**UNITEDSTATES**

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

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

**FORM 10-Q**

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

**TheSecurities Exchange Act of 1934**

| **For Quarter Ended:** |   | **Commission  File Number** |
|------------------------|--------|-----------------------------|
| **June  30, 2006**     |   | **333-124109**              |

 

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**AFFINITY GROUP HOLDING, INC.**

(Exact name ofregistrant as specified in its charter)

| **Delaware**                              |   | **20-2428068**                        |
|-------------------------------------------|--------|---------------------------------------|
| (State of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |

 

| **2575 Vista Del Mar Drive**              | ** ** | **(805)  667-4100**           |
|-------------------------------------------|------------|-------------------------------|
| **Ventura,  CA 93001**                    | ** ** | (Registrant’s  telephone |
| (Address of  principal executive offices) |       | number,  including area code) |

 

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

SECURITIES REGISTEREDPURSUANT TO SECTION 12 (g) OF THE ACT:

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

Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15 (d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

YES  x                                  NO  o

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

| Large accelerated filer |   | o |   | Accelerated filer |   | o |   | Non-accelerated filer |   | x |
|-------------------------|--------|---|--------|-------------------|--------|---|--------|-----------------------|--------|---|

 

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

YES  o                                   NO  x

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

|                               |   | **Outstanding  as of** |
|-------------------------------|--------|------------------------|
| **Class**                     |   | **August  14, 2006**   |
| Common Stock,  $.01 par value |   | 100                    |

** **

DOCUMENTSINCORPORATED BY REFERENCE:**  None**

 

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**AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES**

**INDEX**
| **Part I. Financial Information**                                                                        |   |   |
|----------------------------------------------------------------------------------------------------------|--------|--------|
| ** **                                                                                               |   |   |
| **Item 1:  Financial Statements**                                                                        |   |   |
| ** **                                                                                               |   |   |
| Consolidated Balance  Sheets  As of June 30, 2006 (unaudited) and December 31, 2005                      |   |   |
|                                                                                                     |   |   |
| Unaudited  Consolidated Statements of Operations  For the three months ended June 30, 2006 and 2005      |   |   |
|                                                                                                     |   |   |
| Unaudited  Consolidated Statements of Operations  For the six months ended June 30, 2006 and 2005        |   |   |
|                                                                                                     |   |   |
| Unaudited  Consolidated Statements of Cash Flows  For the six months ended June 30, 2006 and 2005        |   |   |
|                                                                                                     |   |   |
| Notes to  Unaudited Consolidated Financial Statements                                                    |   |   |
|                                                                                                     |   |   |
| **Item 2: Management’s Discussion and  Analysis of  Financial Condition and Results of Operations** |   |   |
| ** **                                                                                               |   |   |
| **Item 3:  Quantitative and Qualitative Disclosures about Market Risk**                                  |   |   |
| ** **                                                                                               |   |   |
| **Item 4: Control and  Procedures**                                                                      |   |   |
| ** **                                                                                               |   |   |
| **Part II. Other  Information**                                                                          |   |   |
| ** **                                                                                               |   |   |
| **Signatures**                                                                                           |   |   |

 

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AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

June30, 2006 and December 31, 2005

(InThousands)

 
| ** **                                                                                     | ** ** | **6/30/2006**   | ** ** | **12/31/2005** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|
| ** **                                                                                     | ** ** | **(Unaudited)** | ** ** | ** **     | ** ** |
| **ASSETS**                                                                                     |       |            |       |           |       |
| CURRENT ASSETS:                                                                                |       |            |       |           |       |
| Cash and cash  equivalents                                                                     |       | $               | 12,342     |           | $          | 25,061 |   |
| Accounts  receivable, less allowance for doubtful accounts of $1,128 in 2006 and $952  in 2005 |       | 22,301          |       | 26,508         |       |
| Inventories                                                                                    |       | 50,906          |       | 47,039         |       |
| Prepaid expenses  and other assets                                                             |       | 14,958          |       | 11,218         |       |
| Deferred tax  assets, net                                                                      |       | 1,713           |       | 4,995          |       |
| Total current  assets                                                                          |       | 102,220         |       | 114,821        |       |
|                                                                                           |       |            |       |           |       |
| PROPERTY AND  EQUIPMENT, net                                                                   |       | 31,978          |       | 29,843         |       |
| INVESTMENT IN  AFFILIATE                                                                       |       | 81,005          |       | 81,005         |       |
| NOTE FROM  AFFILIATE                                                                           |       | 4,705           |       | 4,722          |       |
| INTANGIBLE  ASSETS, net                                                                        |       | 35,168          |       | 37,724         |       |
| GOODWILL                                                                                       |       | 144,429         |       | 144,429        |       |
| DEFERRED TAX  ASSETS, net                                                                      |       | —          |       | 4,620          |       |
| OTHER ASSETS                                                                                   |       | 1,686           |       | 1,731          |       |
| Total assets                                                                                   |       | $               | 401,191    |           | $          | 418,895 |   |
| **LIABILITIES AND STOCKHOLDER’S  DEFICIT**                                                |       |            |       |           |       |
| CURRENT  LIABILITIES:                                                                          |       |            |       |           |       |
| Accounts payable                                                                               |       | $               | 22,585     |           | $          | 12,683 |   |
| Accrued interest                                                                               |       | 6,135           |       | 6,897          |       |
| Accrued income  taxes                                                                          |       | 906             |       | 465            |       |
| Accrued liabilities                                                                            |       | 38,753          |       | 34,094         |       |
| Deferred  revenues and gains                                                                   |       | 63,542          |       | 60,994         |       |
| Current portion  of long-term debt                                                             |       | 3,571           |       | 6,136          |       |
| Total current  liabilities                                                                     |       | 135,492         |       | 121,269        |       |
|                                                                                           |       |            |       |           |       |
| DEFERRED  REVENUES AND GAINS                                                                   |       | 38,819          |       | 37,926         |       |
| LONG-TERM DEBT,  net of current portion                                                        |       | 386,306         |       | 406,528        |       |
| DEFERRED TAX  LIABILITY                                                                        |       | 16,531          |       | —         |       |
| OTHER LONG-TERM  LIABILITIES                                                                   |       | 2,793           |       | 5,641          |       |
|                                                                                           |       | 579,941         |       | 571,364        |       |
| COMMITMENTS AND  CONTINGENCIES                                                                 |       |            |       |           |       |
|                                                                                           |       |            |       |           |       |
| STOCKHOLDER’S  DEFICIT:                                                                   |       |            |       |           |       |
| Common stock,  $.01 par value, 3,000 shares authorized, 100 shares issued and outstanding      |       | 1               |       | 1              |       |
| Accumulated  deficit                                                                           |       | (178,751        | )          | (152,470       | )          |
| Total  stockholder’s deficit                                                              |       | (178,750        | )          | (152,469       | )          |
| Total liabilities and  stockholder’s deficit                                              |       | $               | 401,191    |           | $          | 418,895 |   |

 

See notes to consolidated financial statements.

 

1

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AFFINITY GROUP HOLDING, INC.AND SUBSIDIARIES

CONSOLIDATEDSTATEMENTS OF OPERATIONS

(In Thousands)

(Unaudited)

 
| ** **                                  | ** ** | **THREE MONTHS ENDED** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **6/30/2006**                    | ** ** | **6/30/2005** | ** ** |
|                                        |       |                             |       |   |   |
| REVENUES:                                   |       |                             |       |   |   |
| Membership services                         |       | $                                | 37,512     |   | $ | 34,401 |   |
| Publications                                |       | 16,584                           |       | 15,301 |   |
| Retail                                      |       | 84,907                           |       | 83,510 |   |
|                                        |       | 139,003                          |       | 133,212 |   |
|                                        |       |                             |       |   |   |
| COSTS APPLICABLE  TO REVENUES:              |       |                             |       |   |   |
| Membership services                         |       | 25,007                           |       | 22,301 |   |
| Publications                                |       | 11,638                           |       | 10,238 |   |
| Retail                                      |       | 51,064                           |       | 50,098 |   |
|                                        |       | 87,709                           |       | 82,637 |   |
|                                        |       |                             |       |   |   |
| GROSS PROFIT                                |       | 51,294                           |       | 50,575 |   |
|                                        |       |                             |       |   |   |
| OPERATING EXPENSES:                         |       |                             |       |   |   |
| Selling, general and administrative         |       | 35,129                           |       | 32,702 |   |
| Depreciation and amortization               |       | 4,722                            |       | 3,947 |   |
|                                        |       | 39,851                           |       | 36,649 |   |
|                                        |       |                             |       |   |   |
| INCOME FROM  OPERATIONS                     |       | 11,443                           |       | 13,926 |   |
|                                        |       |                             |       |   |   |
| NON-OPERATING  ITEMS:                       |       |                             |       |   |   |
| Interest income                             |       | 395                              |       | 178 |   |
| Interest expense                            |       | (9,401                           | )          | (8,804 | ) |
| Debt extinguishment expense                 |       | (693                             | )          | — |   |
| Other non-operating items, net              |       | 20                               |       | 14 |   |
|                                        |       | (9,679                           | )          | (8,612 | ) |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES |       | 1,764                            |       | 5,314 |   |
|                                        |       |                             |       |   |   |
| INCOME TAX  EXPENSE                         |       | (24,442                          | )          | (1,780 | ) |
|                                        |       |                             |       |   |   |
| NET (LOSS)  INCOME                          |       | $                                | (22,678    | ) | $ | 3,534 |   |

 

See notes to consolidated financial statements.

2

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AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands)

(Unaudited)

 
| ** **                                  | ** ** | **SIX MONTHS ENDED** | ** ** |
|---------------------------------------------|------------|--------------------------------|------------|
| ** **                                  | ** ** | **6/30/2006**                  | ** ** | **6/30/2005** | ** ** |
| ** **                                  | ** ** | ** **                     | ** ** | ** ** | ** ** |
| REVENUES:                                   |       |                           |       |   |   |
| Membership services                         |       | $                              | 70,460     |   | $ | 66,824 |   |
| Publications                                |       | 39,687                         |       | 32,499 |   |
| Retail                                      |       | 145,726                        |       | 142,576 |   |
|                                        |       | 255,873                        |       | 241,899 |   |
|                                        |       |                           |       |   |   |
| COSTS APPLICABLE  TO REVENUES:              |       |                           |       |   |   |
| Membership services                         |       | 46,123                         |       | 42,502 |   |
| Publications                                |       | 26,213                         |       | 21,759 |   |
| Retail                                      |       | 87,467                         |       | 84,392 |   |
|                                        |       | 159,803                        |       | 148,653 |   |
|                                        |       |                           |       |   |   |
| GROSS PROFIT                                |       | 96,070                         |       | 93,246 |   |
|                                        |       |                           |       |   |   |
| OPERATING  EXPENSES:                        |       |                           |       |   |   |
| Selling, general and administrative         |       | 65,362                         |       | 62,723 |   |
| Depreciation and amortization               |       | 9,372                          |       | 7,654 |   |
|                                        |       | 74,734                         |       | 70,377 |   |
|                                        |       |                           |       |   |   |
| INCOME FROM  OPERATIONS                     |       | 21,336                         |       | 22,869 |   |
|                                        |       |                           |       |   |   |
| NON-OPERATING  ITEMS:                       |       |                           |       |   |   |
| Interest income                             |       | 724                            |       | 344 |   |
| Interest expense                            |       | (18,668                        | )          | (15,180 | ) |
| Debt extinguishment expense                 |       | (693                           | )          | — |   |
| Other non-operating items, net              |       | 53                             |       | 30 |   |
|                                        |       | (18,584                        | )          | (14,806 | ) |
|                                        |       |                           |       |   |   |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES |       | 2,752                          |       | 8,063 |   |
|                                        |       |                           |       |   |   |
| INCOME TAX  EXPENSE                         |       | (24,870                        | )          | (2,852 | ) |
|                                        |       |                           |       |   |   |
| NET (LOSS) INCOME                           |       | $                              | (22,118    | ) | $ | 5,211 |   |

 

See notes to consolidated financial statements.

3

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AFFINITYGROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(InThousands)

(Unaudited)

 
| ** **                                                                                | ** ** | **SIX MONTHS ENDED** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                | ** ** | **6/30/2006**                  | ** ** | **6/30/2005** | ** ** |
| ** **                                                                                | ** ** | ** **                     | ** ** | ** ** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                    |       |                           |       |   |   |
| Net (loss) income                                                                         |       | $                              | (22,118    | ) | $ | 5,211 |   |
| Adjustments to reconcile net (loss) income to net  cash provided by operating activities: |       |                           |       |   |   |
| Depreciation                                                                              |       | 5,030                          |       | 4,570 |   |
| Amortization                                                                              |       | 4,342                          |       | 3,084 |   |
| Provision for losses on accounts receivable                                               |       | 431                            |       | 483 |   |
| Deferred compensation                                                                     |       | 140                            |       | 1,650 |   |
| Deferred tax expense (benefit)                                                            |       | 24,432                         |       | (1,988 | ) |
| (Gain) loss on sale of property and equipment                                             |       | (13                            | )          | 2 |   |
| Loss on early extinguishment of debt                                                      |       | 693                            |       | — |   |
| Non-cash interest on AGHI Notes                                                           |       | 5,205                          |       | 2,585 |   |
| Accretion of original issue discount                                                      |       | 123                            |       | 49 |   |
| Changes in operating assets and liabilities                                               |       |                           |       |   |   |
| Accounts receivable                                                                       |       | 3,776                          |       | 2,855 |   |
| Inventories                                                                               |       | (3,867                         | )          | (9,630 | ) |
| Prepaid expenses and other assets                                                         |       | (3,438                         | )          | (3,810 | ) |
| Accounts payable                                                                          |       | 9,902                          |       | 10,288 |   |
| Accrued and other liabilities                                                             |       | (212                           | )          | 428 |   |
| Deferred revenues and gains                                                               |       | 2,438                          |       | 4,575 |   |
| Net cash provided by operating activities                                                 |       | 26,864                         |       | 20,352 |   |
|                                                                                      |       |                           |       |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                    |       |                           |       |   |   |
| Capital expenditures                                                                      |       | (7,244                         | )          | (4,827 | ) |
| Net proceeds from sale of property and equipment                                          |       | 124                            |       | 27 |   |
| Additions to intangible assets                                                            |       | (4                             | )          | (26 | ) |
| Investment in affiliate                                                                   |       | —                         |       | (81,005 | ) |
| Acquisitions, net of cash received                                                        |       | (1,334                         | )          | (2,639 | ) |
| Loans receivable                                                                          |       | 17                             |       | 15 |   |
| Net cash used in investing activities                                                     |       | (8,441                         | )          | (88,455 | ) |
|                                                                                      |       |                           |       |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                    |       |                           |       |   |   |
| Dividends paid                                                                            |       | (2,600                         | )          | — |   |
| Borrowings on long-term debt                                                              |       | —                         |       | 85,005 |   |
| Payment of debt issue costs                                                               |       | —                         |       | (3,564 | ) |
| Principal payments of long-term debt                                                      |       | (28,542                        | )          | (700 | ) |
| Net cash (used in) provided by financing activities                                       |       | (31,142                        | )          | 80,741 |   |
|                                                                                      |       |                           |       |   |   |
| NET CHANGE IN  CASH AND CASH EQUIVALENTS                                                  |       | (12,719                        | )          | 12,638 |   |
|                                                                                      |       |                           |       |   |   |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF YEAR                                           |       | 25,061                         |       | 24,564 |   |
|                                                                                      |       |                           |       |   |   |
| CASH AND CASH  EQUIVALENTS AT END OF PERIOD                                               |       | $                              | 12,342     |   | $ | 37,202 |   |

 

See notes to consolidated financial statements.

4

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

**Notes toConsolidated Financial Statements**

**(Unaudited)**

**(1) BASIS OF PRESENTATION**

*Principles of Consolidation**—*The consolidated financial statementsincluded herein include the accounts of Affinity Group Holding, Inc. (“AGHI”),its wholly-owned subsidiary, Affinity Group, Inc (“AGI”), and AGI’ssubsidiaries (collectively the “Company”), in accordance with U.S. generallyaccepted accounting principles, and pursuant to the rules and regulations ofthe Securities and Exchange Commission. AGHI was formed on March 2, 2005, at which time all of the stock of AGIwas contributed to AGHI from its parent, AGI Holding Corp. (“AGHC”) aprivately-owned corporation.

On March 7, 2006, AGHCfiled an election with the Internal Revenue Service to change its tax statusfrom a Subchapter C corporation to a Subchapter S corporation (“S corporation”).  This change of tax status election was to beeffective as of January 1, 2006. The election for change in tax status to an Scorporation included AGHC and all its subsidiaries with the exception ofCamping World, Inc. and its wholly-owned subsidiaries, which are to remainSubchapter C corporations.  During thefirst quarter of 2006, the Company continued to file as Subchapter C corporationssince AGHC had not received approval from the IRS regarding its S corporationchange of tax status election.  As such,the Company recorded a $1.5 million tax provision for the first quarter of2006.   Approval for the S corporationchange of tax status election was received from the IRS in the second quarterof 2006.  This approval for change in taxstatus was granted retroactive to January 1, 2006. Pursuant to FAS 109, “Accountingfor Income taxes”, a change in tax status resulting from an S corporationelection requires that all deferred tax accounts be revalued upon formalapproval of the S corporation status. Accordingly, all deferred tax accounts of AGHC and its subsidiaries,excluding Camping World, Inc. and its wholly owned subsidiaries, were revaluedto account for the tax effect for the change to the S corporation status.  The effect of this revaluation on thedeferred tax accounts has been recorded in the income tax provision in thesecond quarter.

Theseinterim consolidated financial statements should be read in conjunction withthe Company’s consolidated financial statements and notes in the Company’s 10-Kreport for the year ended December 31, 2005 as filed with the Securities andExchange Commission.  In the opinion ofmanagement of the Company, these consolidated financial statements contain alladjustments of a normal recurring nature necessary to present fairly thefinancial position, results of operations and cash flows of the Company for theinterim periods presented.

5

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**(2) RECENT ACCOUNTING PRONOUNCEMENTS**

InJuly 2006, the FASB issued Interpretation No. 48 (“FIN No. 48”), “Accountingfor Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109.”FIN No. 48 clarifies the accounting for uncertainty in income taxes recognizedin an enterprise’s financial statements in accordance with SFAS No. 109. FINNo. 48 also prescribes a recognition threshold and measurement attribute forthe financial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. FIN No. 48 also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure, and transition. The provisions of FIN No. 48 are effectivefor fiscal years beginning after December 15, 2006. The Company is currentlyassessing the possible impact implementing FIN No. 48 may have on its financialposition and results of operations.

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

TheCompany’s three principal lines of business are Membership Services,Publications, and Retail.  The MembershipServices segment includes the operations of the Good Sam Club, Coast to CoastClub, Camping World’s President’s Club and Camp Club USA for recreationalvehicle (“RV”) owners, campers and outdoor vacationers, and the Golf Card Clubfor golf enthusiasts.  The Publicationssegment publishes a variety of publications for selected markets in therecreation and leisure industry, including general circulation periodicals,directories, and RV and powersports industry trade magazines, and producesoutdoor recreational consumer events. The Retail segment sells specialty retail merchandise and services forRV owners primarily through Camping World retail supercenters, mail ordercatalogs and its website.  The Companyevaluates performance based on profit or loss from operations before incometaxes.

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

6

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

TheCompany does not allocate income taxes or unusual items to segments.  Financial information by reportable businesssegment is summarized as follows (in thousands):
| ** **                                    | ** ** | **Membership** | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
|-----------------------------------------------|------------|----------------|------------|------------------|------------|------------|------------|------------------|------------|
| ** **                                    | ** ** | **Services**   | ** ** | **Publications** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **THREE  MONTHS ENDED JUNE 30, 2006**         |       |           |       |             |       |       |       |             |       |
| Revenues from external customers              |       | $              | 37,512     |             | $          | 16,584     |       | $                | 84,907     |   | $ | 139,003 |   |
| Depreciation and amortization                 |       | 889            |       | 1,059            |       | 2,029      |       | 3,977            |       |
| Gain on sale of property and equipment        |       | —         |       | —           |       | 2          |       | 2                |       |
| Interest income                               |       | 1,563          |       | —           |       | 1          |       | 1,564            |       |
| Interest expense                              |       | —         |       | 87               |       | 3,483      |       | 3,570            |       |
| Segment operating profit                      |       | 11,215         |       | 2,722            |       | 512        |       | 14,449           |       |
|                                          |       |           |       |             |       |       |       |             |       |
| **THREE  MONTHS ENDED JUNE 30, 2005**         |       |           |       |             |       |       |       |             |       |
| Revenues from external customers              |       | 34,401         |       | 15,301           |       | 83,510     |       | 133,212          |       |
| Depreciation and amortization                 |       | 787            |       | 542              |       | 1,770      |       | 3,099            |       |
| Gain (loss) on sale of property and equipment |       | —         |       | (5               | )          | 3          |       | (2               | )          |
| Interest income                               |       | 1,167          |       | —           |       | 3          |       | 1,170            |       |
| Interest expense                              |       | —         |       | 69               |       | 2,622      |       | 2,691            |       |
| Segment  operating profit                     |       | 10,653         |       | 3,763            |       | 3,446      |       | 17,862           |       |
|                                               |            |                |            |                  |            |            |            |                  |            |  |  |  |  |

 
| ** **                                    | ** ** | **Membership** | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
|-----------------------------------------------|------------|----------------|------------|------------------|------------|------------|------------|------------------|------------|
| ** **                                    | ** ** | **Services**   | ** ** | **Publications** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **SIX  MONTHS ENDED JUNE 30, 2006**           |       |           |       |             |       |       |       |             |       |
| Revenues from external customers              |       | $              | 70,460     |             | $          | 39,687     |       | $                | 145,726    |   | $ | 255,873 |   |
| Depreciation and amortization                 |       | 1,799          |       | 2,079            |       | 4,006      |       | 7,884            |       |
| Gain on sale of property and equipment        |       | —         |       | 5                |       | 8          |       | 13               |       |
| Interest income                               |       | 2,939          |       | —           |       | 6          |       | 2,945            |       |
| Interest expense                              |       | —         |       | 181              |       | 6,979      |       | 7,160            |       |
| Segment operating profit (loss)               |       | 21,687         |       | 9,184            |       | (3,807     | )          | 27,064           |       |
|                                          |       |           |       |             |       |       |       |             |       |
| **SIX  MONTHS ENDED JUNE 30, 2005**           |       |           |       |             |       |       |       |             |       |
| Revenues from external customers              |       | 66,824         |       | 32,499           |       | 142,576    |       | 241,899          |       |
| Depreciation and amortization                 |       | 1,759          |       | 1,016            |       | 3,488      |       | 6,263            |       |
| Gain (loss) on sale of property and equipment |       | —         |       | (5               | )          | 3          |       | (2               | )          |
| Interest income                               |       | 2,170          |       | —           |       | 5          |       | 2,175            |       |
| Interest expense                              |       | —         |       | 159              |       | 5,212      |       | 5,371            |       |
| Segment  operating profit                     |       | 21,012         |       | 8,191            |       | 1,788      |       | 30,991           |       |
|                                               |            |                |            |                  |            |            |            |                  |            |  |  |  |  |

 

7

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The following is areconciliation of income from operations to the Company’s consolidatedfinancial statements for the three and six months ended June 30, (inthousands):
| ** **                                                     | ** ** | **THREE MONTHS ENDED** | ** ** | **SIX MONTHS ENDED** | ** ** |
|----------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                     | ** ** | **6/30/2006**                    | ** ** | **6/30/2005**                  | ** ** | **6/30/2006** | ** ** | **6/30/2005** | ** ** |
| **Income  From Operations Before Taxes**                       |       |                             |       |                           |       |   |   |   |   |
| Total profit for  reportable segments                          |       | $                                | 14,449     |                           | $          | 17,862 |   | $ | 27,064 |   | $ | 30,991 |   |
| Unallocated G  & A expense                                 |       | (4,247                           | )          | (4,595                         | )          | (8,402 | ) | (9,897 | ) |
| Unallocated  depreciation and amortization expense             |       | (745                             | )          | (848                           | )          | (1,488 | ) | (1,391 | ) |
| Unallocated  interest income, net of intercompany elimination  |       | (1,169                           | )          | (992                           | )          | (2,221 | ) | (1,831 | ) |
| Unallocated  interest expense, net of intercompany elimination |       | (5,831                           | )          | (6,113                         | )          | (11,508 | ) | (9,809 | ) |
| Unallocated debt  restructure expense                          |       | (693                             | )          | —                         |       | (693 | ) | — |   |
| Income from operations before taxes                            |       | $                                | 1,764      |                           | $          | 5,314 |   | $ | 2,752 |   | $ | 8,063 |   |

 

Thefollowing is a reconciliation of assets of reportable segments to the Company’sconsolidated financial statements as of June 30, 2006 and December 31, 2005 (inthousands):

|                                                      | ** ** | **6/30/2006** | ** ** | **12/31/2005** | ** ** |
|------------------------------------------------------|------------|---------------|------------|----------------|------------|
| Membership services  segment                         |       | $             | 164,711    |           | $          | 162,562 |   |
| Publications  segment                                |       | 86,405        |       | 89,104         |       |
| Retail segment                                       |       | 216,381       |       | 207,736        |       |
| Total assets for  reportable segments                |       | 467,497       |       | 459,402        |       |
| Capitalized  finance costs not allocated to segments |       | 10,942        |       | 12,720         |       |
| Corporate  unallocated assets                        |       | 8,579         |       | 16,659         |       |
| Elimination of  intersegment receivable              |       | (85,827       | )          | (69,886        | )          |
| Total assets                                         |       | $             | 401,191    |           | $          | 418,895 |   |

 

8

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**(4)STATEMENTS OF CASH FLOWS**

Supplemental disclosuresof cash flow information for the six months ended June 30, (in thousands):

|                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
| Cash paid during  the period for: |       |     |       |     |       |
| Interest                          |       | $        | 14,123     |     | $          | 12,382 |   |
| Income taxes                      |       | 75       |       | 5,138    |       |
|                                   |            |          |            |          |            |  |  |

 

In February 2006, theCompany assumed $1.4 million of liabilities and issued $0.4 million of debt inthe acquisition of Plus Events consumer shows and related assets of H & SProductions, LLC.

On March 7, 2006, AGHCmade an S corporation change of tax status election effective for 2006, whichincluded AGHI and all its subsidiaries with the exception of Camping World, Inc.and its wholly-owned subsidiaries, which will remain Subchapter Ccorporations.  With the exception ofbuilt-in gains taxes, S corporations do not pay income taxes but pass theincome and related income tax liability through to their stockholders.  To assist the stockholder with its income taxliability, the Company made distributions of $2.6 million to the stockholder inthe form of a dividend in March 2006.

**(5)GOODWILL AND INTANGIBLE ASSETS**

The Company reviewsgoodwill and indefinite-lived intangible assets for impairment at leastannually.  The Company performs itsannual impairment test during the fourth quarter.  Based on the results of this test, werecorded an impairment charge of $4.3 million in 2005 related to Golf CardClub, which is included in the membership services segment.

There were no changes inthe Company’s goodwill by business segment for the six months ended June 30,2006 and 2005.

Finite lived intangibleassets, related accumulated amortization and weighted average useful lifeconsisted of the following at June 30, 2006 (in thousands, except as noted):
| ** **                                       | ** ** | **Weighted**                  | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|-------------------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                                       | ** ** | **Average Useful**       | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | **Life (in years)** | ** ** | **Gross**  | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
|                                             |       |                          |       |       |       |             |       |       |       |
| Membership and  customer lists                   |       | 6                             |       | $          | 26,940     |             | $          | (9,193     | )          | $ | 17,747 |   |
| Resort and golf  course participation agreements |       | 23                            |       | 13,515     |       | (12,074          | )          | 1,441      |       |
| Non-compete and  deferred consulting agreements  |       | 15                            |       | 18,455     |       | (12,065          | )          | 6,390      |       |
| Deferred  financing costs                        |       | 7                             |       | 14,483     |       | (4,893           | )          | 9,590      |       |
|                                             |       |                          |       | $          | 73,393     |             | $          | (38,225    | )          | $ | 35,168 |   |

 

9

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**(6) AGHI NOTES**

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

**(7)RECENT EVENTS**

OnMarch 6, 2006, Camping World, Inc. (“Camping World”), a wholly-owned subsidiaryof Affinity Group, Inc., entered into a Joint Venture Agreement withFreedomRoads Holding Company, LLC, a Minnesota limited liability company(“FreedomRoads”).  FreedomRoads isindirectly owned and controlled by Stephen Adams, the Chairman and indirect controllingshareholder of Affinity Group Holding, Inc. FreedomRoads, through its wholly-owned subsidiaries, owns and operatesRV dealerships across the United States. The Joint Venture Agreement provides that Camping World and FreedomRoadsare to act cooperatively with a view to maximizing synergies and to locate,establish and utilize mutually beneficial relationships that are available onlyto the parties acting together that would not otherwise be available to eitherparty independently.

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**ITEM2:**

AFFINITY GROUP HOLDING, INC.AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

 

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

 
| ** **                                  | ** ** | **THREE MONTHS ENDED** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **6/30/2006**                    | ** ** | **6/30/2005** | ** ** | **Inc/(Dec)** | ** ** |
|                                        |       |                             |       |   |   |   |   |
| REVENUES:                                   |       |                             |       |   |   |   |   |
| Membership services                         |       | 27.0                             | %          | 25.8 | % | 9.0 | % |
| Publications                                |       | 11.9                             | %          | 11.5 | % | 8.4 | % |
| Retail                                      |       | 61.1                             | %          | 62.7 | % | 1.7 | % |
|                                        |       | 100.0                            | %          | 100.0 | % | 4.3 | % |
|                                        |       |                             |       |   |   |   |   |
| COSTS APPLICABLE  TO REVENUES:              |       |                             |       |   |   |   |   |
| Membership services                         |       | 18.0                             | %          | 16.7 | % | 12.1 | % |
| Publications                                |       | 8.4                              | %          | 7.7 | % | 13.7 | % |
| Retail                                      |       | 36.7                             | %          | 37.6 | % | 1.9 | % |
|                                        |       | 63.1                             | %          | 62.0 | % | 6.1 | % |
|                                        |       |                             |       |   |   |   |   |
| GROSS PROFIT                                |       | 36.9                             | %          | 38.0 | % | 1.4 | % |
|                                        |       |                             |       |   |   |   |   |
| OPERATING  EXPENSES:                        |       |                             |       |   |   |   |   |
| Selling, general and administrative         |       | 25.3                             | %          | 24.5 | % | 7.4 | % |
| Depreciation and amortization               |       | 3.4                              | %          | 3.0 | % | 19.6 | % |
|                                        |       | 28.7                             | %          | 27.5 | % | 8.7 | % |
|                                        |       |                             |       |   |   |   |   |
| INCOME FROM  OPERATIONS                     |       | 8.2                              | %          | 10.5 | % | (17.8 | )% |
|                                        |       |                             |       |   |   |   |   |
| NON-OPERATING  ITEMS:                       |       |                             |       |   |   |   |   |
| Interest income                             |       | 0.3                              | %          | 0.1 | % | 121.9 | % |
| Interest expense                            |       | (6.7                             | )%         | (6.6 | )% | 6.8 | % |
| Debt extinguishment expense                 |       | (0.5                             | )%         | — |   | 100.0 | % |
| Other non-operating items, net              |       | —                           |       | — |   | 42.9 | % |
|                                        |       | (6.9                             | )%         | (6.5 | )% | 12.4 | % |
|                                        |       |                             |       |   |   |   |   |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES |       | 1.3                              | %          | 4.0 | % | (66.8 | )% |
|                                        |       |                             |       |   |   |   |   |
| INCOME TAX  EXPENSE                         |       | (17.6                            | )%         | (1.3 | )% | 1273.1 | % |
|                                        |       |                             |       |   |   |   |   |
| NET (LOSS) INCOME                           |       | (16.3                            | )%         | 2.7 | % | (741.7 | )% |

 

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AFFINITY GROUP HOLDING, INC.AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

 

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

 
| ** **                                  | ** ** | **SIX MONTHS ENDED** | ** ** |
|---------------------------------------------|------------|--------------------------------|------------|
| ** **                                  | ** ** | **6/30/2006**                  | ** ** | **6/30/2005** | ** ** | **Inc/(Dec)** | ** ** |
|                                        |       |                           |       |   |   |   |   |
| REVENUES:                                   |       |                           |       |   |   |   |   |
| Membership services                         |       | 27.5                           | %          | 27.6 | % | 5.4 | % |
| Publications                                |       | 15.5                           | %          | 13.4 | % | 22.1 | % |
| Retail                                      |       | 57.0                           | %          | 59.0 | % | 2.2 | % |
|                                        |       | 100.0                          | %          | 100.0 | % | 5.8 | % |
|                                        |       |                           |       |   |   |   |   |
| COSTS APPLICABLE  TO REVENUES:              |       |                           |       |   |   |   |   |
| Membership services                         |       | 18.0                           | %          | 17.6 | % | 8.5 | % |
| Publications                                |       | 10.2                           | %          | 9.0 | % | 20.5 | % |
| Retail                                      |       | 34.2                           | %          | 34.9 | % | 3.6 | % |
|                                        |       | 62.5                           | %          | 61.5 | % | 7.5 | % |
|                                        |       |                           |       |   |   |   |   |
| GROSS PROFIT                                |       | 37.5                           | %          | 38.5 | % | 3.0 | % |
|                                        |       |                           |       |   |   |   |   |
| OPERATING  EXPENSES:                        |       |                           |       |   |   |   |   |
| Selling, general and administrative         |       | 25.5                           | %          | 25.8 | % | 4.2 | % |
| Depreciation and amortization               |       | 3.7                            | %          | 3.2 | % | 22.4 | % |
|                                        |       | 29.2                           | %          | 29.0 | % | 6.2 | % |
|                                        |       |                           |       |   |   |   |   |
| INCOME FROM  OPERATIONS                     |       | 8.3                            | %          | 9.5 | % | (6.7 | )% |
|                                        |       |                           |       |   |   |   |   |
| NON-OPERATING  ITEMS:                       |       |                           |       |   |   |   |   |
| Interest income                             |       | 0.3                            | %          | 0.1 | % | 110.5 | % |
| Interest expense                            |       | (7.2                           | )%         | (6.3 | )% | 23.0 | % |
| Debt extinguishment expense                 |       | (0.3                           | )%         | — |   | 100.0 | % |
| Other non-operating items, net              |       | —                         |       | — |   | 76.7 | % |
|                                        |       | (7.2                           | )%         | (6.2 | )% | 25.5 | % |
|                                        |       |                           |       |   |   |   |   |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES |       | 1.1                            | %          | 3.3 | % | (65.9 | )% |
|                                        |       |                           |       |   |   |   |   |
| INCOME TAX  EXPENSE                         |       | (9.7                           | )%         | (1.1 | )% | 772.0 | % |
|                                        |       |                           |       |   |   |   |   |
| NET (LOSS) INCOME                           |       | (8.6                           | )%         | 2.2 | % | (524.4 | )% |

 

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**RESULTSOF OPERATIONS**

**Three Months Ended June 30, 2006Compared With Three Months Ended June 30, 2005**

*Revenues*

Revenuesof $139.0 million for the second quarter of 2006 increased by $5.8 million, or4.3%, from the comparable period in 2005.

Membershipservices revenues of $37.5 million for the second quarter of 2006 increased by$3.1 million, or 9.0%, from the comparable period in 2005.  This revenue increase was largelyattributable to a $1.9 million increase in member events revenue primarily dueto timing of the Good Sam Club annual rally, which occurred in the secondquarter of 2006 versus the third quarter of 2005, an $0.8 million increase inextended vehicle warranty program revenue due to the continued growth ofcontracts in force, a $0.3 million revenue increase in emergency road serviceprograms due to increased enrollment and a $0.1 million increase from our newdiscount camping club, Camp Club USA.

Publicationrevenues of $16.6 million for the second quarter of 2006 increased $1.3million, or 8.4%, from the comparable period in 2005 primarily attributable to $0.9million of revenue from the consumer shows acquired in December 2005 and theconsumer shows acquired from H & S Productions, LLC in February 2006, $0.5million of revenue relating to *Powerboat Magazine*acquiredin May 2005, $0.3 million of revenue relating to an additional issue of *Boating Industry* magazine, and $0.1 million of additionalbook revenue.  These increases werepartially offset by $0.5 million of reduced revenue relating to one less issueof *ATV Magazine*.

Retail revenues of $84.9 millionincreased $1.4 million, or 1.7%, from the comparable period in 2005.  Store merchandise sales increasedapproximately $2.2 million over the second quarter of 2005 due to a $6.7 millionrevenue increase from the addition of seventeen new stores over the pasteighteen months, partially offset by a same store sales decrease of $4.5million, or 7.5%, compared to an 8.4% increase in the second quarter of2005.  Same store sale calculations for agiven period include only those stores that were open both at the end of thatperiod and at the beginning of the preceding fiscal year.  The increase in store merchandise sales waspartially offset by a $0.5 million decrease in mail order sales, and a $0.3million decrease in installation and service work.

*Costs Applicable to Revenues*

Costsapplicable to revenues totaled $87.7 million for the second quarter of 2006, anincrease of $5.1 million, or 6.1%, from the comparable period in 2005.

Membership services costs and expenses of$25.0 million increased approximately $2.7 million, or 12.1%, from thecomparable period in 2005.  This increaseconsisted of a $2.0 million increase in member event costs primarily due totiming of the Good Sam Club annual rally, $0.4 million of marketing and programexpenses associated with increased

13

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enrollment in the extended vehiclewarranty programs and emergency road service programs, and $0.3 million ofincremental marketing and fulfillment costs relating to the start-up of a new discountcamping club, Camp Club USA.

Publication costs and expenses of $11.6million for the second quarter of 2006 increased $1.4 million, or 13.7%, fromthe comparable period in 2005 primarily due to a $0.7 million increase relatingto the newly acquired consumer shows, $0.4 million of additional costsattributable to the newly acquired *Powerboat Magazine*title, $0.3 million of additional book marketing costs, and $0.1 million ofincreased costs relating to the additional issue of *BoatingIndustry* magazine.  Theseincreases were partially offset by $0.1 million of reduced costs relating toone less issue of *ATV Magazine*.

Retail costs applicable to revenuesincreased $1.0 million, or 1.9%, to $51.1 million primarily as a result ofseventeen new stores opened over the past eighteen months.  The retail gross profit margin of 39.9% forthe second quarter of 2006 decreased slightly from 40.0% for the comparableperiod in 2005.

*Operating Expenses*

Selling, general and administrativeexpenses of approximately $35.1 million for the second quarter of 2006increased $2.4 million compared to the second quarter of 2005 primarily due toan increase in retail selling and general and administrative expenses ofapproximately $2.4 million consisting of increases in wages, advertising,operating insurance, travel and training, and other retail general andadministrative expenses, and a $0.6 million increase due to the newly acquiredconsumer shows, partially offset by a $0.6 million decrease in deferredexecutive compensation expense.  Theincrease in selling, general and administrative expenses was primarily due tonew store openings, and other marketing programs.

Depreciation and amortization expense of$4.7 million increased approximately $0.8 million over the prior year primarilydue to increased depreciation on additional capital expenditures at CampingWorld, and amortization of intangible assets associated with the purchase of *Powerboat Magazine*in May 2005 and the acquisition ofconsumer shows in December 2005 and February 2006.

*Income from Operations*

Incomefrom operations for the second quarter of 2006 totaling $11.4 million decreased$2.5 million compared to the second quarter of 2005.  This decrease was primarily due to increasedoperating expenses of $3.2 million and reduced gross profit for thepublications operations of $0.1 million partially offset by increased grossprofit for retail and membership services operations of $0.4 million each.

*Non-Operating Items*

Non-operating items were $9.7 million forthe second quarter of 2006, compared to $8.6 million for the same period in2005.  This $1.1 million increasecomprises of $0.7 million of debt extinguishment expense relating to therepurchase and retirement of $24.8 million of

14

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the AGI Senior Subordinated Notes, and$0.6 million of additional interest expense in 2006 primarily due to higherinterest rates, partially offset by a $0.2 million increase in interest income.

*Income before Income Taxes*

Income before income taxes for the secondquarter of 2006 was approximately $1.8 million, or $3.6 million lower than thesecond quarter of 2005.  This decreasewas attributable to a $2.5 million decrease in income from operations for thecurrent period, $0.7 million of debt extinguishment expense and a $0.4 millionincrease in net interest expense.

*Income Tax Expense*

TheCompany recorded $24.4 million of income tax expense for the second quarter of2006, an increase of $22.7 million from the second quarter of 2005.  This increase was primarily due to AGHC’s Scorporation change of tax status election effective for 2006, which includedAGHI and all its subsidiaries, with the exception of Camping World, Inc. andits wholly-owned subsidiaries which will remain Subchapter C corporations.  As a result, all deferred tax assets and liabilitieswere revalued with the exception of those related to Camping World, Inc. andits wholly-owned subsidiaries and other potential built-in gains.

# *Net(Loss) Income*

Net loss in the second quarter of 2006was $22.7 million compared to net income of $3.5 million for the same period in2005 primarily due to income tax expense of $24.4 million in the second quarterof 2006 as a result of the S corporation change of tax status election for theCompany (other than Camping World, Inc. and its wholly-owned subsidiaries)being effective during the quarter as discussed above.

*Segment Profit*

Segment profit of $14.4million for the second quarter of 2006 (before unallocated depreciation andamortization, general and administrative, interest, and income tax expense)decreased $3.4 million, or 19.1%, from the comparable period in 2005.

Membership servicessegment profit of approximately $11.2 million for the second quarter of 2006increased $0.6 million, or 5.3%, from the comparable period in 2005.  This increase was largely attributable to a$0.6 million increase in profit from emergency road service products, and a$0.5 million increase in profit from the extended vehicle warranty programs,partially offset by a $0.3 million decrease in profit for Camp Club USA due tomarketing expenses associated with the new club and a $0.2 million decrease inprofit recognized on our RV financing program.

Publication segmentprofit of $2.7 million for the second quarter of 2006 decreased $1.0 million,or 27.7%, from the comparable period in 2005. This decrease was largely attributable to a $0.5 million profit decreaseattributable to period costs within the newly

15

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acquired show groups, a$0.4 million decrease in profit relating to a reduced number of issues of *ATV* M*agazine*, and a$0.1 million decrease in profit from the books group.

Retail segment profit of$0.5 million for the second quarter of 2006 decreased by $2.9 million, or 85.1%from the comparable period in 2005.  This decrease resulted primarily from a $2.4million increase in selling, general and administrative expenses, a $0.9million increase in interest expense relating to intercompany debtissued as a result of the Camping World, Inc. $40.0 million dividend declaredand paid in the form of a note on December 23, 2005, and a $0.3 million increase in depreciationexpense, partially offset by a$0.7 million increase in gross profit margin.

**Six Months Ended June 30, 2006Compared With Six Months Ended June 30, 2005**

*Revenues*

Revenuesof $255.9 million for the first six months of 2006 increased by approximately$14.0 million, or 5.8%, from the comparable period in 2005.

Membershipservices revenues of $70.5 million for the first six months of 2006 increasedby approximately $3.6 million, or 5.4%, from the comparable period in2005.  This revenue increase was largelyattributable to a $1.9 million increase in member events revenue primarily dueto timing of the Good Sam Club annual rally, which occurred in the secondquarter of 2006 versus the third quarter of 2005, a $1.6 million increase inextended vehicle warranty program revenue due to the continued growth ofcontracts in force, and a $0.5 million revenue increase in emergency roadservice programs due to increased enrollment. These increases were partially offset by a $0.4 million net reduction inmembership services revenue resulting primarily from reduced enrollment in theCoast to Coast and Golf Card Clubs.

Publicationrevenues of $39.7 million for the first six months of 2006 increased $7.2million, or 22.1%, from the comparable period in 2005 primarily attributable to$5.8 million of revenue from the consumershows acquired in December 2005 and the consumer shows acquired from H & SProductions, LLC in February 2006, $1.0 million of additional revenue from theboating magazine group, primarily relating to the acquisition of *Powerboat Magazine*in May 2005, $0.5 million of revenuerelated to an additional issue of powersports-related magazines, and $0.4million of revenue from the updated edition of the campground atlas.  These revenue increases were partially offsetby a$0.5 million decrease in advertising and subscription revenue for theRV-related titles.

Retail revenues of $145.7 millionincreased $3.2 million, or 2.2%, over the first six months of 2005.  Store merchandise sales increasedapproximately $4.0 million over the first six months of 2005 due to a $9.3million revenue increase from the addition of seventeen new stores over thepast eighteen months, partially offset by a same store sales decrease of $5.3million or 5.1%, compared to a 7.3% increase in the first six months of2005.  Same store sale calculations for agiven period include only those stores that were open both at the end of thatperiod and at the beginning of the preceding fiscal year.  This revenue 

16

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increase was partially offset by a $0.4million decrease in mail order sales, and a $0.4 million decrease ininstallation and service fees.

*Costs Applicable to Revenues*

Costsapplicable to revenues totaled $159.8 million for the first six months of 2006,an increase of $11.2 million, or 7.5%, from the comparable period in 2005.

Membership services costs and expenses of$46.1 million increased approximately $3.6 million, or 8.5%, from the first sixmonths of 2005.  This increase consistedof a $2.0 million increase in member event costs primarily due to the timing ofthe Good Sam Club annual rally, $1.1 million of marketing and program expensesassociated with increased enrollment in the extended vehicle warranty programsand emergency road service programs, and $0.5 million of additional costsassociated with the start-up of a new discount camping club, Camp Club USA.

Publication costs and expenses of $26.2million for the first six months of 2006 increased $4.5 million, or 20.5%, fromthe comparable period in 2005 primarily due to a $2.9 million increase relatingto the newly acquired consumer shows, $1.0 million of additional costsattributable to the newly acquired *Powerboat Magazine*title, $0.4 million of additional costs associated with an updated edition ofthe campground atlas and $0.2 million of costs associated with an additionalissue of powersports-related magazines.

Retail costs applicable to revenuesincreased $3.1 million, or 3.6%, to $87.5 million primarily due to a decreasein the retail gross profit margin and an increase in sales due to the seventeennew stores opened over the past eighteen months.  The retail gross profit margin of 40.0% forthe first six months of 2006 decreased from 40.8% for the comparable period in2005 primarily due to lower sales of higher margin products.

*Operating Expenses*

Selling, general and administrativeexpenses of approximately $65.4 million for the first six months of 2006increased $2.6 million, or 4.2%, compared to the first six months of 2005primarily due to an increase in retail selling and general and administrativeexpenses of approximately $3.5 million consisting of increases in wages,operating insurance, travel and training, and other retail general andadministrative expenses, a $0.5 million increase due to the recent consumershow acquisitions, and $0.1 million of other general and administrativeexpenses, partially offset by a $1.5 million decrease in deferred executivecompensation expense.

Depreciation and amortization expense of$9.4 million increased $1.7 million over the prior year primarily due toincreased depreciation resulting from additional capital expenditures atCamping World, amortization of intangible assets associated with the purchaseof *Powerboat Magazine*in May 2005 and thenewly acquired consumer shows in December 2005 and February 2006.

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*Income from Operations*

Incomefrom operations for the first six months of 2006 totaling $21.3 milliondecreased $1.5 million compared to the first six months of 2005.  This decrease was primarily due to increasedoperating expenses of $4.3 million partially offset by increased gross profitfor the publications operations of $2.8 million.

*Non-Operating Items*

Non-operating items were $18.6 millionfor the first six months of 2006, a $3.8 million increase over 2005.  This increase comprises of $3.5 million ofadditional interest expense in 2006 due to increased interest rates and $0.7million of debt extinguishment expense relating to the repurchase andretirement of $24.8 million of the AGI Senior Subordinated Notes, partiallyoffset by a $0.4 million increase in interest income.

*Income before Income Taxes*

Income before income taxes for the firstsix months of 2006 was approximately $2.8 million, or $5.3 million lower thanthe first six months of 2005.  Thisdecrease was attributable to a $1.5 million decrease in income from operationsfor the current period, a $3.1 million increase in net interest expense, and$0.7 million of debt extinguishment expense.

*Income Tax Expense*

TheCompany recorded $24.9 million of income tax expense for the first six monthsof 2006, an increase of $22.0 million from the first six months of 2005.  This increase was primarily due AGHC’s Scorporation change of tax status election effective for 2006, which includedAGHI and all its subsidiaries, with the exception of Camping World, Inc. andits wholly-owned subsidiaries which will remain Subchapter C corporations.  As a result, all deferred tax assets andliabilities were revalued with the exception of those related to Camping World,Inc. and its wholly-owned subsidiaries and other potential built-in gains.

# *Net (Loss) Income*

Net loss in the first six months of 2006was $22.1 million compared to net income $5.2 million for the same period in2005 primarily due to income tax expense of $24.4 million in the second quarterof 2006 as a result of the S corporation change of tax status election for theCompany (other than Camping World, Inc. and its wholly-owned subsidiaries)being effective during the quarter as discussed above.

*Segment Profit*

Segment profit of $27.1million for the first six months of 2006 (before unallocated depreciation andamortization, general and administrative, interest, and income tax expense)decreased $3.9 million, or 12.7%, from the comparable period in 2005.

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Membership servicessegment profit of $21.7 million for the first six months of 2006 increased $0.7million, or 3.2%, from the comparable period in 2005.  This increase was largely attributable to a$1.1 million increase in profit from emergency road service products, and a$0.6 million increase in profit from the extended vehicle warranty programs,partially offset by a $0.7 million decrease in profit for Camp Club USA due tomarketing expenses for the new club and a $0.3 million decrease in profitrecognized on our RV financing program.

Publication segmentprofit of $9.2 million for the first six months of 2006 increased $1.0 million,or 12.1%, from the comparable period in 2005. This increase was largely attributable to a $1.5 million profit increasefor the newly acquired show group, partially offset by a $0.5 million decreasein profit for the RV-related magazines.

Retail segment loss forthe first six months of 2006 was $3.8 million, resulting in a reduction of profitof $5.6 million from the comparable period in 2005.  This decrease in profit resulted primarily from a $3.5 million increasein selling, general and administrative expenses, a $0.5 million increase indepreciation expense and a $1.8 million increase in interest expenserelating to intercompany debt issued as a result of the Camping World, Inc.$40.0 million dividend declared and paid in the form of a note December 23,2005, partially offset by a $0.2million increase in gross profit margin.

**LIQUIDITY AND CAPITAL RESOURCES**

TheCompany has historically operated with a working capital deficit.  The working capital deficit as of June 30,2006 and December 31, 2005 was $33.3 million and $6.4 million, respectively.  The primary reason for the working capital deficitis the deferred revenue and gains reported under current liabilities in theamount of $63.5 million and $61.0 million as of June 30, 2006 and December 31,2005, respectively.  Deferred revenue isprimarily comprised of cash collected for club memberships in advance, which isamortized over the life of the membership. The Company uses net proceeds from this deferred membership revenue tolower its long-term borrowings.  Theworking capital deficit increased compared to the prior year-end primarily dueto the purchase and retirement of $24.8 million of the AGI Senior SubordinatedNotes and a seasonal increase in accounts payable.  Management believes that funds generated byoperations together with available borrowings under the AGI Senior Credit Facilitywill be sufficient to meet all of the Company’s debt service requirements andcapital requirements over the next twelve months.

On June 24, 2003, AGIentered into an Amended and Restated Credit Agreement and a Senior SecuredFloating Rate Note Purchase Agreement (as amended, the AGI Senior CreditFacility).  The AGI Senior CreditFacility provides for a revolving credit facility of $35.0 million and termloans in the aggregate of $140.0 million. Proceeds from the AGI Senior Credit Facility were used to refinance theexisting senior secured indebtedness, pay a dividend of $13.7 million to theCompany’s parent AGI Holding Corp. and redeem $30.0 million principal amount ofthe AGH senior notes due 2007 (“AGH Notes”) at 103.667% of par in 2003.  As of June 30, 2006, $109.2 million wasoutstanding under the term loans.  Noborrowings were outstanding on the revolving credit facility as of June 30,2006.

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Reborrowings under theterm loans are not permitted.  Theinterest on borrowings under the AGI Senior Credit Facility is at variablerates based on the ratio of total cash flow to outstanding indebtedness (asdefined).  Interest rates float withprime and the London Interbank Offered Rates, or LIBOR, plus an applicable marginranging from 1.50% to 2.50% over the stated rates.  As of June 30, 2006, the average interestrate on the term loans was 7.85%, and permitted borrowings under the undrawnrevolving facility were $27.9 million.  AGIalso pays a commitment fee of 0.5% per annum on the unused amount of the revolvingcredit facility.  The aggregate quarterlyscheduled payments on the term loans are $350,000.  The revolving credit facility matures on June24, 2008, and the term loans mature on June 24, 2009.  The funds available under the AGI SeniorCredit Facility may be utilized for borrowings or letters of credit; however, amaximum of $12.5 million may be allocated to such letters of credit.  As of June 30, 2006, AGI had letters ofcredit in the aggregate amount of $7.1 million outstanding.  The AGI Senior Credit Facility is secured byvirtually all of the Company’s assets and a pledge of the Company’s stock andthe stock of the Company’s subsidiaries.

In February 2004, AGI issued $200.0 million aggregateprincipal amount of 9% Senior Subordinated Notes due 2012 (“AGI SeniorSubordinated Notes”).  The Companycompleted a registered exchange of the AGI Senior Subordinated Notes under theSecurities Act of 1933 in August 2004. The proceeds from the sale of the AGI Senior Subordinated Notes wereused to fund the tender offer and defeasance of the remaining $100.0 millionoutstanding principal amount of the subordinated notes previously issued byAGI, prepay $25.0 million of the Term Loans under our AGI Senior CreditFacility, pay a $60.0 million dividend distribution, create a $15.0 millionsegregated cash account, pay certain prepayment and transaction costs and forgeneral corporate purposes.  The amountheld in this segregated account, including any earnings thereon, was availableto pay stockholder dividends upon satisfaction of a leverage test specified inour AGI Senior Credit Facility.  InAugust and November of 2004, AGI satisfied the specific leverage test and paid$3.6 million and $11.5 million in dividends, respectively.

On March 3, 2006,Affinity Group, Inc. amended its Senior Credit Facility to revise thedefinition of Consolidated Fixed Charges Ratio and Permitted TaxDistributions.  This amendment allows AGIto distribute taxes to its ultimate parent based on its stand-alone taxobligation rather than the tax obligation of its parent, AGHI, until such timethat AGHI pays interest on its 10 7/8% Senior Notes in cash instead of by theissuance of additional notes.  The firstquarter AGI tax pass up in excess of the Company’s tax obligations of $1.046million was distributed to AGHC in the form of a dividend.  Further, Affinity Group, Inc. amended theSenior Credit Facility’s covenant restrictions with affiliates to permit ajoint venture arrangement between Camping World and FreedomRoads HoldingCompany, an affiliate of the Company.

On March 6, 2006, Camping World, Inc.(“Camping World”), a wholly-owned subsidiary of Affinity Group, Inc., enteredinto a Joint Venture Agreement with FreedomRoads Holding Company, LLC, aMinnesota limited liability company (“FreedomRoads”).  FreedomRoads is indirectly owned andcontrolled by Stephen Adams, the Chairman and indirect controlling shareholderof Affinity Group Holding, Inc. FreedomRoads, through its wholly-owned subsidiaries, owns and operatesRV dealerships, currently operating across the United States.  The Joint Venture Agreement provides thatCamping World and FreedomRoads

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are toact cooperatively with a view to maximizing synergies and to locate, establishand utilize mutually beneficial relationships that are available only to theparties acting together that would not otherwise be available to either partyindependently.

On June 8, 2006, AGIamended the AGI Senior Credit Facility to permit the Company to repurchase upto $30.0 million of the AGI Senior Subordinated Notes from time to time as andwhen the Company determines.  AGIpurchased $4,841,000 and $20,000,000 of the AGI Senior Subordinated Notes onJune 14, 2006 and June 20, 2006, respectively. The AGI Senior Subordinated Notes purchases were made with availablecash and the notes purchased have been retired. As of June 30, 2006, $175.2 million of AGI Senior Subordinated Notesremain outstanding.

The AGI Indenturepursuant to which the AGI Notes were issued and the AGI Senior Credit Facilitycontain certain restrictive covenants relating to, but not limited to, mergers,changes in the nature of the business, acquisitions, additional indebtedness,sale of assets, investments, and the payment of dividends subject to certainlimitations and minimum operating covenants. AGI was in compliance with all debt covenants at June 30, 2006.

OnMarch 24, 2005 in a private placement, AGHI issued $88.2 million principalamount of its 10-7/8% senior notes due 2012 (the “AGHI Notes”) at a $3.2million original issue discount.  TheCompany completed a registered exchange of these AGHI Notes under theSecurities Act of 1933 in June 2005.  TheAGHI Notes are unsecured obligations of the Company and its subsidiaries havenot 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 theentire $88.2 million principal amount of the AGHI Notes are due in full onFebruary 15, 2012.  For interest paymentson and prior to February 15, 2008, AGHI may elect to pay interest on the AGHINotes in cash or by issuance of additional notes of the same tenor as the AGHINotes, except the maturity date is March 15, 2010.  AGI has not paid any dividends to AGHI tofund payment of interest on the AGHI Notes and AGHI made the interest paymentsdue on August 15, 2005 and February 15, 2006 through issuance of additionalnotes.  AGI expects to issue additionalnotes of the same tenor as the AGHI Notes through February 15, 2008 to payinterest on the AGHI Notes when and as such interest is due.  Although the source of the cash payment ofthe AGHI Notes is dividends from AGI, its wholly-owned subsidiary, there arecertain restrictions on the payment of dividends under the AGI Senior CreditFacility and the AGI Indenture.

TheCompany contributed the net proceeds from the issuance of the AGHI Notes,approximately $81.0 million, to AGI and in turn, AGI made an equitycontribution to its wholly-owned subsidiary, Camping World, Inc. (“CampingWorld”).  Camping World then made anequity capital contribution in the same amount to its wholly-owned subsidiary,CWI, Inc. (“CWI”).  CWI created a newwholly-owned subsidiary named CWFR Capital Corp., a Delaware corporation (“CWFR”)which is an “unrestricted subsidiary” under the AGHI Notes, and the AGIIndenture.  Since CWFR is an unrestrictedsubsidiary, its operations are not restricted by either the AGI Indenture orthe AGHI Notes.  CWI made an equitycapital contribution to CWFR in an equal amount to the capital contributionthat it received from Camping World. CWFR used the proceeds from the equity capital

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contributionto acquire a preferred membership interest in FreedomRoads Holding Company, LLC(“FreedomRoads Holding”), a Minnesota limited liability company owned 90% byThe Stephen Adams Living Trust, which also indirectly owns 97.4% of theoutstanding capital stock of AGHC and indirectly AGHI.

In April 2005,Camping World, Inc. acquired the assets of a mail order catalog retailerspecializing in recreational vehicle merchandise for $0.6 million.  In May 2005, the Ehlert Publishing Group,Inc. acquired the *Powerboat Magazine* title andrelated assets of Nordskog Publishing, Inc. for $4.0 million.  As part of the purchase, the Company issued$1.5 million of debt and assumed $0.5 million of liabilities.  In December 2005, AGI Productions, Inc., asubsidiary of Ehlert Publishing Group, Inc., acquired the consumer outdoorrecreation show assets of Royal Productions, Inc. for $8.5 million.

In February 2006, EhlertPublishing, Inc. acquired the consumer shows and related assets of H & SProductions, LLC for $2.5 million.  Aspart of the purchase, the Company issued $0.4 million of debt and assumed $1.4million of liabilities.

For the six months endedJune 30, 2006, the Company incurred $0.1 million of deferred executivecompensation expense under the phantom stock agreements and made payments of$0.8 million on the pay-out provisions of existing phantom stock agreements.  The earned incentives under these agreementsare scheduled to be paid at various times over the next five years.  There are no phantom stock payments scheduledto**be made for the remainder of 2006.

Capital expenditures forthe first six months of 2006 totaling $7.2 million increased $2.4 million fromthe first six months of 2005 primarily due to the addition of thirteen newretail stores in 2006.  Additionalcapital expenditures of $7.7 million are anticipated for the balance of 2006,primarily for new Camping World stores, updating existing store fronts, andcomputer hardware and software upgrades and enhancements.

*Contractual Obligations andCommercial Commitments*

The following table reflects our contractual obligations and commercialcommitments at June 30, 2006.  This tableincludes principal and future interest due under our debt agreements based oninterest rates as of June 30, 2006 and assumes debt obligations will be held tomaturity.
| ** **                                | ** ** | **Payments Due by Period** | ** ** |
|-------------------------------------------|------------|-------------------------------------------|------------|
| **(in thousands)**                   | ** ** | **Total**                                 | ** ** | **Balance of  2006** | ** ** | **2007 and  2008** | ** ** | **2009 and  2010** | ** ** | **Thereafter** | ** ** |
| Long-term debt  and future interest       |       | $                                         | 578,292    |   | $ | 14,726 |   | $ | 67,697 |   | $ | 200,115 |   | $ | 295,754 |   |
| Operating lease  obligations              |       | 132,831                                   |       | 7,480 |   | 21,390 |   | 17,484 |   | 86,477 |   |
| Deferred  compensation                    |       | 5,380                                     |       | — |   | 4,285 |   | 1,095 |   | — |   |
| Standby and  commercial letters of credit |       | 7,104                                     |       | 6,754 |   | 350 |   | — |   | — |   |
| Grand total                               |       | $                                         | 723,607    |   | $ | 28,960 |   | $ | 93,722 |   | $ | 218,694 |   | $ | 382,231 |   |

 

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**CRITICAL ACCOUNTING POLICIES**

*General*

The discussion andanalysis of the Company’s financial condition and results of operations arebased upon the Company’s consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States.  The preparation of thesefinancial statements requires the Company to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses, andrelated disclosure of contingent assets and liabilities.  On an on-going basis, the Company evaluatesits estimates, including those related to membership programs and incentives,bad debts, inventories, intangible assets, employee health insurance benefits,income taxes, restructuring, contingencies and litigation.  The Company bases its estimates on historicalexperience and on various other assumptions that are believed to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. Actual results may differ from these estimates under differentassumptions or conditions.

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

*Revenue Recognition*

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

*Accounts Receivable*

The Company estimates thecollectability of its trade receivables. A considerable amount of judgment is required in assessing the ultimaterealization of these receivables including

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the currentcredit-worthiness of each customer. Changes in required reserves have been recorded in recent periods andmay occur in the future due to the market environment.

*Inventory*

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

*Long-Lived Assets*

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

Long-lived assets, suchas property, plant and equipment and purchased intangible assets with finitelives are evaluated for impairment whenever events or changes in circumstancesindicate the carrying value of an asset may not be recoverable in accordancewith SFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets.”  The Company assesses the fairvalue of the assets based on the future cash flow the assets are expected togenerate and recognize an impairment loss when estimated undiscounted futurecash flow expected to result from the use of the asset plus net proceedsexpected from disposition of the asset (if any) are less than the carryingvalue 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, 2005 or June 30,2006.

The Company has evaluatedthe remaining useful lives of its finite-lived purchased intangible assets todetermine if any adjustments to the useful lives were necessary or if any ofthese assets had indefinite lives and were therefore not subject toamortization.  The Company determinedthat no adjustments to the useful lives of its finite-lived 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, 23 years, 15 years and 7 years, respectively.

*Indefinite Lived IntangibleAssets*

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

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

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

Based on the results ofthe annual impairment tests, the Company recorded an impairment charge of $4.3million in 2005 related to Golf Card Club, which is included in the membershipservices segment.  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.

*IncomeTaxes*

Significantjudgment is required in determining the Company’s tax provision and inevaluating its tax positions.  The Company establishes accruals forcertain tax contingencies when, despite the belief that the Company’s taxreturn positions are fully supported, the Company believes that certain positionsmay be challenged and that the Company’s positions may not be fullysustained.  The tax contingency accruals are adjusted in light of changingfacts and circumstances, such as the progress of tax audits, case law andemerging legislation.  The Company’s taxprovision includes the impact of tax contingency accruals and changes to theaccruals, including related interest, as considered appropriate by management.

**ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

We are exposed to market risks relating to fluctuations in interestrates.  Our objective of financial riskmanagement is to minimize the negative impact of interest rate fluctuations onour earnings and cash flows.  Interestrate risk is managed through the use of a combination of fixed and variableinterest debt as well as the periodic use of interest rate collar contracts.

The following information discusses the sensitivity to our earnings.  The range of changes chosen for this 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

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impacts from financial instruments. They do not include other potential effects which could impact ourbusiness as a result of these interest rate fluctuations.

*Interest Rate Sensitivity Analysis*

At June 30, 2006, we had debt totaling $389.9 million, comprised of$109.2 million of variable rate debt and $280.7 million of fixed ratedebt.  Holding other variables constant(such as debt levels), the earnings and cash flow impact of a one-percentagepoint increase/ decrease in interest rates would have an unfavorable/ favorableimpact of approximately $1.1 million.

*Credit Risk*

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

**ITEM 4:CONTROL AND PROCEDURES**

Within 90 daysprior to the filing of this Quarterly Report on Form 10-Q, the Company carriedout an evaluation, under the supervision and with the participation of theCompany’s management, including the President and Chief Executive Officer andthe Senior Vice President and Chief Financial Officer, of the effectiveness ofthe design and operation of the Company’s disclosure controls and procedurespursuant to Regulation 13a-14 under the Securities Exchange Act of 1934.  Based upon that evaluation, the President andChief Executive Officer along with the Senior Vice President and Chief FinancialOfficer concluded that the disclosure controls and procedures are effective intimely alerting them to material information relating to the Company (includingits consolidated subsidiaries) required to be included in the periodic SECfilings.  There have been no significantchanges in the Company’s internal controls or in other factors that couldsignificantly affect these controls subsequent to the date the Company carriedout its evaluation.

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**PARTII:  OTHER INFORMATION**

None

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**SIGNATURES:**

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrants have dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                        | **AFFINITY GROUP HOLDING, INC.** |
|------------------------|----------------------------------|
| ** **             | ** **                       |
| ** **             | ** **                       |
|                   | /s/ Thomas F. Wolfe              |   |
| Date: August 14,  2006 | Thomas F. Wolfe                  |
|                   | Senior Vice  President and       |
|                   | Chief Financial  Officer         |

 

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