**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

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

###### ** **

**FORM 10-Q**

** **

**Quarterly Report Under Section 13 or 15 (d) ofThe Securities Exchange Act of 1934**

 

| **For  Quarter Ended:** | ** ** | **Commission  File Number** |
|-------------------------|------------|-----------------------------|
| **March  31, 2008**     | ** ** | **333-124109**              |

 

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**AFFINITYGROUP HOLDING, INC.**

(Exact name ofregistrant as specified in its charter)

 

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

 

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

SECURITIESREGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:

**10-7/8%Senior Notes Due 2012**

 

Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15 (d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the Registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.

 

YES   **x****            **NO  o

 

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

 

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

 

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

 

YES   o**            **NO  x

 

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

 

| ** **                                      | ** ** | **Outstanding as of** |
|-------------------------------------------------|------------|-----------------------|
| **Class**                                       | ** ** | **May 9, 2008**       |
| Common  Stock,    $.01 par value | ** ** | 100                   |

 

**DOCUMENTSINCORPORATED BY REFERENCE:  None**

 

 

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

** **

**INDEX**

 
| ** **                                                                                               | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|
|                                                                                                     |       |
| **Part I.**Financial Information                                                                    |       |
|                                                                                                     |       |
| **Item 1: Financial Statements**                                                                         |       |
|                                                                                                     |       |
| Consolidated Balance Sheets as of March 31, 2008  (unaudited) and December 31, 2007            |       |
|                                                                                                     |       |
| Unaudited Consolidated Statements of Operations for  the three months ended March 31, 2008 and 2007 |       |
|                                                                                                     |       |
| Unaudited Consolidated Statements of Cash Flows for  the three months ended March 31, 2008 and 2007 |       |
|                                                                                                     |       |
| 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

March 31,2008 and December 31, 2007

(Inthousands except shares and par value)

 
| ** **                                                                                      | ** ** | **3/31/2008**   | ** ** | **12/31/2007** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|
| ** **                                                                                      | ** ** | **(Unaudited)** | ** ** | ** **     | ** ** |
| **ASSETS**                                                                                      |       |            |       |           |       |
| CURRENT ASSETS:                                                                                 |       |            |       |           |       |
| Cash and cash equivalents                                                                       |       | $               | 905        |           | $          | 8,566 |   |
| Accounts receivable, less allowance for doubtful  accounts of $1,522 in 2008 and $1,473 in 2007 |       | 31,466          |       | 33,330         |       |
| Inventories                                                                                     |       | 67,428          |       | 64,209         |       |
| Prepaid expenses and other assets                                                               |       | 16,697          |       | 14,431         |       |
| Deferred tax assets                                                                             |       | 3,980           |       | 3,922          |       |
| Total current assets                                                                            |       | 120,476         |       | 124,458        |       |
|                                                                                            |       |            |       |           |       |
| PROPERTY AND EQUIPMENT, net                                                                     |       | 44,796          |       | 44,307         |       |
| INVESTMENT IN AFFILIATE                                                                         |       | 81,005          |       | 81,005         |       |
| NOTE FROM AFFILIATE                                                                             |       | 4,640           |       | 4,650          |       |
| INTANGIBLE ASSETS, net                                                                          |       | 28,621          |       | 25,836         |       |
| GOODWILL                                                                                        |       | 144,429         |       | 144,429        |       |
| OTHER ASSETS                                                                                    |       | 1,998           |       | 1,979          |       |
| Total assets                                                                                    |       | $               | 425,965    |           | $          | 426,664 |   |
|                                                                                            |       |            |       |           |       |
| **LIABILITIES AND STOCKHOLDER’S DEFICIT**                                                  |       |            |       |           |       |
| CURRENT LIABILITIES:                                                                            |       |            |       |           |       |
| Accounts payable                                                                                |       | $               | 28,740     |           | $          | 27,171 |   |
| Accrued interest                                                                                |       | 4,792           |       | 6,700          |       |
| Accrued income taxes                                                                            |       | 1,247           |       | 1,189          |       |
| Accrued liabilities                                                                             |       | 33,159          |       | 36,123         |       |
| Deferred revenues and gains                                                                     |       | 64,075          |       | 65,855         |       |
| Current portion of long-term debt                                                               |       | 4,920           |       | 4,406          |       |
| Total current liabilities                                                                       |       | 136,933         |       | 141,444        |       |
|                                                                                            |       |            |       |           |       |
| DEFERRED REVENUES AND GAINS                                                                     |       | 37,938          |       | 38,535         |       |
| LONG-TERM DEBT, net of current portion                                                          |       | 401,668         |       | 392,553        |       |
| DEFERRED TAX LIABILITY                                                                          |       | 2,760           |       | 2,702          |       |
| OTHER LONG-TERM LIABILITIES                                                                     |       | 25,433          |       | 22,704         |       |
|                                                                                            |       | 604,732         |       | 597,938        |       |
|                                                                                            |       |            |       |           |       |
| COMMITMENTS AND CONTINGENCIES                                                                   |       |            |       |           |       |
|                                                                                            |       |            |       |           |       |
| STOCKHOLDER’S DEFICIT:                                                                     |       |            |       |           |       |
| Common stock, $.01 par value, 3,000 shares  authorized, 100 shares issued and outstanding       |       | 1               |       | 1              |       |
| Additional paid-in capital                                                                      |       | 5,861           |       | 5,861          |       |
| Accumulated deficit                                                                             |       | (175,573        | )          | (172,431       | )          |
| Accumulated other comprehensive loss                                                            |       | (9,056          | )          | (4,705         | )          |
| Total stockholder’s deficit                                                                |       | (178,767        | )          | (171,274       | )          |
| Total liabilities and stockholder’s deficit                                                |       | $               | 425,965    |           | $          | 426,664 |   |

 

See notes to consolidated financialstatements.

 

1

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AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(InThousands)

(Unaudited)

 
| ** **                             | ** ** | **THREE MONTHS ENDED** | ** ** |
|----------------------------------------|------------|----------------------------------|------------|
| ** **                             | ** ** | **3/31/2008**                    | ** ** | **3/31/2007** | ** ** |
|                                   |       |                             |       |   |   |
| REVENUES:                              |       |                             |       |   |   |
| Membership services                    |       | $                                | 35,545     |   | $ | 34,061 |   |
| Publications                           |       | 26,256                           |       | 24,689 |   |
| Retail                                 |       | 63,184                           |       | 69,057 |   |
|                                   |       | 124,985                          |       | 127,807 |   |
|                                   |       |                             |       |   |   |
| COSTS APPLICABLE TO REVENUES:          |       |                             |       |   |   |
| Membership services                    |       | 23,141                           |       | 21,667 |   |
| Publications                           |       | 17,217                           |       | 15,777 |   |
| Retail                                 |       | 36,863                           |       | 41,836 |   |
|                                   |       | 77,221                           |       | 79,280 |   |
|                                   |       |                             |       |   |   |
| GROSS PROFIT                           |       | 47,764                           |       | 48,527 |   |
|                                   |       |                             |       |   |   |
| OPERATING EXPENSES:                    |       |                             |       |   |   |
| Selling, general and administrative    |       | 36,439                           |       | 34,565 |   |
| Depreciation and amortization          |       | 5,131                            |       | 4,903 |   |
|                                   |       | 41,570                           |       | 39,468 |   |
|                                   |       |                             |       |   |   |
| INCOME FROM OPERATIONS                 |       | 6,194                            |       | 9,059 |   |
|                                   |       |                             |       |   |   |
| NON-OPERATING ITEMS:                   |       |                             |       |   |   |
| Interest income                        |       | 143                              |       | 174 |   |
| Interest expense                       |       | (9,182                           | )          | (9,137 | ) |
| Debt extinguishment expense            |       | —                           |       | (775 | ) |
| Other non-operating items, net         |       | 2                                |       | 49 |   |
|                                   |       | (9,037                           | )          | (9,689 | ) |
|                                   |       |                             |       |   |   |
| LOSS FROM OPERATIONS BEFORE INCOME TAX |       | (2,843                           | )          | (630 | ) |
|                                   |       |                             |       |   |   |
| INCOME TAX (EXPENSE) BENEFIT           |       | (299                             | )          | 98 |   |
|                                   |       |                             |       |   |   |
| NET LOSS                               |       | $                                | (3,142     | ) | $ | (532 | ) |

 

See notes to consolidated financialstatements.

 

2

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AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(InThousands)

(Unaudited)

 
| ** **                                                                   | ** ** | **THREE MONTHS ENDED** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                   | ** ** | **3/31/2008**                    | ** ** | **3/31/2007** | ** ** |
|                                                                         |       |                             |       |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                        |       |                             |       |   |   |
| Net loss                                                                     |       | $                                | (3,142     | ) | $ | (532 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |       |                             |       |   |   |
| Depreciation                                                                 |       | 2,999                            |       | 2,398 |   |
| Amortization                                                                 |       | 2,132                            |       | 2,505 |   |
| Provision for losses on accounts receivable                                  |       | 262                              |       | 283 |   |
| Deferred compensation                                                        |       | (300                             | )          | 120 |   |
| Deferred tax provision (benefit)                                             |       | —                           |       | (413 | ) |
| Loss on sale of property and equipment                                       |       | 26                               |       | — |   |
| Loss on early extinguishment of debt                                         |       | —                           |       | 775 |   |
| Non-cash interest on AGHI Notes                                              |       | 1,465                            |       | 2,855 |   |
| Accretion of original issue discount                                         |       | 112                              |       | 83 |   |
| Changes in operating assets and liabilities                                  |       |                             |       |   |   |
| Accounts receivable                                                          |       | 1,602                            |       | 815 |   |
| Inventories                                                                  |       | (3,219                           | )          | (11,405 | ) |
| Prepaid expenses and other assets                                            |       | (1,864                           | )          | (3,032 | ) |
| Accounts payable                                                             |       | 1,569                            |       | (4,765 | ) |
| Accrued and other liabilities                                                |       | (6,136                           | )          | (3,033 | ) |
| Deferred revenues and gains                                                  |       | (3,438                           | )          | 234 |   |
| Net cash used in operating activities                                        |       | (7,932                           | )          | (13,112 | ) |
|                                                                         |       |                             |       |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                        |       |                             |       |   |   |
| Capital expenditures                                                         |       | (3,515                           | )          | (5,549 | ) |
| Net proceeds from sale of property and equipment                             |       | 1                                |       | — |   |
| Change in intangible assets                                                  |       | —                           |       | (2 | ) |
| Acquisitions, net of cash received                                           |       | (3,409                           | )          | (304 | ) |
| Repayment of loans receivable                                                |       | 10                               |       | 9 |   |
| Net cash used in investing activities                                        |       | (6,913                           | )          | (5,846 | ) |
|                                                                         |       |                             |       |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                        |       |                             |       |   |   |
| Borrowings on long-term debt                                                 |       | 22,400                           |       | 39,000 |   |
| Payment of debt issue costs                                                  |       | —                           |       | (291 | ) |
| Principal payments of long-term debt                                         |       | (15,216                          | )          | (32,452 | ) |
| Net cash provided by financing activities                                    |       | 7,184                            |       | 6,257 |   |
|                                                                         |       |                             |       |   |   |
| NET CHANGE IN CASH AND CASH EQUIVALENTS                                      |       | (7,661                           | )          | (12,701 | ) |
|                                                                         |       |                             |       |   |   |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                             |       | 8,566                            |       | 15,238 |   |
|                                                                         |       |                             |       |   |   |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                   |       | $                                | 905        |   | $ | 2,537 |   |

 

See notes to consolidated financialstatements.

 

3

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**AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES**

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

**(1) BASISOF PRESENTATION**

 

*Principles of Consolidation –***The consolidated financial statements includedherein include the accounts of Affinity Group Holding, Inc. (“AGHI”), itswholly-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. In November 2007,AGI Holding Corp. (“AGHC”) formed a holding company, AGI Intermediate HoldcoLLC (“AGII”), at which time AGHC contributed 100% of the outstanding shares ofcommon stock of AGHI to AGII. AGII is the parent company of AGHI.

 

These interimconsolidated financial statements should be read in conjunction with theCompany’s consolidated financial statements and notes in the Company’s 10-Kreport for the year ended December 31, 2007 as filed with the Securitiesand Exchange Commission. In the opinion of management of the Company, theseconsolidated financial statements contain all adjustments of a normal recurringnature necessary to present fairly the financial position, results ofoperations and cash flows of the Company for the interim periods presented.

 

**(2) RECENTACCOUNTING PRONOUNCEMENTS**

 

The Companyadopted the provisions of Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards (“SFAS”) No. 157, “Fair ValueMeasurements” (“SFAS 157”) on January 1, 2008. The FASB delayed theeffective date of SFAS 157 until January 1, 2009 with respect to fairvalue measurement requirements for non-financial assets and liabilities thatare not re-measured on a recurring basis. SFAS 157 defines fair value,establishes a framework and gives guidance regarding the method used formeasuring fair value, and expands disclosures about fair value measurements. SFAS157 requires companies to disclose the fair value of their financialinstruments according to a fair value hierarchy, as defined, and may requirecompanies to provide additional disclosures based on that hierarchy. SFAS 157is effective for financial statements issued for fiscal years beginning after November 15,2007, and interim periods within those fiscal years. The adoption of theprovisions of SFAS 157 did not have a material impact on the Company’sconsolidated financial statements.

 

In February 2007,the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assetsand Liabilities- Including an amendment of FASB Statement No. 115 (“SFAS159”). SFAS 159 expands the use of fair value accounting but does not affectexisting standards which requires assets or liabilities to be carried at fairvalue. The objective of SFAS 159 is to improve financial reporting by providingcompanies with the opportunity to mitigate volatility in reported earningscaused by measuring related assets and liabilities differently without havingto apply complex hedge accounting provisions. Under SFAS 159, a company manyelect to use fair value to measure eligible items at specified election datesand report unrealized gains

 

4

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

 

and losses onitems for which the fair value option has been elected in earnings at eachsubsequent reporting date. Eligible items include, but are not limited to,accounts and loans receivable, available-for-sale and held-to-maturitysecurities, equity method investments, accounts payable, guarantees, issueddebt and firm commitments. If elected, SFAS 159 would be effective for fiscalyears beginning after November 15, 2007. The Company has elected not toadopt SFAS 159.

 

In December 2007,the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS141(R)”). SFAS 141(R) establishes principles and requirements for how anacquirer recognizes and measures in its financial statements the identifiableassets acquired, the liabilities assumed, any noncontrolling interest in theacquiree and the goodwill acquired. SFAS 141(R) also establishesdisclosure requirements to enable the evaluation of the nature and financialeffects of the business combination. SFAS 141(R) is effective for fiscalyears beginning after December 15, 2008. The Company will adopt SFAS 141(R) inthe first quarter of fiscal 2009 and apply the provisions of the Statement forany acquisition after the adoption date. The Company is currently evaluatingthe potential impact, if any, of the adoption of SFAS 141(R) on itsconsolidated financial statements.

 

In December 2007,the FASB issued SFAS No. 160, “Accounting and Reporting of Non-controllingInterests in Consolidated Financial Statements – an amendment of AccountingResearch Bulletin No. 51” (“SFAS 160”). This standard will significantlychange the accounting and reporting for business combination transactions andnon-controlling (minority) interests in consolidated financial statements,including capitalizing at the acquisition date the fair value acquired fromin-process research and development, and re-measuring and writing down theseassets, if necessary, in subsequent periods during their development. This newstandard will be applied for business combinations that occur on or after January 1,2009 and presentation and disclosure requirements of SFAS 160 shall be appliedretrospectively.

 

In March 2008,the FASB issued SFAS Statement No. 161 (“SFAS 161”), “Disclosures aboutDerivative Instruments and Hedging Activities”. SFAS 161 requires companieswith derivative instruments to disclose information that should enablefinancial-statement users to understand how and why a company uses derivativeinstruments, how derivative instruments and related hedged items are accountedfor under FASB Statement No. 133 “Accounting for Derivative Instrumentsand Hedging Activities” and how derivative instruments and related hedged itemsaffect a company’s financial position, financial performance and cash flows. SFAS161 is effective for financial statements issued for fiscal years and interimperiods beginning after November 15, 2008. We are currently evaluating theimpact, if any, that SFAS 161 will have on our consolidated financialstatements.

 

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

 

TheCompany’s three principal lines of business are Membership Services,Publications, and Retail. The Membership Services segment includes theoperations of the Good Sam Club, Coast to Coast Club, Camping World’s President’sClub, Camp Club USA and RV Handyman Club for recreational vehicle (“RV”)owners, campers and outdoor vacationers, and the Golf

 

5

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

 

CardClub for golf enthusiasts. The Publications segment publishes a variety ofpublications for selected markets in the recreation and leisure industry,including general circulation periodicals, directories, and RV and powersportsindustry trade magazines, and produces outdoor recreational consumer events. TheRetail segment sells specialty retail merchandise and services for RV ownersprimarily through Camping World retail supercenters, mail order catalogs andits website. The Company evaluates performance based on profit or loss fromoperations before income taxes.

 

The reportablesegments are strategic business units that offer different products andservices. They are managed separately because each business requires differenttechnology, management expertise and marketing strategies.

 

TheCompany does not allocate income taxes or unusual items to segments. Financialinformation by reportable business segment is summarized as follows (inthousands):

 
| ** **                                 | ** ** | **Membership** | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
|--------------------------------------------|------------|----------------|------------|------------------|------------|------------|------------|------------------|------------|
| ** **                                 | ** ** | **Services**   | ** ** | **Publications** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **QUARTER ENDED MARCH 31, 2008**      |       |           |       |             |       |       |       |             |       |
| Revenues from external customers           |       | $              | 35,545     |             | $          | 26,256     |       | $                | 63,184     |   | $ | 124,985 |   |
| Depreciation and amortization              |       | 737            |       | 1,463            |       | 2,352      |       | 4,552            |       |
| Loss on disposal of property and equipment |       | —         |       | —           |       | (26        | )          | (26              | )          |
| Interest income                            |       | 917            |       | —           |       | 11         |       | 928              |       |
| Interest expense                           |       | —         |       | 48               |       | 4,111      |       | 4,159            |       |
| Segment profit (loss)                      |       | 9,999          |       | 5,809            |       | (8,426     | )          | 7,382            |       |
|                                       |       |           |       |             |       |       |       |             |       |
| **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           |       |

 

Thefollowing is a reconciliation of income from operations to the Company’sconsolidated financial statements for the quarter ended March 31, (inthousands):

 
| ** **                                                    | ** ** | **QUARTER ENDED** | ** ** |
|---------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                    | ** ** | **3/31/2008**          | ** ** | **3/31/2007** | ** ** |
| **Income From Operations Before Income Taxes**                |       |                   |       |   |   |
| Total profit for reportable segments                          |       | $                      | 7,382      |   | $ | 13,822 |   |
| Unallocated G & A expense                            |       | (3,838                 | )          | (5,263 | ) |
| Unallocated depreciation and amortization expense             |       | (579                   | )          | (884 | ) |
| Elimination of intercompany interest income                   |       | (785                   | )          | (2,034 | ) |
| Unallocated interest expense, net of intercompany elimination |       | (5,023                 | )          | (5,496 | ) |
| Unallocated debt restructure expense                          |       | —                 |       | (775 | ) |
| Loss from operations before income taxes                      |       | $                      | (2,843     | ) | $ | (630 | ) |

 

6

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

 

Thefollowing is a reconciliation of assets of reportable segments to the Company’sconsolidated financial statements as of March 31, 2008 and December 31,2007 (in thousands):

 
| ** **                                          | ** ** | **3/31/2008** | ** ** | **12/31/2007** | ** ** |
|-----------------------------------------------------|------------|---------------|------------|----------------|------------|
| Membership services segment                         |       | $             | 198,390    |           | $          | 203,836 |   |
| Publications segment                                |       | 91,306        |       | 89,074         |       |
| Retail segment                                      |       | 251,521       |       | 249,174        |       |
| Total assets for reportable segments                |       | 541,217       |       | 542,084        |       |
| Capitalized finance costs not allocated to segments |       | 7,069         |       | 7,489          |       |
| Corporate unallocated assets                        |       | 3,583         |       | 3,544          |       |
| Elimination of intersegment receivable              |       | (125,904      | )          | (126,453       | )          |
| Total assets                                        |       | $             | 425,965    |           | $          | 426,664 |   |

 

**(4) STATEMENTS OF CASH FLOWS**

 

Supplemental disclosures of cash flowinformation for the three months ended March 31 (in thousands):

 
| ** **                                  | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|
| Cash paid (received) during the period for: |       |     |       |     |       |
| Interest                                    |       | $        | 9,337      |     | $          | 10,246 |   |
| Income taxes                                |       | —   |       | (186     | )          |
|                                             |            |          |            |          |            |  |  |

 

In January 2007, the Company assumed $0.3 million of liabilitiesin connection with the acquisition of the Madison Boat Show from MAC Events,LLC.

 

In February 2007, the Company assumed $0.6 million of liabilitiesand issued $1.5 million of debt in connection with the acquisition of five RVand Sportsman Shows from Industrial Expositions, Inc.

 

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

 

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

 

In March 2008,the Company recorded an adjustment to the fair value of the interest rate swapresulting in a $4.2 million increase in both Other Long-Term Liabilities andOther Comprehensive Loss.

 

7

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**(5) GOODWILL AND INTANGIBLE ASSETS**

 

The Companyreviews goodwill and indefinite-lived intangible assets for impairment at leastannually and more often when impairment indicators are present.  The Company performs its annual impairmenttest during the fourth quarter.  Therewere no changes in the Company’s goodwill by business segment for the threemonths ended March 31, 2008 and 2007 and no indicators of impairment.

 

In January 2007,AGI Productions, Inc. acquired a consumer show from MAC Events, Inc.for $0.5 million.  As part of thepurchase, the Company assumed $0.3 million of liabilities.  In February 2007, AGI Productions, Inc.acquired consumer shows from Industrial Exposition Inc. for $1.9 million.  As part of the purchase, the Company issued$1.5 million of debt and assumed $0.6 million of liabilities.

 

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

 

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

 

Finite-lived intangible assets, related accumulated amortization andweighted average useful life consisted of the following at March 31, 2008(in thousands, except as noted):

 
| ** **                                      | ** ** | **Weighted**                  | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|-------------------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                                      | ** ** | **Average Useful**       | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
| ** **                                      | ** ** | **Life (in years)** | ** ** | **Gross**  | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
|                                            |       |                          |       |       |       |             |       |       |       |
| Membership and customer lists                   |       | 6                             |       | $          | 36,384     |             | $          | (18,108    | )          | $ | 18,276 |   |
| Resort and golf course participation agreements |       | 4                             |       | 13,401     |       | (13,379          | )          | 22         |       |
| Non-compete and deferred consulting agreements  |       | 15                            |       | 18,830     |       | (14,190          | )          | 4,640      |       |
| Deferred financing costs                        |       | 7                             |       | 13,956     |       | (8,273           | )          | 5,683      |       |
|                                            |       |                          |       |       |       |             |       |       |       |
|                                            |       |                          |       | $          | 82,571     |             | $          | (53,950    | )          | $ | 28,621 |   |

 

**(6) DEBT**

 

Senior Subordinated Notes

 

In February 2004, AGI issued $200.0 million of 9% SeniorSubordinated Notes (“Senior Subordinated Notes”) due 2012 pursuant to the AGIIndenture.  On June 8, 2006, AGIamended its Amended and Restated Credit Agreement (“Senior Credit Facility”) topermit AGI

 

8

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**(6) DEBT (continued)**

 

to purchase up to $30.0 million of the Senior Subordinated Notes from timeto time as and when AGI determines.  AGIretired $29.9 million of the Senior Subordinated Notes in 2006. On February 27,2007, AGI amended its Senior Credit Facility to permit AGI to repurchase up toan additional $50.0 million of the Senior Subordinated Notes from time to time,as and when AGI determines, through the issuance of additional term loans of upto $50.0 million under the Senior Credit Facility.  On March 8, 2007, AGI purchased $17.7million of the Senior Subordinated Notes. As of March 31, 2008, $152.4 million of the Senior SubordinatedNotes remain outstanding.  Interest ispayable on the remaining Senior Subordinated Notes twice a year on February 15and August 15.  AGI’s present andfuture restricted subsidiaries will guarantee the Senior Subordinated Noteswith unconditional guarantees of payment that will rank junior in right ofpayment to their existing and future senior debt, but will rank equal in rightof payment to their existing and future senior subordinated debt.

 

AGHI Notes

 

On March 24, 2005 in a private placement, AGHI issued $88.2million principal amount of its 10-7/8% senior notes due 2012 (the “AGHI Notes”)at a $3.2 million original issue discount. The Company completed a registered exchange of these AGHI Notes underthe Securities Act of 1933 in June 2005. The AGHI Notes are unsecured obligations of AGHI and its subsidiarieshave not guaranteed payment of principal or interest on the AGHI Notes.  Interest on the AGHI Notes is payablesemi-annually on February 15 and August 15 commencing August 15,2005 and the entire $88.2 million principal amount of the AGHI Notes are due infull on February 15, 2012.  Forinterest payments on and prior to February 15, 2008, AGHI could elect topay interest on the AGHI Notes in cash or by the issuance of additional notesof the same tenor as the AGHI Notes, except the maturity date of the additionalnotes is March 15, 2010.  On August 15,2005, February 15, 2006, August 15, 2006, February 15, 2007, andFebruary 15, 2008 the Company issued additional notes in the amount of$3.8 million, $5.0 million, $5.3 million, $5.6 million, and $5.9 million,respectively.  AGHI paid the interest onthe notes due August 15, 2007 of $5.9 million from the proceeds of a $5.9million contribution made by AGHC.

 

Interest Rate SwapAgreement

 

On October 15,2007, the AGI entered into a five-year interest rate swap agreement with anotional amount of $100.0 million from which it will receive periodic paymentsat the 3 month LIBOR-based variable rate (4.96% percent at December 31,2007 based upon the October 31, 2007 reset date) and make periodicpayments at a fixed rate of 5.135% percent, with settlement and rate resetdates every January 31, April 30, July 31, and October 31.  AGI entered into the interest rate swap tolimit the effect of increases on our floating rate debt.  The interest rate swap agreement waseffective beginning October 31, 2007 and expires on October 31,2012.  The fair value of this swap isincluded in other accrued liabilities and was $8.9 million and $4.7 million asof March 31, 2008 and December 31, 2007, respectively.

 

9

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**(7) INCOME TAXES**

 

Thefollowing table summarizes the activity related to unrecognized tax benefits:

** **
| Balance at December 31, 2007                                                        |   | $      | 14,390 |   |
|------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Gross increases in unrecognized tax benefits due to  prior year positions                |   | — |   |
| Gross decreases in unrecognized tax benefits due to  prior year positions                |   | — |   |
| Gross increases in unrecognized tax benefits due to  current year positions              |   | — |   |
| Gross decreases in unrecognized tax benefits due to  current year positions              |   | — |   |
| Gross decreases in unrecognized tax beneifts due to  settlements with taxing authorities |   | — |   |
| Gross decreases in unrecognized tax benefits due to  statute expirations                 |   | — |   |
| Other                                                                                    |   | 26     |   |
| Unrecognized tax benefits at March 31, 2008                                         |   | $      | 14,416 |   |

 

The Company accrues interest and penaltiesrelated to unrecognized tax benefits in its income tax provision.  The Company recorded interest and penaltiesof $0.2 million related to unrecognized tax benefits during the first quarterof 2008 and the liability for penalties and interest was $1.8 million.  This amount was included in other long-termliabilities.  The Company does not expectits unrecognized tax benefits to change significantly over the next twelvemonths.

 

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

 

**(8) FAIR VALUE MEASUREMENTS**

 

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

 

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

 

As of March 31, 2008, the Company held an interest rate swap thatis required to be measured at fair value on a recurring basis.  The Company’s interest rate swap is nottraded on a public exchange.  See Notes 6and 9 for further information on the interest rate swap.  The fair value of this swap is determinedbased on inputs that are readily available in public markets or can be derivedfrom information available in publicly quoted markets.  Therefore, the Company has categorized thisswap contract as Level 2.

 

10

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**(8) FAIRVALUE MEASUREMENTS (continued)**

 

The Company’s liability at March 31, 2008, measured at fair valueon a recurring basis subject to the disclosure requirements of SFAS 157, was asfollows:

 
| ** **             | ** ** | **Fair Value Measurements at Reporting Date Using** | ** ** |
|------------------------|------------|-----------------------------------------------------------------------------------|------------|
| **(in millions)** | ** ** | ** **                                                                        | ** ** | **Quoted Prices in  Active Markets  for Identical  Assets** | ** ** | **Significant  Other  Observable  Inputs** | ** ** | **Significant  Unobservable  Inputs** | ** ** |
| **Description**        | ** ** | **3/31/2008**                                                                     | ** ** | **(Level 1)** | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** |
|                   |       |                                                                              |       |   |   |   |   |   |   |
| Interest Rate Swap     |       | $                                                                                 | 8,898      |   | $ | — |   | $ | 8,898 |   | $ | — |   |
|                        |            |                                                                                   |            |  |  |  |  |  |  |  |  |  |  |

 

**(9) RECENT EVENTS**

 

On March 19,2008, the Company entered into a 4.5 year interest rate swap agreementeffective April 30, 2008, with a notional amount of $35.0 million fromwhich it will receive periodic payments at the 3 month LIBOR-based variablerate determined at periodic reset dates, and make periodic payments at a fixedrate of 3.43% percent, with settlement and rate reset dates every January 31,April 30, July 31, and October 31.  The interest rate swap will be effectivebeginning April 30, 2008 and expires on October 31, 2012.

 

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**ITEM 2:**

 

AFFINITY GROUP HOLDING, INC.AND SUBSIDIARIES

MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL

CONDITIONAND RESULTS OF OPERATIONS

 

Thefollowing table is derived from the Company’s Consolidated Statements ofOperations and expresses the results from operations as a percentage ofrevenues and reflects the net increase (decrease) between periods:

 
| ** **                               | ** ** | **THREE MONTHS ENDED** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|
| ** **                               | ** ** | **3/31/2008**                    | ** ** | **3/31/2007** | ** ** | **Inc/(Dec)** | ** ** |
|                                     |       |                             |       |   |   |   |   |
| REVENUES:                                |       |                             |       |   |   |   |   |
| Membership services                      |       | 28.4                             | %          | 26.7 | % | 4.4 | % |
| Publications                             |       | 21.0                             | %          | 19.3 | % | 6.3 | % |
| Retail                                   |       | 50.6                             | %          | 54.0 | % | (8.5 | )% |
|                                     |       | 100.0                            | %          | 100.0 | % | (2.2 | )% |
|                                     |       |                             |       |   |   |   |   |
| COSTS APPLICABLE TO REVENUES:            |       |                             |       |   |   |   |   |
| Membership services                      |       | 18.5                             | %          | 17.0 | % | 6.8 | % |
| Publications                             |       | 13.8                             | %          | 12.3 | % | 9.1 | % |
| Retail                                   |       | 29.5                             | %          | 32.7 | % | (11.9 | )% |
|                                     |       | 61.8                             | %          | 62.0 | % | (2.6 | )% |
|                                     |       |                             |       |   |   |   |   |
| GROSS PROFIT                             |       | 38.2                             | %          | 38.0 | % | (1.6 | )% |
|                                     |       |                             |       |   |   |   |   |
| OPERATING EXPENSES:                      |       |                             |       |   |   |   |   |
| Selling, general and administrative      |       | 29.2                             | %          | 27.1 | % | 5.4 | % |
| Depreciation and amortization            |       | 4.0                              | %          | 3.8 | % | 4.7 | % |
|                                     |       | 33.2                             | %          | 30.9 | % | 5.3 | % |
|                                     |       |                             |       |   |   |   |   |
| INCOME FROM OPERATIONS                   |       | 5.0                              | %          | 7.1 | % | (31.6 | )% |
|                                     |       |                             |       |   |   |   |   |
| NON-OPERATING ITEMS:                     |       |                             |       |   |   |   |   |
| Interest income                          |       | 0.1                              | %          | 0.1 | % | (17.8 | )% |
| Interest expense                         |       | (7.4                             | )%         | (7.1 | )% | 0.5 | % |
| Debt extinguishment expense              |       | —                           |       | (0.6 | )% | 100.0 | % |
| Other non-operating items, net           |       | —                           |       | — |   | (95.9 | )% |
|                                     |       | (7.3                             | )%         | (7.6 | )% | (6.7 | )% |
|                                     |       |                             |       |   |   |   |   |
| LOSS FROM OPERATIONS BEFORE INCOME TAXES |       | (2.3                             | )%         | (0.5 | )% | (351.3 | )% |
|                                     |       |                             |       |   |   |   |   |
| INCOME TAX BENEFIT                       |       | (0.2                             | )%         | 0.1 | % | (405.1 | )% |
|                                     |       |                             |       |   |   |   |   |
| NET LOSS                                 |       | (2.5                             | )%         | (0.4 | )% | 490.6 | % |

 

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**RESULTS OF OPERATIONS**

 

**ThreeMonths Ended March 31, 2008**

**ComparedWith Three Months Ended March 31, 2007**

 

*Revenues*

 

Revenuesof $125.0 million for the first quarter of 2008 decreased by $2.8 million, or2.2%, from the comparable period in 2007.

 

Membershipservices revenues of $35.5 million for the first quarter of 2008 increased by$1.5 million, or 4.4%, from the comparable period in 2007.  This revenue increase was largelyattributable to an $0.8 million increase in extended vehicle warranty programrevenue due to the continued growth of contracts in force, a $0.7 millionincrease in marketing fee revenue from health and life insurance products, a$0.5 million revenue increase in emergency road service programs due toincreased average enrollment, and a $0.4 million revenue increase due toincreased enrollment in Camping World President’s Club.  These increases were partially offset by arevenue reduction of $0.5 million due to enrollment decreases in the Coast toCoast Club and the Golf Card Club, and a $0.4 million decrease in fee incomerecognized on vehicle insurance products.

 

Publicationrevenues of $26.3 million for the first quarter of 2008 increased $1.6 million,or 6.3%, from the comparable period in 2007 primarily attributable to $2.9million of revenue primarily associated with nine RV and boat shows purchasedfrom MAC Events, LLC in January 2008 and three RV and boat shows purchasedfrom Mid America Expositions, Inc. in February 2008, partially offsetby $0.7 million of reduced advertising revenue associated with the RV magazinegroup, a $0.3 million decrease in advertising revenue in the boating magazinegroup, and a $0.3 million revenue decrease due to issue timing of the *Cruising Rider* annual magazine, which will be issued in thesecond quarter of 2008 versus the first quarter of 2007.

 

Retail revenues ofapproximately $63.2 million decreased $5.9 million, or 8.5%, from thecomparable period in 2007.  Storemerchandise sales decreased approximately $5.4 million over the first quarterof 2007 due to a same store sales decrease of $8.5 million, or 16.5%, comparedto a 1.2% decrease in same store sales for the first quarter of 2007, partiallyoffset by a $3.1 million revenue increase from the opening of 20 new storesover the past fifteen months.  Same storesale calculations for a given period include only those stores that were openboth at the end of that period and at the beginning of the preceding fiscalyear.  Supplies and other sales increased$0.9 million, and mail order sales decreased $1.4 million.

 

*CostsApplicable to Revenues*

 

Costsapplicable to revenues totaled $77.2 million for the first quarter of 2008, adecrease of $2.1 million, or 2.6%, from the comparable period in 2007.

 

Membershipservices costs and expenses of $23.1 million increased $1.5 million, or 6.8%,from the comparable period in 2007.  Thisincrease consisted of $0.7 million of incremental costs associated withincreased extended vehicle warranty program revenue and emergency

 

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roadservice revenue and a $0.4 million increase in program costs associated withincreased marketing fee revenue from health and life insurance products.  In addition, membership services costsincreased approximately $0.4 million due to increased marketing costs relatedto the Presidents’ Club, Good Sam Club and Camp Club USA, and the startup ofour new RV Handyman Club, partially offset by reduced marketing and programcosts related to the Coast to Coast Club and the Golf Card Club.

 

Publicationcosts and expenses of approximately $17.2 million for the first quarter of 2008increased $1.4 million, or 9.1%, from the comparable period in 2007.  This increase was attributable to $1.6million of additional costs related primarily to the consumer shows purchasedover the past fifteen months, partially offset by a $0.2 million reduction dueto issue timing of the *Cruising Rider*annual edition.

 

Retailcosts applicable to revenues decreased $5.0 million, or 11.9%, to $36.9 millionprimarily as a result of the decrease in retail revenue.  The retail gross profit margin of 41.7% forthe first quarter of 2008 increased from 39.4% for the comparable period in2007 primarily due to general price increases.

 

*OperatingExpenses*

 

Selling,general and administrative expenses of approximately $36.4 million for thefirst quarter of 2008 increased $1.9 million compared to the first quarter of2007.  This increase was due to anincrease in retail selling and general and administrative expenses ofapproximately $2.8 million consisting of increases in labor and real propertyexpenses primarily due to new store openings, a $0.2 million increase relatedto the consumer show acquisitions and a $0.2 million increase in general andadministrative expenses related to the outdoor powersports magazine group.  These increases were partially offset by a$0.9 million reduction in arbitration expense recorded in 2007 in connectionwith our asserted claim to a right of first refusal in connection with the saleof General Motors Acceptance Corporation, the insurance provider for the RVvehicle insurance offered by our Membership Services segment, which claim wasrejected by the arbitration panel, and a $0.4 million reduction in deferredexecutive compensation expense.

 

Depreciationand amortization expense of $5.1 million increased $0.2 million from the prioryear primarily due to increased depreciation from the retail store openingspartially offset by reduction in amortization due to the write-off of financecosts associated with the retirement of $17.7 million of Senior SubordinatedNotes in the first quarter of 2007.

 

*Incomefrom Operations*

 

Incomefrom operations for the first quarter of 2008 totaling $6.2 million decreased$2.9 million compared to the first quarter of 2007.  This decrease was primarily due to increasedoperating expenses of $2.1 million and reduced gross profit for retailoperations of $0.9 million, partially offset increased gross profit for thepublications operations of $0.1 million.

 

14

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*Non-OperatingItems*

 

Non-operatingitems of approximately $9.0 million for the first quarter of 2008 decreased$0.7 million compared to the first quarter of 2007 due to $0.8 million of debtextinguishment expense associated with the retirement of Senior SubordinatedNotes in 2007, partially offset by a $0.1 million increase in net interestexpense.

 

*Lossbefore Income Taxes*

 

Lossbefore income taxes for the first quarter of 2008 was $2.8 million, or $2.2million higher than the first quarter of 2007. This increase in loss was attributable to the $2.9 million decrease inincome from operations partially offset by a $0.7 million reduction innon-operating items mentioned above.

 

*IncomeTax Expense*

 

TheCompany recorded a $0.3 million income tax expense for the first quarter of2008, compared to a $0.1 million tax benefit for the first quarter of 2007.

 

# *Net Loss*

# * *

Netloss in the first quarter of 2008 was $3.1 million compared to a net loss of$0.5 million for the same period in 2007 mainly due to the reasons discussedabove.

 

*SegmentProfit (Loss)*

 

Segment profit of$7.4 million for the first quarter of 2008 (before unallocated depreciation andamortization, general and administrative, interest, and income tax expense)decreased $6.4 million, or 46.6%, from the comparable period in 2007.

 

Membershipservices segment profit of approximately $10.0 million for the first quarter of2008 decreased $1.1 million, or 10.3%, from the comparable period in 2007.  This decrease was largely attributable to a$1.0 million decrease in profit from emergency road service products primarilydue to reduced intercompany interest income, $0.4 million decrease in profitfrom vehicle insurance products and $0.5 million of additional marketing costsassociated the Good Sam Club, Camp Club USA and the startup of the RV HandymanClub, partially offset by a $0.4 million increase in profit from health andlife insurance products, and a $0.4 million increase in profit from theextended vehicle warranty programs.

 

Publication segmentprofit of $5.8 million for the first quarter of 2008 decreased $0.6 million, or9.4%, from the comparable period in 2007. This decrease was largely attributed to a $0.7 million decrease insegment profit related to our outdoor powersports magazine group, primarilyrelating to the timing of the Cruising Rider annual publication and reduced adrevenue, and a $0.6 million decrease in profit in the RV-related publications,partially offset by a $0.7 million increase in segment profit from our consumershows group*.*

 

Retail segmentloss increased $4.7 million, or 125.4% from the first quarter of 2007 to a lossof $8.4 million for the first quarter of 2008. This increase insegment loss resulted primarily 

 

15

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from a $2.8million increase in selling, general and administrative expenses primarilyrelated to the increase in new stores, a $0.9 million decrease in gross profitmargin, a $0.5 million increase in interest expense, and a $0.5 million increase in depreciationexpense.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

TheCompany has historically operated with a working capital deficit.  The working capital deficit as of March 31,2008 and December 31, 2007 was $16.5 million and $17.0 million,respectively.  The primary reason for theworking capital deficit is the deferred revenue and gains reported undercurrent liabilities in the amount of $64.1 million and $65.9 million as of March 31,2008 and December 31, 2007, respectively. Deferred revenue is primarily comprised of cash collected for clubmemberships in advance, which is amortized over the life of themembership.  The Company uses netproceeds from this deferred membership revenue to lower its long-termborrowings.  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, hasnot limited the Company’s ability to issue debt through the capital markets butmay limit the ability of the Company to raise funds in the equity market.

 

*Contractual Obligations andCommercial Commitments*

 

The following table reflects our contractual obligations and commercialcommitments at March 31, 2008.  Thistable includes principal and future interest due under our debt agreementsbased on interest rates as of March 31, 2008 and assumes debt obligationswill be held to maturity.

 
| ** **                         | ** ** | **Payments Due by Period** | ** ** |
|------------------------------------|------------|-------------------------------------------|------------|
| **(in thousands)**            | ** ** | **Total**                                 | ** ** | **Balance of  2008** | ** ** | **2009 and  2010** | ** ** | **2011 and  2012** | ** ** | **Thereafter** | ** ** |
|                               |       |                                      |       |   |   |   |   |   |   |   |   |
| Long-term debt and future interest |       | $                                         | 528,512    |   | $ | 25,515 |   | $ | 223,199 |   | $ | 279,798 |   | $ | — |   |
| Operating lease obligations        |       | 205,989                                   |       | 15,480 |   | 38,850 |   | 33,712 |   | 117,947 |   |
| Deferred compensation              |       | 1,435                                     |       | 31 |   | 1,404 |   | — |   | — |   |
| Standby letters of credit          |       | 7,046                                     |       | 6,546 |   | 500 |   | — |   | — |   |
| Grand total                        |       | $                                         | 742,982    |   | $ | 47,572 |   | $ | 263,953 |   | $ | 313,510 |   | $ | 117,947 |   |

 

On June 24,2003, AGI entered into an Amended and Restated Credit Agreement and a SeniorSecured Floating Rate Note Purchase Agreement (as amended, the “AGI SeniorCredit Facility”).  The AGI Senior CreditFacility provides for a revolving credit facility of $35.0 million and termloans in the aggregate of $140.0 million. As of March 31, 2008, $128.2 million was outstanding under the termloans and $9.6 million was outstanding under the revolving creditfacility.  Reborrowings under the termloans are not permitted.  The interest onborrowings under the AGI Senior Credit Facility is at variable rates based on theratio of total cash flow to outstanding indebtedness (as defined).  Interest rates float with prime and theLondon Interbank Offered Rates, or LIBOR, plus an applicable margin rangingfrom 1.50% to 2.50% over the stated rates. As of March 31, 2008, the average interest rates on the term loansand

 

16

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the revolvingcredit facility were 7.10% and 5.81%, respectively, and permitted borrowingsunder the revolving facility were $28.0 million.  AGI also pays a commitment fee of 0.5% perannum on the unused amount of the revolving credit facility.  The aggregate quarterly scheduled payments onthe term loans are $0.4 million.  Boththe revolving credit facility and the term loans mature on 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, 2008, AGIhad letters of credit in the aggregate amount of $7.0 million outstanding.  The AGI Senior Credit Facility is secured byvirtually all of the AGI’s assets and a pledge of AGI’s stock and the stock ofthe AGI’s subsidiaries.

 

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

 

On March 3,2006, AGI amended its Senior Credit Facility to revise the definition ofConsolidated Fixed Charges Ratio and Permitted Tax Distributions.  This amendment allows the Company todistribute taxes to its ultimate parent based on its stand-alone tax obligationrather than the tax obligation of its ultimate parent, AGHI, until such timethat AGHI pays interest on its 10 7/8% Senior Notes in cash instead of by theissuance of additional notes.  Further,AGI amended the Senior Credit Facility’s covenant restrictions with affiliatesto permit a joint venture arrangement between Camping World and FreedomRoads,an affiliate of the Company.

 

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

 

On March 8,2007, AGI purchased $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, 2008, $152.4 million ofSenior Subordinated Notes remain outstanding.

 

On October 15,2007, AGI entered into a five-year interest rate swap agreement with a notionalamount of $100.0 million from which it will receive periodic payments at the 3month LIBOR-based variable rate (4.96% percent at December 31, 2007 basedupon the October 31, 2007 reset date) and make periodic payments at afixed rate of 5.135%, with settlement and rate reset dates every January 31,April 30, July 31, and October 31.  On March 19, 2008, AGI 

 

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entered into aninterest rate swap agreement with a notional amount of $35.0 million from whichit will receive periodic payments at the 3 month LIBOR-based variable ratedetermined at periodic reset dates and make periodic payments at a fixed rateof 3.430% percent, with settlement and rate reset dates every January 31, April 30,July 31, and October 31.  Theinterest rate swap will be effective beginning April 30, 2008 and expireson October 31, 2012.  The fair valueof the swaps was zero at inception.  TheCompany entered into the interest rate swaps to limit the effect of increaseson our floating rate debt.  The interestrate swaps are designated as a cash flow hedge of the variable rate interest paymentsdue on $135 million of the term loans and the revolving credit facility issued June 24,2003, and accordingly, gains and losses on the fair value of the interest rateswap agreements are reported in accumulated other comprehensive loss andreclassified to earnings in the same period in which the hedged interestpayment affects earnings.  The interestrate swap agreements expire on October 31, 2012.  The fair value of the $100 million swap isincluded in other accrued liabilities and was $8.9 million and $4.7 million asof March 31, 2008 and December 31, 2007, respectively.

 

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, 2008.

 

On March 24,2005, in a private placement, AGHI issued $88.2 million principal amount of its10-7/8% senior notes due 2012 (the “AGHI Notes”) at a $3.2 million originalissue discount.  The Company completed aregistered exchange of these AGHI Notes under the Securities Act of 1933 in June 2005.  The AGHI Notes are unsecured obligations ofthe Company and its subsidiaries have not guaranteed payment of principal orinterest on the AGHI Notes.  Interest onthe AGHI Notes is payable semi-annually on February 15 and August 15commencing August 15, 2005 and the entire $88.2 million principal amountof the AGHI Notes are due in full on February 15, 2012.  For interest payments on and prior to February 15,2008, AGHI had the election to pay interest on the AGHI Notes in cash or by theissuance of additional notes of the same tenor as the AGHI Notes, except thematurity date is March 15, 2010. AGI has not paid any dividends to AGHI to fund payment of interest onthe AGHI Notes and AGHI made the interest payments due on August 15, 2005,February 15, 2006, August 15, 2006, February 15, 2007, and February 15,2008 through the issuance of additional notes. The company paid the interest on the AGHI Notes due August 15, 2007of $5.9 million from proceeds of a $5.9 million contribution made by AGHI’sparent, AGHC.  If the source of the cashpayment of the AGHI Notes is dividends from AGI, its wholly-owned subsidiary,there are certain restrictions on the payment of dividends under the AGI SeniorCredit Facility and the AGI Indenture.

 

The Companycontributed the net proceeds from the issuance of the AGHI Notes, approximately$81.0 million, to AGI and in turn, AGI made an equity contribution to itswholly-owned subsidiary, Camping World. Camping World then made an equity capital contribution in the sameamount to its wholly-owned subsidiary, CWI, Inc. (“CWI”).  CWI created a new wholly-owned subsidiarynamed CWFR Capital Corp., a Delaware corporation (“CWFR”) which is an “unrestrictedsubsidiary” under the AGHI Notes, and the AGI Indenture.  Since CWFR is an unrestricted subsidiary, itsoperations are not restricted by either the AGI Indenture or the AGHINotes.  CWI made an equity capitalcontribution to CWFR in an equal 

 

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amount to the capitalcontribution that it received from Camping World.  CWFR used the proceeds from the equitycapital contribution to acquire a preferred membership interest inFreedomRoads, a Minnesota limited liability company owned 90% by The StephenAdams Living Trust, which also indirectly owns 99.1% of the outstanding capitalstock of AGHC and indirectly AGHI.

 

In January 2007,AGI Productions, Inc. acquired a consumer show from MAC Events, Inc.for $0.5 million.  As part of thepurchase, the Company assumed $0.3 million of liabilities.  In February 2007, AGI Productions, Inc.acquired consumer shows from Industrial Exposition Inc. for $1.9 million.  As part of the purchase, the Company issued$1.5 million of debt and assumed $0.6 million of liabilities.

 

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

 

For the threemonths ended March 31, 2008, the Company incurred $0.3 million of deferredexecutive compensation benefit under the phantom stock agreements, and madepayments of $1.7 million under the terms of the vested phantom stockagreements.  The earned incentives underthese agreements are scheduled to be paid at various times over the next fouryears.  Phantom stock payments totaling$31,000 are scheduled to**be made forthe remainder of 2008.

 

Capitalexpenditures for the first three months of 2008 totaling $3.5 million decreased$2.0 million from the first three months of 2007 primarily due to a slow downof new retail store openings.  Additionalcapital expenditures of $8.7 million are anticipated for the balance of 2008primarily for two new retail stores, existing retail store upgrades,information technology, inventory system replacement, and computer hardware andsoftware upgrades and enhancements.

 

**CRITICALACCOUNTING 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 reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying 

 

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values of assetsand liabilities that are not readily apparent from other sources.  Actual results may differ from theseestimates under different assumptions or conditions.

 

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

 

*Revenue Recognition*

 

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

 

*Accounts Receivable*

 

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

 

*Inventory*

 

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

 

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*Long-LivedAssets*

 

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

 

Long-lived assets,such as property, plant and equipment and purchased intangible assets withfinite lives are evaluated for impairment whenever events or changes incircumstances indicate the carrying value of an asset may not be recoverable inaccordance with SFAS No. 144, “Accounting for the Impairment or Disposalof Long-Lived Assets.”  The Companyassesses the fair value of the assets based on the future cash flow the assetsare expected to generate and recognize an impairment loss when estimatedundiscounted future cash flow expected to result from the use of the asset plusnet proceeds expected from disposition of the asset (if any) are less than thecarrying value of the asset.  When an impairmentis identified, the Company reduces the carrying amount of the asset to itsestimated fair value based on a discounted cash flow approach or, whenavailable and appropriate, comparable market values.  The Company determined there were noindicators of impairment of long-lived assets as of December 31, 2007 or March 31,2008.

 

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

 

*Indefinite-LivedIntangible Assets*

 

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

 

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

 

The fair value ofthe Company’s reporting units is annually determined using a combination of theincome approach and the market approach. Under the income approach, the fair value of a reporting unit iscalculated based on the present value of estimated future cash flows.  

 

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Future cash flowsare estimated by the Company under the market approach, fair value is estimatedbased on market multiples 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.

 

*AccumulatedOther Comprehensive Loss*

 

Accumulatedother comprehensive loss consists of unrealized losses on cash flowhedges.  At March 31, 2008,accumulated other comprehensive loss was $9.1 million.

 

*Derivative Financial Instruments*

 

The Company accounts for derivative instruments and hedging activitiesin accordance with SFAS No. 133, “Accounting for Derivative Instrumentsand Hedging Activities” (“SFAS 133”). All derivatives are recognized on the balance sheet at their fairvalue.  On the date that the Companyenters into a derivative contract, management formally documents all relationshipsbetween hedging instruments and hedged items, as well as risk managementobjectives and strategies for undertaking various hedge transactions.

 

Changes in the fair value of a derivativethat is highly effective and that is designated and qualifies as a cash flowhedge (a “swap”), to the extent that the hedge is effective, are recorded inaccumulated other comprehensive loss, until earnings are affected by thevariability of cash flows of the hedged transaction.  The Company measures effectiveness of theswap at each quarter end using the Hypothetical Derivative Method.  Under this method, hedge effectiveness ismeasured based on a comparison of the change in fair value of the actual swapdesignated as the hedging instrument and the change in fair value of the hypotheticalswap which would have the terms that identically match the critical terms ofthe hedged cash flows from the anticipated debt issuance.  The amount of ineffectiveness, if any,recorded in earnings would be equal to the excess of the cumulative change inthe fair value of the swap over the cumulative change in the fair value of theplain vanilla swap lock, as defined in the accounting literature.  Once a swap is settled, the effective portionis amortized over the estimated life of the hedge item.

 

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

 

*FairValue Measurements*

 

As discussed in Note 2 to the unauditedcondensed consolidated financial statements, the Company adopted the provisionsof Statement 157 effective January 1, 2008.  The Company has determined that it utilizesobservable (Level 2) inputs in determining the fair value of its interest rateswap which totaled $8.9 million at March 31, 2008.

 

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*Income Taxes*

 

Significant judgment is required in determining the Company’s taxprovision and in evaluating its tax positions. The Company establishes accruals for certain tax contingencies when,despite the belief that the Company’s tax return positions are fully supported,the Company believes that certain positions may be challenged and that theCompany’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 and penalties, as considered appropriate by management.

 

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

 

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

 

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

 

*InterestRate Sensitivity Analysis*

 

At March 31,2008, we had debt totaling $406.5 million, comprised of $37.8 million ofvariable rate debt and $368.7 million of fixed rate debt, comprised of $100.0million of debt fixed through the interest rate swap agreement dated October 15,2007, $152.4 million of Senior Notes, $111.3 million of AGHI Notes and $5.0million of purchase debt.  Holding othervariables constant (such as debt levels), the earnings and cash flow impact ofa one-percentage point increase/ decrease in interest rates would have an unfavorable/favorable impact of approximately $0.4 million. The new interest rate swap agreement dated March 19, 2008 to fix anadditional $35.0 million of debt is effective in April 30, 2008.

 

*CreditRisk*

 

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

 

**ITEM 4: CONTROLS AND PROCEDURES**

 

Within 90 days prior to the filing of this Quarterly Report on Form 10-Q,the Company carried out an evaluation, under the supervision and with theparticipation of the Company’s management, including the President and ChiefExecutive Officer and the Senior Vice 

 

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President and Chief Financial Officer, of the effectiveness of thedesign and operation of the Company’s disclosure controls and procedurespursuant to Regulation 13a-15(e) under the Securities Exchange Act of1934, as amended.  Based upon thatevaluation, the President and Chief Executive Officer along with the Senior VicePresident and Chief Financial Officer concluded that the disclosure controlsand procedures are effective in timely alerting them to material informationrelating to the Company (including its consolidated subsidiaries) required tobe included in the periodic SEC filings. Management determined that, as of March 31, 2008, there have beenno significant changes in the Company’s internal control over financialreporting or in other factors that could significantly affect these controlssubsequent to the date the Company carried out its evaluation.

 

**PART II: OTHER INFORMATION.**

 

**ITEM 5: OTHER INFORMATION**

 

Townsend C. Smithwas elected to the Company’s board of directors on March 3, 2008.  As a non-management director, Mr. Smithwill receive a director fee of $1,800 per month.  Mr. Smith is a Managing Director andMarket Manager of the JP Morgan Private Bank. Mr. Smith is also a member of the Board of Directors of AdamsOutdoor Advertising Inc.

 

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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, 2008 |       | Thomas F. Wolfe                   |
|                    |       | Senior Vice  President and        |
|                    |       | Chief Financial  Officer          |

 

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