store sales for the first quarter of2006.  Same store sale calculations for agiven period include only those stores that were open both at the end of thatperiod and at the beginning of the preceding fiscal year.  In addition, installation and service workincreased $0.4 million, supplies and other sales increased $0.7 million, andproduct extended warranty sales increased $0.3 million.

*Costs Applicable to Revenues*

Costsapplicable to revenues totaled $79.3 million for the first quarter of 2007, anincrease of $7.2 million, or 10.0%, from the comparable period in 2006.

Membership services costs and expenses of$21.7 million increased $0.6 million, or 2.6%, from the comparable period in2006.  This increase consisted of $0.8million of additional costs associated increased extended vehicle warrantyprogram revenue and emergency roads

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service revenue, partially offset by $0.2million of reduced costs due to the elimination of the RV Today televisionprogram.

Publication costs and expenses of $15.8million for the first quarter of 2007 increased $1.2 million, or 8.2%, from thecomparable period in 2006.  This increasewas attributable to $1.0 million of costs associated with the recently acquiredconsumer shows, and $0.7 million from the recently acquired American GuideServices group, partially offset by reduced campground atlas costs of $0.3million resulting from reduced sales, and reduced costs of $0.2 millionassociated with fewer issues of Snow Week magazine.

Retail costs applicable to revenuesincreased approximately $5.4 million, or 14.9%, to $41.8 million primarily as aresult of 27 new stores opened over the past fifteen months.  The retail gross profit margin of 39.4% forthe first quarter of 2007 decreased from 40.1% for the comparable period in2006 primarily due to an increase in wholesale sales which carry a lowermargin, and increased international freight charges as our import programcontinues to grow.

*Operating Expenses*

Selling, general and administrativeexpenses of approximately $34.6 million for the first quarter of 2007 increased$4.3 million compared to the first quarter of 2006.  This increase was primarily due to an increasein retail selling and general and administrative expenses of approximately $3.1million consisting of increases in wages, selling and real property expensesprimarily due to new store openings and other marketing programs, $0.9 millionof arbitration expenses in connection with our asserted claim to a right offirst refusal in connection with the sale of General Motors AcceptanceCorporation, the insurance provider for the RV vehicle insurance offered by ourMembership Services segment, which claim was rejected by the arbitration panel,and $0.3 million of costs associated with the recently acquired consumer shows.

Depreciation and amortization expense of$4.9 million increased approximately $0.3 million over the prior year primarilydue to increased amortization of intangible assets associated with the recentacquisitions.

*Income from Operations*

Incomefrom operations for the first quarter of 2007 totaling approximately $9.1million decreased $0.8 million compared to the first quarter of 2006.  This decrease was primarily due to increasedoperating expenses of $4.6 million partially offset by increased gross profitfor retail, membership services and publications operations of $2.8 million,$0.6 million and $0.4 million, respectively.

*Non-Operating Items*

Non-operating items ofapproximately $9.7 million for the first quarter of 2007 increased $0.8 millioncompared to the same period in 2006.  Theincrease is attributable to an $0.8 million increase in debt extinguishmentexpense related to the purchase and retirement of $17.7 million of the Company’sSenior Subordinated Notes in the first quarter of 2007 and a $0.1 milliondecrease in interest income.  Theseincreases were partially offset by a $0.1 million 

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decrease in interestexpense in 2007, primarily due to a reduction in outstanding debt resultingfrom the purchase and retirement of Senior Subordinated Notes partially offsetby the issuance of the additional term loans that bear a lower interest rate.

*Income (loss) before Income Taxes*

Loss before income taxes for the firstquarter of 2007 was $0.6 million, or $1.6 million lower than the first quarterof 2006.  This decrease was attributableto the $0.8 million decrease in income from operations for the current periodand $0.8 million of additional non-operating items.

*Income Tax Benefit (Expense)*

The Company recorded a $0.1 millionincome tax benefit for the first quarter of 2007, compared to a $0.4 millionincome tax expense for the first quarter of 2006.  This decrease was primarily due to the Company’schange to S corporation tax status election which was approved by the IRS inthe second quarter of 2006.

# *Net Income (Loss)*

Net loss in the first quarter of 2007 was$0.5 million compared to net income of $0.6 million for the same period in 2006mainly due to the reasons discussed above.

*Segment Profit (Loss)*

Segment profit of $13.8million for the first quarter of 2007 (before unallocated depreciation andamortization, general and administrative, interest, and income tax expense)increased $1.2 million, or 9.6%, from the comparable period in 2006.

Membership servicessegment profit of approximately $11.1 million for the first quarter of 2007increased $0.7 million, or 6.5%, from the comparable period in 2006.  This increase was largely attributable to an$0.8 million increase in profit from emergency road service products, partiallyoffset by a $0.1 million decrease in profit from the extended vehicle warrantyprograms.

Publication segmentprofit of $6.4 million for the first quarter of 2007 decreased approximately$0.1 million, or 0.8%, from the comparable period in 2006.  This decrease was largely attributed to adecrease in profit related to reduced campground atlas sales, partially offsetby an increase in profit related to the consumer shows acquired over the last15 months.

Retail segment lossdecreased $0.6 million, or 13.4% from the first quarter in 2006 to a $3.7million loss in the first quarter of 2007. This increase insegment profit resulted primarily from a $3.5 million increase in gross profitmargin, partially offset by a $2.9million increase in selling, general and administrative expenses primarilyrelated to the increase in new stores.

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**LIQUIDITY AND CAPITAL RESOURCES**

The Company has historically operated with a workingcapital deficit.  The working capitaldeficit as of March 31, 2007 and December 31, 2006 was $23.4 million and $34.8million, respectively.  The primaryreason for the working capital deficit is the deferred revenue and gainsreported under current liabilities in the amount of $61.9 million and $62.9million as of March 31, 2007 and December 31, 2006, respectively.  Deferred revenue is primarily comprised ofcash collected for club memberships in advance, which is amortized over thelife of the membership.  The Company usesnet proceeds from this deferred membership revenue to lower its long-termborrowings.  Management believes thatfunds generated by operations together with available borrowings under theCompany’s revolving credit line will be sufficient to meet all of the Company’sdebt service requirements, capital requirements and working capital needs overthe next twelve months.  Further,management believes that the change in the tax status to a Subchapter Scorporation in 2006 for the Company and all its subsidiaries, with theexception of Camping World, Inc. and its wholly-owned subsidiaries, has notlimited the Company’s ability to issue debt through the capital markets but maylimit the ability of the Company to raise funds in the equity market.

*Contractual Obligations andCommercial Commitments*

Thefollowing table reflects our contractual obligations and commercial commitmentsat March 31, 2007.  This table includesprincipal and future interest due under our debt agreements based on interestrates as of March 31, 2007 and assumes debt obligations will be held tomaturity.
| ** **                                | ** ** | **Payments Due by Period** | ** ** |
|-------------------------------------------|------------|-------------------------------------------|------------|
| **(in thousands)**                   | ** ** | **Total**                                 | ** ** | **Balance of  2007** | ** ** | **2008 and  2009** | ** ** | **2010 and  2011** | ** ** | **Thereafter** | ** ** |
|                                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Long-term debt  and future interest       |       | $                                         | 567,029    |   | $ | 26,971 |   | $ | 204,575 |   | $ | 86,397 |   | $ | 249,086 |   |
| Operating lease  obligations              |       | 164,344                                   |       | 12,107 |   | 28,789 |   | 25,972 |   | 97,476 |   |
| Deferred  compensation                    |       | 4,280                                     |       | 1,022 |   | 3,138 |   | 80 |   | 40 |   |
| Standby and  commercial letters of credit |       | 7,254                                     |       | 6,754 |   | 500 |   | — |   | — |   |
| Grand total                               |       | $                                         | 742,907    |   | $ | 46,854 |   | $ | 237,002 |   | $ | 112,449 |   | $ | 346,602 |   |

 

On June 24, 2003, AGIentered into an Amended and Restated Credit Agreement and a Senior SecuredFloating Rate Note Purchase Agreement (as amended, the AGI Senior CreditFacility).  The AGI Senior Credit Facilityprovides for a revolving credit facility of $35.0 million and term loans in theaggregate of $140.0 million.  As of March31 2007, $129.8 million was outstanding under the term loans and $4.0 millionwas outstanding under the revolving credit facility.  Reborrowings under the term loans are notpermitted.  The interest on borrowingsunder the AGI Senior Credit Facility is at variable rates based on the ratio oftotal 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. As of March 31, 2007, the average interest rates on the term loans andthe revolving credit facility were 7.82% and 8.07%, respectively, and permittedborrowings under the undrawn revolving facility were $23.7 million.  AGI also pays a commitment fee of 0.5% perannum on the unused amount of the revolving credit facility.  The aggregate

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quarterly scheduledpayments on the term loans are $412,500. Both the revolving credit facility and the term loans mature on June 24,2009.  The funds available under the AGISenior Credit Facility may be utilized for borrowings or letters of credit;however, a maximum of $12.5 million may be allocated to such letters ofcredit.  As of March 31, 2007, AGI hadletters of credit in the aggregate amount of $7.3 million outstanding.  The AGI Senior Credit Facility is secured by virtuallyall of the Company’s assets and a pledge of the Company’s stock and the stockof the Company’s subsidiaries.

In February 2004, AGIissued $200.0 million aggregate principal amount of 9% Senior SubordinatedNotes due 2012 (“AGI Senior Subordinated Notes”).  The Company completed a registered exchangeof the AGI Senior Subordinated Notes under the Securities Act of 1933 in August2004.

On March 3, 2006, AGIamended its Senior Credit Facility to revise the definition of ConsolidatedFixed Charges Ratio and Permitted Tax Distributions.  This amendment allows the Company to distributetaxes to its ultimate parent based on its stand-alone tax obligation ratherthan the tax obligation of its parent, AGHI, until such time that AGHI paysinterest on its 10 7/8% Senior Notes in cash instead of by the issuance ofadditional notes.  Further, the Companyamended the Senior Credit Facility’s covenant restrictions with affiliates topermit a joint venture arrangement between Camping World and FreedomRoads, anaffiliate of the Company.

On February 27, 2007, theAGI amended its Senior Credit Facility to extend the maturity of the revolvingcredit facility from June 24, 2008 to June 24, 2009, increase the consolidatedsenior leverage ratio from 1.90 to 3.5 times EBITDA, as defined, and fix theconsolidated total leverage ratio at 5.0 times EBITDA, as defined.  Further, the amendment permits the Company torepurchase up to an additional $50.0 million of the Senior Subordinated Notesfrom time to time as and when AGI determines through the issuance of additionalterm loans of up to $50.0 million.  Anyloan amounts not used for the repurchase of the Senior Subordinated Notes maybe used for acquisitions or repay revolving credit loans.

On March 8, 2007, the AGIpurchased $17.7 million of the 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 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 Senior Credit Facility.  As of March 31, 2007, $152.4 million ofSenior 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.  AGI was in compliance with all debt covenantsat March 31, 2007.

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On March 24, 2005 in aprivate placement, AGHI issued $88.2 million principal amount of its 10-7/8%senior notes due 2012 (the “AGHI Notes”) at a $3.2 million original issuediscount.  The Company completed aregistered exchange of these AGHI Notes under the Securities Act of 1933 inJune 2005.  The AGHI Notes are unsecuredobligations of the Company and its subsidiaries have not guaranteed payment ofprincipal or interest on the AGHI Notes. Interest on the AGHI Notes is payable semi-annually on February 15 andAugust 15 commencing August 15, 2005 and the entire $88.2 million principalamount of the AGHI Notes are due in full on February 15, 2012.  For interest payments on and prior toFebruary 15, 2008, AGHI may elect to pay interest on the AGHI Notes in cash orby issuance of additional notes of the same tenor as the AGHI Notes, except thematurity date is March 15, 2010.  AGI hasnot paid any dividends to AGHI to fund payment of interest on the AGHI Notesand AGHI made the interest payments due on August 15, 2005, February 15, 2006,August 15, 2006 and February 15, 2007 through issuance of additionalnotes.  AGI expects to issue additionalnotes of the same tenor as the AGHI Notes through February 15, 2008 to payinterest on the AGHI Notes when and as such interest is due.  Although the source of the cash payment ofthe AGHI Notes is dividends from AGI, its wholly-owned subsidiary, there arecertain restrictions on the payment of dividends under the AGI Senior CreditFacility and the AGI Indenture.

The AGHI Indenture containscertain restrictive covenants relating to, but not limited to, mergers, changesin the nature of the business, acquisitions, additional indebtedness, sale ofassets, investments, and the payment of dividends subject to certainlimitations and minimum operating covenants. AGHI was in compliance with all debt covenants at March 31, 2007.

TheCompany contributed the net proceeds from the issuance of the AGHI Notes,approximately $81.0 million, to AGI and in turn, AGI made an equitycontribution to its wholly-owned subsidiary, Camping World.  Camping World then made an equity capitalcontribution in the same amount 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 company owned90% by The Stephen Adams Living Trust, which also indirectly owns 97.4% of theoutstanding capital stock of AGHC and indirectly AGHI.

In February 2006, AGIProductions, Inc. acquired the consumer shows and related assets of H & SProductions, LLC for $2.5 million.  Aspart of the purchase, the Company issued $0.4 million of debt and assumed $1.0million of liabilities.  In August 2006,TL Enterprises, Inc. acquired the consumer park guides and related assets ofAmerican Guide Services, Inc for $1.0 million. As part of the purchase, the Company issued $0.1 million of debt andassumed $0.3 million of liabilities.  InSeptember 2006, AGI Productions, Inc. acquired the consumer shows and relatedassets of Apple Rock Advertising and Promotions, Inc. for $1.2 million.  As part of the purchase, the Company issued$0.2 million of debt and assumed $0.4 million of liabilities.

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In January 2007, AGIProductions, Inc. acquired a consumer show from MAC Events, Inc. for $0.5million.  As part of the purchase, the Companyassumed $0.3 million of liabilities.  InFebruary 2007, AGI Productions, Inc. acquired consumer shows from IndustrialExposition Inc. for $1.9 million.  Aspart of the purchase, the Company assumed $1.5 million of debt and assumed $0.6million of liabilities.

For the three monthsended March 31, 2007, the Company incurred $0.1 million of deferred executivecompensation expense under the phantom stock agreements and made payments of$2.3 million on the pay-out provisions of mature phantom stock agreements.  The earned incentives under these agreementsare scheduled to be paid at various times over the next five years.  Phantom stock payments of $1.0 million arescheduled to**be made for the remainder of 2007.

Capital expenditures forthe first three months of 2007 totaling $5.5 million increased $1.8 millionfrom the first three months of 2006 primarily due to the addition of eight newretail stores in the first quarter of 2007. Additional capital expenditures of $9.3 million are anticipated for thebalance of 2007 assuming the closing date on the Camping World stock purchaseagreement is June 30, 2007.  Thesecapital expenditures are primarily for four new Camping World stores in thesecond quarter, existing store upgrades, equipment, information technology,inventory system replacement, and computer hardware and software upgrades andenhancements.

**CRITICAL ACCOUNTING POLICIES**

*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 reasonable underthe circumstances, the results of which form the basis for making judgmentsabout the carrying values of assets and liabilities that are not readilyapparent from other sources.  Actualresults may differ from these estimates under different assumptions orconditions.

The Company believes thefollowing critical accounting policies affect the more significant judgmentsand estimates used in the preparation of the Company’s consolidated financialstatements.

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*RevenueRecognition*

Merchandise revenue is recognized whenproducts are sold in the retail stores, shipped for mail and internet orders,or when services are provided to customers. Publication advertising and newsstand sales, net of estimated provisionfor returns, are recorded at time of delivery. Subscription sales of publications are deferred and recognized over thelives of the subscriptions.  Revenuesfrom the emergency road service program (“ERS”) are deferred and recognizedover the life of the membership.  ERSclaim expenses are recognized when incurred. Advances on third party credit card fee revenues are deferred andrecognized based primarily on a percentage of credit card receivables held bythird parties.  Membership revenue isgenerated from annual, multi-year and lifetime memberships.  The revenue and expenses associated withthese memberships are deferred and amortized over the membership period.  For lifetime memberships, an 18-year periodis used, which is the actuarially 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.

*AccountsReceivable*

The Company estimates thecollectability 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 that withthe 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-Lived Assets*

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

Long-lived assets, suchas property, plant and equipment and purchased intangible assets with finitelives are evaluated for impairment whenever events or changes in circumstancesindicate the carrying value of an asset may not be recoverable in accordancewith SFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets.”  The Company assesses the fairvalue of the assets based on the future cash flow the assets are expected togenerate and recognize an impairment loss when estimated undiscounted futurecash flow 

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expected to result fromthe use of the asset plus net proceeds expected from disposition of the asset(if any) are less than the carrying value of the asset.  When an impairment is identified, the Companyreduces the carrying amount of the asset to its estimated fair value based on adiscounted cash flow approach or, when available and appropriate, comparablemarket values.  The Company determinedthere were no indicators of impairment of long-lived assets as of December 31,2006 or March 31, 2007.

The Company has evaluatedthe remaining useful lives of its finite-lived purchased intangible assets todetermine if any adjustments to the useful lives were necessary or if any ofthese assets had indefinite lives and were therefore not subject toamortization.  The Company determinedthat no adjustments to the useful lives of its finite-lived purchased intangibleassets were necessary.  The finite-livedpurchased intangible assets consist of membership customer lists, resort andgolf course agreements, non-compete and deferred consulting agreements anddeferred financing costs which have weighted average useful lives ofapproximately 6 years, 23 years, 15 years and 7 years, respectively.

*Indefinite Lived IntangibleAssets*

The Company evaluatesindefinite lived intangible assets for impairment at least annually or whenevents indicate that an impairment exists in accordance with SFAS No. 142.  The impairment test for goodwill and otherindefinite-lived intangible assets is calculated annually using fair valuemeasurement techniques.

Determining the fairvalue 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 of theCompany’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.

Future goodwillimpairment 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.

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*Income Taxes*

Significant judgment is required indetermining the Company’s tax provision and in evaluating its taxpositions.  The Company establishes accruals for certain tax contingencieswhen, despite the belief that the Company’s tax return positions are fullysupported, the Company believes that certain positions may be challenged andthat the Company’s positions may not be fully sustained.  The tax contingencyaccruals are adjusted in light of changing facts and circumstances, such as theprogress of tax audits, case law and emerging legislation.  The Company’s tax provision includes theimpact of tax contingency accruals and changes to the accruals, includingrelated interest, as considered appropriate by management.

**ITEM 3: QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

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

The following information discusses thesensitivity to our earnings.  The rangeof changes chosen for this analysis reflects our view of changes which arereasonably possible over a one-year period. These forward-looking disclosures are selective in nature and onlyaddress the potential impacts from financial instruments.  They do not include other potential effectswhich could impact our business as a result of these interest ratefluctuations.

*Interest Rate SensitivityAnalysis*

At March 31, 2007, we had debt totaling$400.1 million, comprised of $133.8 million of variable rate debt and $266.3million of fixed rate debt.  Holdingother variables constant (such as debt levels), the earnings and cash flowimpact of a one-percentage point increase/ decrease in interest rates wouldhave an unfavorable/ favorable impact of approximately $1.3 million.

*Credit Risk*

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

**ITEM 4:CONTROLS AND PROCEDURES**

Within 90 daysprior to the filing of this Quarterly Report on Form 10-Q, the Company carriedout an evaluation, under the supervision and with the participation of theCompany’s management, including the President and Chief Executive Officer andthe Senior Vice President and Chief Financial Officer, of the effectiveness ofthe design and operation of the Company’s disclosure controls and procedurespursuant to Regulation 13a-14 under the Securities Exchange Act of 1934.  Based upon that evaluation, the President andChief

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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.  There have been no significant changes in theCompany’s internal controls or in other factors that could significantly affectthese controls subsequent to the date the Company carried out its evaluation.

**PARTII:  OTHER INFORMATION**

None

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**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: May 9,  2007 | Thomas F. Wolfe                  |
|               | Senior Vice President and        |
|               | Chief Financial Officer          |

 

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