**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

** **

**FORM 10-Q**

 

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

**The Securities Exchange Act of1934**

 

| For Quarter Ended:      |   | Commission File  Number |
|-------------------------|--------|-------------------------|
| **September  30, 2006** |   | **333-113982**          |

 

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**AFFINITY GROUP, INC.**

(Exact name of registrantas specified in its charter)

 

| **Delaware**                                    | ** ** | **13-3377709**                                             |
|-------------------------------------------------|------------|------------------------------------------------------------|
| (State of incorporation or organization)        |       | (I.R.S. Employer  Identification No.)                      |
|                                            |       |                                                       |
| **2575 Vista Del Mar Drive  Ventura, CA 93001** | ** ** | **(805) 667-4100**                                         |
| (Address of principal executive offices)        |       | (Registrant’s  telephone number, including area code) |

 

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

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

9% Senior SubordinatedNotes 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

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of theExchange Act).

Large accelerated filer  o   Acceleratedfiler  o             Non-acceleratedfiler  x

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).

YES  o                                    NO  x

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

|                                | ** ** | **Outstanding as of** | ** ** |
|--------------------------------|------------|-----------------------|------------|
| **Class**                      | ** ** | **November 3, 2006**  | ** ** |
| Common Stock, $.001 par  value |       | 2,000                 |       |

 

**DOCUMENTSINCORPORATED BY REFERENCE:  None**

 

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**AFFINITYGROUP, INC. AND SUBSIDIARIES**

**INDEX**
|                                                                                                          | ** ** | **Page** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|----------|------------|
| **Part I. Financial Information**                                                                        |       |     |       |
| ** **                                                                                               |       |     |       |
| **Item 1:  Financial Statements**                                                                        |       |     |       |
| ** **                                                                                               |       |     |       |
| Consolidated Balance  Sheets as of September 30, 2006 (unaudited) and December 31, 2005                  |       | 1        |       |
|                                                                                                     |       |     |       |
| Unaudited  Consolidated Statements of Operations for the three months ended September  30, 2006 and 2005 |       | 2        |       |
|                                                                                                     |       |     |       |
| Unaudited  Consolidated Statements of Operations for the nine months ended September 30,  2006 and 2005  |       | 3        |       |
|                                                                                                     |       |     |       |
| Unaudited  Consolidated Statements of Cash Flows for the nine months ended September 30,  2006 and 2005  |       | 4        |       |
|                                                                                                     |       |     |       |
| Notes to  Unaudited Consolidated Financial Statements                                                    |       | 5        |       |
|                                                                                                     |       |     |       |
| **Item 2:  Management’s Discussion and Analysis of Financial Condition and Results of  Operations** |       | 14       |       |
| ** **                                                                                               |       |     |       |
| **Item 3:  Quantitative and Qualitative Disclosures about Market Risk**                                  |       | 29       |       |
| ** **                                                                                               |       |     |       |
| **Item 4: Control and  Procedures**                                                                      |       | 29       |       |
| ** **                                                                                               |       |     |       |
| **Part II. Other  Information**                                                                          |       | 30       |       |
| ** **                                                                                               |       |     |       |
| **Signatures**                                                                                           |       | 31       |       |

 

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AFFINITY GROUP, INC. AND SUBSIDIARIES

CONSOLIDATEDBALANCE SHEETS

September 30, 2006 and December 31, 2005

(InThousands)
| ** **                                                                                    | ** ** | **9/30/2006**   | ** ** | **12/31/2005** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|
| ** **                                                                                    | ** ** | **(Unaudited)** | ** ** | ** **     | ** ** |
| **ASSETS**                                                                                    |       |            |       |           |       |
| CURRENT ASSETS:                                                                               |       |            |       |           |       |
| Cash and cash equivalents                                                                     |       | $               | 9,874      |           | $          | 24,778 |   |
| Accounts receivable, less allowance for  doubtful accounts of $1,155 in 2006 and $952 in 2005 |       | 20,893          |       | 26,508         |       |
| Inventories                                                                                   |       | 53,168          |       | 47,039         |       |
| Prepaid expenses and other assets                                                             |       | 16,989          |       | 11,218         |       |
| Deferred tax assets, net                                                                      |       | 3,141           |       | 4,995          |       |
| Total current assets                                                                          |       | 104,065         |       | 114,538        |       |
|                                                                                          |       |            |       |           |       |
| PROPERTY AND EQUIPMENT, net                                                                   |       | 31,394          |       | 29,843         |       |
| INVESTMENT IN AFFILIATE                                                                       |       | 81,005          |       | 81,005         |       |
| AFFILIATE NOTES AND INVESTMENTS                                                               |       | 4,697           |       | 4,722          |       |
| INTANGIBLE ASSETS, net                                                                        |       | 32,442          |       | 34,572         |       |
| GOODWILL                                                                                      |       | 144,429         |       | 144,429        |       |
| DEFERRED TAX ASSETS, net                                                                      |       | —          |       | 4,620          |       |
| OTHER ASSETS                                                                                  |       | 1,636           |       | 1,731          |       |
| Total assets                                                                                  |       | $               | 399,668    |           | $          | 415,460 |   |
|                                                                                          |       |            |       |           |       |
| **LIABILITIES AND STOCKHOLDER’S DEFICIT**                                                |       |            |       |           |       |
| CURRENT LIABILITIES:                                                                          |       |            |       |           |       |
| Accounts payable                                                                              |       | $               | 20,776     |           | $          | 12,683 |   |
| Accrued interest                                                                              |       | 2,186           |       | 6,897          |       |
| Accrued income taxes                                                                          |       | 1,047           |       | 465            |       |
| Accrued liabilities                                                                           |       | 38,378          |       | 34,094         |       |
| Deferred revenues and gains                                                                   |       | 72,248          |       | 60,994         |       |
| Current portion of long-term debt                                                             |       | 3,912           |       | 6,136          |       |
| Total current liabilities                                                                     |       | 138,547         |       | 121,269        |       |
|                                                                                          |       |            |       |           |       |
| DEFERRED REVENUES AND GAINS                                                                   |       | 38,341          |       | 37,926         |       |
| LONG-TERM DEBT, net of current portion                                                        |       | 282,876         |       | 313,864        |       |
| DEFERRED TAX LIABILITY                                                                        |       | 15,411          |       | —         |       |
| OTHER LONG-TERM LIABILITIES                                                                   |       | 6,434           |       | 8,766          |       |
|                                                                                          |       | 481,609         |       | 481,825        |       |
|                                                                                          |       |            |       |           |       |
| COMMITMENTS AND CONTINGENCIES                                                                 |       |            |       |           |       |
|                                                                                          |       |            |       |           |       |
| STOCKHOLDER’S DEFICIT:                                                                   |       |            |       |           |       |
| Common stock, $.001 par value, 2,000 shares  authorized, 2,000 shares issued and outstanding  |       | 1               |       | 1              |       |
| Additional paid-in capital                                                                    |       | 81,005          |       | 81,005         |       |
| Accumulated deficit                                                                           |       | (162,947        | )          | (147,371       | )          |
| Total stockholder’s deficit                                                              |       | (81,941         | )          | (66,365        | )          |
| Total liabilities and stockholder’s  deficit                                             |       | $               | 399,668    |           | $          | 415,460 |   |

 

See notesto consolidated financial statements.

1

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AFFINITY GROUP, INC. ANDSUBSIDIARIESCONSOLIDATED STATEMENTSOF OPERATIONS

(InThousands)

(Unaudited)
| ** **                                  | ** ** | **THREE MONTHS ENDED** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **9/30/2006**                    | ** ** | **9/30/2005** | ** ** |
|                                        |       |                             |       |   |   |
| REVENUES:                                   |       |                             |       |   |   |
| Membership services                         |       | $                                | 34,128     |   | $ | 35,098 |   |
| Publications                                |       | 14,289                           |       | 13,951 |   |
| Retail                                      |       | 81,623                           |       | 75,668 |   |
|                                        |       | 130,040                          |       | 124,717 |   |
|                                        |       |                             |       |   |   |
| COSTS APPLICABLE  TO REVENUES:              |       |                             |       |   |   |
| Membership services                         |       | 22,293                           |       | 24,335 |   |
| Publications                                |       | 9,982                            |       | 10,401 |   |
| Retail                                      |       | 49,030                           |       | 45,354 |   |
|                                        |       | 81,305                           |       | 80,090 |   |
|                                        |       |                             |       |   |   |
| GROSS PROFIT                                |       | 48,735                           |       | 44,627 |   |
|                                        |       |                             |       |   |   |
| OPERATING  EXPENSES:                        |       |                             |       |   |   |
| Selling, general and administrative         |       | 35,978                           |       | 31,770 |   |
| Depreciation and amortization               |       | 4,719                            |       | 3,930 |   |
|                                        |       | 40,697                           |       | 35,700 |   |
|                                        |       |                             |       |   |   |
| INCOME FROM  OPERATIONS                     |       | 8,038                            |       | 8,927 |   |
|                                        |       |                             |       |   |   |
| NON-OPERATING ITEMS:                        |       |                             |       |   |   |
| Interest income                             |       | 205                              |       | 351 |   |
| Interest expense                            |       | (6,189                           | )          | (6,506 | ) |
| Debt extinguishment expense                 |       | (142                             | )          | — |   |
| Other non-operating items, net              |       | 24                               |       | 19 |   |
|                                        |       | (6,102                           | )          | (6,136 | ) |
|                                        |       |                             |       |   |   |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES |       | 1,936                            |       | 2,791 |   |
|                                        |       |                             |       |   |   |
| INCOME TAX  BENEFIT (EXPENSE)               |       | 2,292                            |       | (1,055 | ) |
|                                        |       |                             |       |   |   |
| NET INCOME                                  |       | $                                | 4,228      |   | $ | 1,736 |   |

 

See notes to consolidated financial statements.

2

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AFFINITYGROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(InThousands)

(Unaudited)
| ** **                                  | ** ** | **NINE MONTHS ENDED** | ** ** |
|---------------------------------------------|------------|---------------------------------|------------|
| ** **                                  | ** ** | **9/30/2006**                   | ** ** | **9/30/2005** | ** ** |
| REVENUES:                                   |       |                            |       |   |   |
| Membership services                         |       | $                               | 104,588    |   | $ | 101,922 |   |
| Publications                                |       | 53,976                          |       | 46,450 |   |
| Retail                                      |       | 227,349                         |       | 218,244 |   |
|                                        |       | 385,913                         |       | 366,616 |   |
|                                        |       |                            |       |   |   |
| COSTS APPLICABLE  TO REVENUES:              |       |                            |       |   |   |
| Membership services                         |       | 68,416                          |       | 66,837 |   |
| Publications                                |       | 36,195                          |       | 32,160 |   |
| Retail                                      |       | 136,497                         |       | 129,746 |   |
|                                        |       | 241,108                         |       | 228,743 |   |
|                                        |       |                            |       |   |   |
| GROSS PROFIT                                |       | 144,805                         |       | 137,873 |   |
|                                        |       |                            |       |   |   |
| OPERATING  EXPENSES:                        |       |                            |       |   |   |
| Selling, general and administrative         |       | 101,320                         |       | 94,329 |   |
| Depreciation and amortization               |       | 13,838                          |       | 11,448 |   |
|                                        |       | 115,158                         |       | 105,777 |   |
|                                        |       |                            |       |   |   |
| INCOME FROM  OPERATIONS                     |       | 29,647                          |       | 32,096 |   |
|                                        |       |                            |       |   |   |
| NON-OPERATING  ITEMS:                       |       |                            |       |   |   |
| Interest income                             |       | 929                             |       | 695 |   |
| Interest expense                            |       | (19,529                         | )          | (19,052 | ) |
| Debt extinguishment expense                 |       | (835                            | )          | — |   |
| Other non-operating items, net              |       | 77                              |       | 49 |   |
|                                        |       | (19,358                         | )          | (18,308 | ) |
|                                        |       |                            |       |   |   |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES |       | 10,289                          |       | 13,788 |   |
|                                        |       |                            |       |   |   |
| INCOME TAX  EXPENSE                         |       | (22,578                         | )          | (5,023 | ) |
|                                        |       |                            |       |   |   |
| NET(LOSS) INCOME                            |       | $                               | (12,289    | ) | $ | 8,765 |   |

 

See notes to consolidated financialstatements.

 

3

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AFFINITY GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTSOF CASH FLOWS

(InThousands)

(Unaudited)
| ** **                                                                                | ** ** | **NINE MONTHS ENDED** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                | ** ** | **9/30/2006**                   | ** ** | **9/30/2005** | ** ** |
|                                                                                      |       |                            |       |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                    |       |                            |       |   |   |
| Net (loss) income                                                                         |       | $                               | (12,289    | ) | $ | 8,765 |   |
| Adjustments to reconcile net (loss) income to net cash  provided by operating activities: |       |                            |       |   |   |
| Depreciation                                                                              |       | 7,661                           |       | 6,838 |   |
| Amortization                                                                              |       | 6,177                           |       | 4,610 |   |
| Provision for losses on accounts receivable                                               |       | 515                             |       | 505 |   |
| Deferred compensation                                                                     |       | 920                             |       | 2,925 |   |
| Deferred tax provision (benefit)                                                          |       | 21,885                          |       | (3,076 | ) |
| Gain on sale of property and equipment                                                    |       | (13                             | )          | (1 | ) |
| Loss on early extinguishment of debt                                                      |       | 835                             |       | — |   |
| Changes in operating assets and liabilities                                               |       |                            |       |   |   |
| Accounts receivable                                                                       |       | 5,100                           |       | 3,547 |   |
| Inventories                                                                               |       | (6,129                          | )          | (7,543 | ) |
| Prepaid expenses and other assets                                                         |       | (5,404                          | )          | (5,289 | ) |
| Accounts payable                                                                          |       | 8,093                           |       | (1,956 | ) |
| Accrued and other liabilities                                                             |       | (3,097                          | )          | (4,546 | ) |
| Deferred revenues and gains                                                               |       | 10,040                          |       | 9,568 |   |
| Net cash provided by operating activities                                                 |       | 34,294                          |       | 14,347 |   |
|                                                                                      |       |                            |       |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                    |       |                            |       |   |   |
| Capital expenditures                                                                      |       | (9,203                          | )          | (8,579 | ) |
| Net proceeds from sale of property and equipment                                          |       | 124                             |       | 30 |   |
| Change in intangible assets                                                               |       | —                          |       | (38 | ) |
| Investment in affiliate                                                                   |       | —                          |       | (81,005 | ) |
| Acquisitions, net of cash received                                                        |       | (2,853                          | )          | (2,639 | ) |
| Repayment of loans receivable                                                             |       | 25                              |       | 22 |   |
| Net cash used in investing activities                                                     |       | (11,907                         | )          | (92,209 | ) |
|                                                                                      |       |                            |       |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                    |       |                            |       |   |   |
| Dividends paid                                                                            |       | (3,287                          | )          | — |   |
| Contribution from parent                                                                  |       | —                          |       | 81,005 |   |
| Payment of debt issue costs                                                               |       | (12                             | )          | (21 | ) |
| Principal payments of long-term debt                                                      |       | (33,992                         | )          | (1,070 | ) |
| Net cash (used in) provided by financing activities                                       |       | (37,291                         | )          | 79,914 |   |
|                                                                                      |       |                            |       |   |   |
| NET CHANGE IN  CASH AND CASH EQUIVALENTS                                                  |       | (14,904                         | )          | 2,052 |   |
|                                                                                      |       |                            |       |   |   |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF YEAR                                           |       | 24,778                          |       | 24,564 |   |
|                                                                                      |       |                            |       |   |   |
| CASH AND CASH  EQUIVALENTS AT END OF PERIOD                                               |       | $                               | 9,874      |   | $ | 26,616 |   |

 

See notes to consolidated financial statements.

4

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**AFFINITYGROUP, INC. AND SUBSIDIARIES**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

**(1) BASIS OF PRESENTATION**

*Principles of Consolidation**—*The consolidated financial statementsinclude the accounts of Affinity Group, Inc. (“AGI”) and its subsidiaries(collectively the “Company”), presented in accordance with U.S. generallyaccepted accounting principles, and pursuant to the rules and regulations ofthe Securities and Exchange Commission. In March 2005, Affinity Group Holding Corp. (“AGHC”) formed a holdingcompany, Affinity Group Holding, Inc., a Delaware corporation (“AGHI”) at whichtime contributed 100% of the outstanding shares of common stock of AGI toAGHI.  AGHI is the direct parent of theCompany.

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”)to be effective as of January 1, 2006. The election for change in tax status toan S corporation 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 Ccorporations since AGHC had not received approval from the IRS regarding its Scorporation change of tax status election. As such, the Company recorded a $1.5 million tax provision for the firstquarter of 2006.   Approval for the Scorporation change of tax status election was received from the IRS in thesecond quarter of 2006.  This approvalfor change in tax status was granted retroactive to January 1, 2006. Pursuantto FAS 109, “Accounting for Income taxes”, a change in tax status resultingfrom an S corporation election requires that all deferred tax accounts berevalued upon formal approval of the S corporation status.  Accordingly, all deferred tax accounts ofAGHC and its subsidiaries, excluding Camping World, Inc. and its wholly ownedsubsidiaries, were revalued to account for the tax effect for the change to theS corporation status.  Deferred taxliabilities related to Camping World, Inc. and its wholly-owned subsidiarieswhich remained C corporation companies were approximately $12.6 million.  As result of the Company’s change of taxstatus to S corporation, a deferred tax liability related to a Subchapter Scorporation of approximately $2.8 million was recorded on the financialstatements for potential tax liability in prior C corporation years.  The effect of this revaluation on thedeferred tax accounts was initially recorded in the income tax provision in thesecond quarter of 2006.  Additionaladjustments to deferred taxes were made in the third quarter of 2006 to reflectadjustments to the actual deferred tax accounts recorded at Camping World, Inc.based on additional analysis performed by the Company on the separate balancesheet of Camping World, Inc.  The impactof such adjustments resulted in a tax benefit of $2.3 million being recorded inthe three months ended September 30, 2006. The adjustment has no impact on the nine months ended September 30, 2006financial statements.

Theseinterim consolidated financial statements should be read in conjunction withthe Company’s consolidated financial statements and notes in the Company’s 10-Kreport for

5

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**(1) BASIS OF PRESENTATION (continued)**

theyear ended December 31, 2005 as filed with the Securities and ExchangeCommission.  In the opinion of managementof the Company, these consolidated financial statements contain all adjustmentsof a normal recurring nature necessary to present fairly the financialposition, results of operations and cash flows of the Company for the interimperiods presented.

**(2) RECENT ACCOUNTINGPRONOUNCEMENTS**

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 recreationalvehicles (“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 the 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 eachbusiness requires 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 SEPTEMBER 30, 2006** |       |           |       |             |       |       |       |             |       |
| Revenues from external customers           |       | $              | 34,128     |             | $          | 14,289     |       | $                | 81,623     |   | $ | 130,040 |   |
| Interest income                            |       | 1,746          |       | —           |       | 1          |       | 1,747            |       |
| Interest expense                           |       | —         |       | 77               |       | 3,140      |       | 3,217            |       |
| Depreciation and amortization              |       | 915            |       | 1,111            |       | 2,102      |       | 4,128            |       |
| Segment operating profit (loss)            |       | 10,511         |       | 2,105            |       | (367       | )          | 12,249           |       |
|                                            |            |                |            |                  |            |            |            |                  |            |  |  |  |  |

 

 
|                                       |   | **Membership** |   |             |   |       |   |             |   |
|--------------------------------------------|--------|----------------|--------|------------------|--------|------------|--------|------------------|--------|
|                                       |   | **Services**   |   | **Publications** |   | **Retail** |   | **Consolidated** |   |
| **THREE  MONTHS ENDED SEPTEMBER 30, 2005** |   |           |   |             |   |       |   |             |   |
| Revenues from external customers           |   | $              | 35,098 |             | $      | 13,951     |   | $                | 75,668 |   | $ | 124,717 |   |
| Gain on sale of property and equipment     |   | —         |   | —           |   | 3          |   | 3                |   |
| Interest income                            |   | 1,353          |   | —           |   | 4          |   | 1,357            |   |
| Interest expense                           |   | —         |   | 70               |   | 2,497      |   | 2,567            |   |
| Depreciation and amortization              |   | 882            |   | 666              |   | 1,762      |   | 3,310            |   |
| Segment profit                             |   | 9,274          |   | 2,197            |   | 2,497      |   | 13,968           |   |
|                                            |        |                |        |                  |        |            |        |                  |        |  |  |  |  |

 

 
|                                      | ** ** | **Membership** | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
|-------------------------------------------|------------|----------------|------------|------------------|------------|------------|------------|------------------|------------|
|                                      | ** ** | **Services**   | ** ** | **Publications** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **NINE  MONTHS ENDED SEPTEMBER 30, 2006** |       |           |       |             |       |       |       |             |       |
| Revenues from external customers          |       | $              | 104,588    |             | $          | 53,976     |       | $                | 227,349    |   | $ | 385,913 |   |
| Gain on sale of property and equipment    |       | —         |       | 5                |       | 8          |       | 13               |       |
| Interest income                           |       | 4,685          |       | —           |       | 7          |       | 4,692            |       |
| Interest expense                          |       | —         |       | 258              |       | 10,119     |       | 10,377           |       |
| Depreciation and amortization             |       | 2,714          |       | 3,190            |       | 6,108      |       | 12,012           |       |
| Segment profit (loss)                     |       | 32,198         |       | 11,289           |       | (4,174     | )          | 39,313           |       |
|                                           |            |                |            |                  |            |            |            |                  |            |  |  |  |  |

 

 
|                                          | ** ** | **Membership** | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
|-----------------------------------------------|------------|----------------|------------|------------------|------------|------------|------------|------------------|------------|
|                                          | ** ** | **Services**   | ** ** | **Publications** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **NINE  MONTHS ENDED SEPTEMBER 30, 2005**     |       |           |       |             |       |       |       |             |       |
| Revenues from external customers              |       | $              | 101,922    |             | $          | 46,450     |       | $                | 218,244    |   | $ | 366,616 |   |
| Gain (loss) on sale of property and equipment |       | —         |       | (5               | )          | 6          |       | 1                |       |
| Interest income                               |       | 3,523          |       | —           |       | 9          |       | 3,532            |       |
| Interest expense                              |       | —         |       | 229              |       | 7,709      |       | 7,938            |       |
| Depreciation and amortization                 |       | 2,641          |       | 1,682            |       | 5,250      |       | 9,573            |       |
| Segment profit                                |       | 30,286         |       | 10,388           |       | 4,285      |       | 44,959           |       |
|                                               |            |                |            |                  |            |            |            |                  |            |  |  |  |  |

 

7

----

 

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

Thefollowing is a reconciliation of income from operations to the Company’sconsolidated financial statements for the three and nine months ended September30, 2006 and 2005 (in thousands):
| ** **                                                     | ** ** | **THREE MONTHS ENDED** | ** ** | **NINE MONTHS ENDED** | ** ** |
|----------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                     | ** ** | **9/30/2006**                    | ** ** | **9/30/2005**                   | ** ** | **9/30/2006** | ** ** | **9/30/2005** | ** ** |
| **Income  From Operations Before Taxes**                       |       |                             |       |                            |       |   |   |   |   |
| Total profit for  reportable segments                          |       | $                                | 12,249     |                            | $          | 13,968 |   | $ | 39,313 |   | $ | 44,959 |   |
| Unallocated G  & A expense                                 |       | (5,066                           | )          | (5,612                          | )          | (13,448 | ) | (15,345 | ) |
| Unallocated  depreciation and amortization expense             |       | (591                             | )          | (620                            | )          | (1,826 | ) | (1,875 | ) |
| Unallocated  interest income, net of intercompany elimination  |       | (1,542                           | )          | (1,006                          | )          | (3,763 | ) | (2,837 | ) |
| Unallocated  interest expense, net of intercompany elimination |       | (2,972                           | )          | (3,939                          | )          | (9,152 | ) | (11,114 | ) |
| Unallocated debt  restructure expense                          |       | (142                             | )          | —                          |       | (835 | ) | — |   |
| Income from  operations before taxes                           |       | $                                | 1,936      |                            | $          | 2,791 |   | $ | 10,289 |   | $ | 13,788 |   |

 

The following is areconciliation of assets of reportable segments to the Company’s consolidatedfinancial statements as of September 30, 2006 and December 31, 2005 (inthousands):

|                                                      | ** ** | **9/30/2006** | ** ** | **12/31/2005** | ** ** |
|------------------------------------------------------|------------|---------------|------------|----------------|------------|
| Membership  services segment                         |       | $             | 161,715    |           | $          | 162,562 |   |
| Publications  segment                                |       | 89,161        |       | 89,104         |       |
| Retail segment                                       |       | 221,206       |       | 207,736        |       |
| Total assets for  reportable segments                |       | 472,082       |       | 459,402        |       |
| Capitalized  finance costs not allocated to segments |       | 7,564         |       | 9,568          |       |
| Corporate  unallocated assets                        |       | 6,495         |       | 16,376         |       |
| Elimination of  intersegment receivable              |       | (86,473       | )          | (69,886        | )          |
| Total assets                                         |       | $             | 399,668    |           | $          | 415,460 |   |

 

**(4)STATEMENTS OF CASH FLOWS**

Supplemental disclosuresof cash flow information for the nine months ended September 30 (in thousands):

** **

|                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
| Cash paid during  the period for: |       |     |       |     |       |
| Interest                          |       | $        | 24,240     |     | $          | 23,487 |   |
| Income taxes                      |       | 205      |       | 8,493    |       |
|                                   |            |          |            |          |            |  |  |

 

In February 2006, the Companyassumed $1.0 million of liabilities and issued $0.4 million of debt in theacquisition of Plus Events consumer shows and related assets of H & SProductions, LLC.

8

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**(4)STATEMENTS OF CASH FLOWS (continued)**

On March 7, 2006, AGHCmade an S corporation change of tax status election effective for 2006, whichincluded AGI 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 stockholders with their incometax liability, the Company made distributions of $2.6 million and $0.7 millionto its parent in the form of a dividend in March 2006 and August 2006,respectively.

In August 2006, theCompany assumed $0.3 million of liabilities and issued $0.1 million of debt inthe acquisition of the publishing assets of American Guide Services, Inc.

In September 2006, theCompany assumed $0.4 million of liabilities and issued $0.2 million of debt inthe asset acquisition of four North Carolina RV shows from Apple RockAdvertising and Promotions, Inc.

**5)GOODWILL AND INTANGIBLE ASSETS**

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

There were no changes inthe Company’s goodwill by business segment for the nine months ended September30, 2006 and 2005.

As noted above, theCompany completed several acquisitions in 2006. Such acquisitions have been accounted for as a purchase in accordancewith FASB No. 141, “Business Combinations,” and accordingly, the acquiredassets and liabilities have been recorded at fair value.  The allocations of purchase price to assetsand liabilities include various finite lived assets and no additionalgoodwill.  The operations of each entityare included in the operations of the Company from the respective acquisitiondates.

9

----

 

**5)GOODWILL AND INTANGIBLE ASSETS (continued)**

Finite lived intangibleassets, related accumulated amortization and weighted average useful lifeconsisted of the following at September 30, 2006 (in thousands, except asnoted):
| ** **                                       | ** ** | **Weighted**                  | ** ** | ** **      | ** ** | ** **       | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|-------------------------------|------------|-----------------|------------|------------------|------------|------------|------------|
| ** **                                       | ** ** | **Average Useful**       | ** ** | **Accumulated** | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | **Life (in years)** | ** ** | **Gross**       | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
|                                             |       |                          |       |            |       |             |       |       |       |
| Membership and  customer lists                   |       | 6                             |       | $               | 28,946     |             | $          | (10,349    | )          | $ | 18,597 |   |
| Resort and golf  course participation agreements |       | 23                            |       | 13,497          |       | (12,297          | )          | 1,200      |       |
| Non-compete and  deferred consulting agreements  |       | 15                            |       | 18,830          |       | (12,363          | )          | 6,467      |       |
| Deferred  financing costs                        |       | 7                             |       | 10,769          |       | (4,591           | )          | 6,178      |       |
|                                             |       |                          |       | $               | 72,042     |             | $          | (39,600    | )          | $ | 32,442 |   |

 

**(6) NOTES OFFERING, GUARANTOR ANDNON-GUARANTOR FINANCIAL INFORMATION**

In February 2004, the Company issued $200.0million of 9% Senior Subordinated Notes (“Senior Subordinated Notes”) due 2012pursuant to the AGI Indenture.  On June8, 2006, the Company amended its Amended and Restated Credit Agreement topermit the Company to repurchase up to $30.0 million of the Senior SubordinatedNotes from time to time as and when the Company determines.  The Company purchased and retired $24.8million, $4.9 million, and $0.2 million of the Senior Subordinated Notes inJune, July and August of 2006, respectively. Interest is payable on the remaining Senior Subordinated Notes twice ayear on February 15 and August 15.  TheCompany’s present and future restricted subsidiaries will guarantee the SeniorSubordinated Notes with unconditional guarantees of payment that will rankjunior in right of payment to their existing and future senior debt, but willrank equal in right of payment to their existing and future senior subordinateddebt.  All of the Company’s subsidiarieshave jointly and severally guaranteed the indebtedness under the SeniorSubordinated Notes except for CWFR Capital Corp.  Full financial statements of the Guarantorshave not been included because, pursuant to their respective guarantees, theGuarantors are jointly and severally liable with respect to the SeniorSubordinated Notes.

10

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**(6) NOTES OFFERING, GUARANTOR ANDNON-GUARANTOR FINANCIAL INFORMATION (continued)**

The following are summarized statements setting forth certain financialinformation concerning the Guarantor Subsidiaries as of and for the nine monthsended September 30, 2006 (in thousands).

 
| ** **                                          | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|-----------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                          | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
|                                                |       |       |       |           |       |          |       |             |       |             |       |
| Cash & cash  equivalents                        |       | $          | 8,755      |           | $          | 1,119         |       | $                | —     |             | $          | — |   | $ | 9,874 |   |
| Accounts receivable,  net                           |       | 199        |       | 107,167        |       | —        |       | (86,473          | )          | 20,893           |       |
| Inventories                                         |       | —     |       | 53,168         |       | —        |       | —           |       | 53,168           |       |
| Other current assets                                |       | 1,708      |       | 18,422         |       | —        |       | —           |       | 20,130           |       |
| Total current assets                                |       | 10,662     |       | 179,876        |       | —        |       | (86,473          | )          | 104,065          |       |
|                                                |       |       |       |           |       |          |       |             |       |             |       |
| Property and equipment,  net                        |       | 6,151      |       | 25,243         |       | —        |       | —           |       | 31,394           |       |
| Intangible assets                                   |       | 6,216      |       | 26,226         |       | —        |       | —           |       | 32,442           |       |
| Goodwill                                            |       | 67,584     |       | 76,845         |       | —        |       | —           |       | 144,429          |       |
| Investment in  subsidiaries                         |       | 518,214    |       | 81,005         |       | —        |       | (599,219         | )          | —           |       |
| Affiliate note and  investments                     |       | 44,697     |       | —         |       | 81,005        |       | (40,000          | )          | 85,702           |       |
| Other assets                                        |       | 809        |       | 827            |       | —        |       | —           |       | 1,636            |       |
| Total assets                                        |       | $          | 654,333    |           | $          | 390,022       |       | $                | 81,005     |             | $          | (725,692 | ) | $ | 399,668 |   |
|                                                |       |       |       |           |       |          |       |             |       |             |       |
| Accounts payable                                    |       | $          | 179        |           | $          | 20,597        |       | $                | —     |             | $          | — |   | $ | 20,776 |   |
| Accrued and other  liabilities                      |       | 17,279     |       | 24,332         |       | —        |       | —           |       | 41,611           |       |
| Current portion of  long-term debt                  |       | 87,873     |       | 42,512         |       | —        |       | (126,473         | )          | 3,912            |       |
| Current portion of  deferred revenue                |       | 815        |       | 71,433         |       | —        |       | —           |       | 72,248           |       |
| Total current  liabilities                          |       | 106,146    |       | 158,874        |       | —        |       | (126,473         | )          | 138,547          |       |
|                                                |       |       |       |           |       |          |       |             |       |             |       |
| Deferred revenue                                    |       | 2,692      |       | 35,649         |       | —        |       | —           |       | 38,341           |       |
| Long-term debt                                      |       | 277,519    |       | 5,357          |       | —        |       | —           |       | 282,876          |       |
| Other long-term  liabilities                        |       | 349,917    |       | (328,072       | )          | —        |       | —           |       | 21,845           |       |
| Total liabilities                                   |       | 736,274    |       | (128,192       | )          | —        |       | (126,473         | )          | 481,609          |       |
|                                                |       |       |       |           |       |          |       |             |       |             |       |
| Interdivisional equity                              |       | —     |       | 518,214        |       | 81,005        |       | (599,219         | )          | —           |       |
| Stockholders’ deficit                          |       | (81,941    | )          | —         |       | —        |       | —           |       | (81,941          | )          |
|                                                |       |       |       |           |       |          |       |             |       |             |       |
| Total liabilities &  stockholders’ deficit |       | $          | 654,333    |           | $          | 390,022       |       | $                | 81,005     |             | $          | (725,692 | ) | $ | 399,668 |   |

 
|                                                   |   |    |       |           | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|--------------------------------------------------------|--------|---------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
|                                                   |   | **AGI** | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** |       |
| Revenue                                                |   | $       | 4,789      |           | $          | 381,124       |       | $                | —     |             | $          | — |   | $ | 385,913 |   |
| Costs applicable  to revenues                          |   | (10,657 | )          | (230,451       | )          | —        |       | —           |       | (241,108         | )          |
| Operating  expenses                                    |   | (14,707 | )          | (100,451       | )          | —        |       | —           |       | (115,158         | )          |
| Interest  expense, net                                 |   | (12,915 | )          | (5,685         | )          | —        |       | —           |       | (18,600          | )          |
| Income from  investment in consolidated subsidiaries   |   | 31,591  |       | —         |       | —        |       | (31,591          | )          | —           |       |
| Other non  operating income (expenses)                 |   | 3,826   |       | (4,584         | )          | —        |       | —           |       | (758             | )          |
| Income tax  benefit (expense)                          |   | (14,216 | )          | (8,362         | )          | —        |       | —           |       | (22,578          | )          |
| Net income  (loss)                                     |   | $       | (12,289    | )              | $          | (31,591       | )          | $                | —     |             | $          | (31,591 | ) | $ | (12,289 | ) |
|                                                   |   |    |       |           |       |          |       |             |       |             |       |
| Cash flows from  operations                            |   | $       | (18,771    | )              | $          | 53,065        |       | $                | —     |             | $          | — |   | $ | 34,294 |   |
| Cash flows used  in investing activities               |   | (1,995  | )          | (9,912         | )          | —        |       | —           |       | (11,907          | )          |
| Cash flows (used  in) provided by financing activities |   | 3,100   |       | (40,391        | )          | —        |       | —           |       | (37,291          | )          |
| Cash at  beginning of year                             |   | 26,421  |       | (1,643         | )          | —        |       | —           |       | 24,778           |       |
| Cash at end of period                                  |   | $       | 8,755      |           | $          | 1,119         |       | $                | —     |             | $          | — |   | $ | 9,874 |   |

 

11

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**(6) NOTES OFFERING, GUARANTOR ANDNON-GUARANTOR FINANCIAL INFORMATION (continued)**

The following are summarized statements setting forth certain financialinformation concerning the Guarantor Subsidiaries for the three months endedSeptember 30, 2006 (in thousands).

 
| ** **                                           | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                           | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
|                                                 |       |       |       |           |       |          |       |             |       |             |       |
| Revenue                                              |       | $          | 1,189      |           | $          | 128,851       |       | $                | —     |             | $          | — |   | $ | 130,040 |   |
| Costs applicable  to revenues                        |       | (3,005     | )          | (78,300        | )          | —        |       | —           |       | (81,305          | )          |
| Operating  expenses                                  |       | (5,449     | )          | (35,248        | )          | —        |       | —           |       | (40,697          | )          |
| Interest  expense, net                               |       | (4,514     | )          | (1,470         | )          | —        |       | —           |       | (5,984           | )          |
| Income from  investment in consolidated subsidiaries |       | 12,287     |       | —         |       | —        |       | (12,287          | )          | —           |       |
| Other non  operating income (expenses)               |       | 1,459      |       | (1,577         | )          | —        |       | —           |       | (118             | )          |
| Income tax  benefit (expense)                        |       | 2,261      |       | 31             |       |          |       |             |       | 2,292            |       |
| Net income (loss)                                    |       | $          | 4,228      |           | $          | 12,287        |       | $                | —     |             | $          | (12,287 | ) | $ | 4,228 |   |

 

The following are summarized balance sheet statements setting forthcertain financial information concerning the Guarantor Subsidiaries as ofDecember 31, 2005 (in thousands).

 
| ** **                                          | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|-----------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                          | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
|                                                |       |       |       |           |       |          |       |             |       |             |       |
| Cash & cash  equivalents                        |       | $          | 26,421     |           | $          | (1,643        | )          | $                | —     |             | $          | — |   | $ | 24,778 |   |
| Accounts  receivable, net                           |       | 317        |       | 96,077         |       | —        |       | (69,886          | )          | 26,508           |       |
| Inventories                                         |       | —     |       | 47,039         |       | —        |       | —           |       | 47,039           |       |
| Other current  assets                               |       | 4,769      |       | 11,444         |       | —        |       | —           |       | 16,213           |       |
| Total current  assets                               |       | 31,507     |       | 152,917        |       | —        |       | (69,886          | )          | 114,538          |       |
|                                                |       |       |       |           |       |          |       |             |       |             |       |
| Property and  equipment, net                        |       | 5,680      |       | 24,163         |       | —        |       | —           |       | 29,843           |       |
| Intangible  assets                                  |       | 8,245      |       | 26,327         |       | —        |       | —           |       | 34,572           |       |
| Goodwill                                            |       | 67,584     |       | 76,845         |       | —        |       | —           |       | 144,429          |       |
| Investment in  subsidiaries                         |       | 468,270    |       | 81,005         |       | —        |       | (549,275         | )          | —           |       |
| Affiliate note  and investments                     |       | 44,795     |       | —         |       | 81,005        |       | (40,073          | )          | 85,727           |       |
| Other assets                                        |       | 11,844     |       | (5,493         | )          | —        |       | —           |       | 6,351            |       |
| Total assets                                        |       | $          | 637,925    |           | $          | 355,764       |       | $                | 81,005     |             | $          | (659,234 | ) | $ | 415,460 |   |
|                                                |       |       |       |           |       |          |       |             |       |             |       |
|                                                |       |       |       |           |       |          |       |             |       |             |       |
| Accounts payable                                    |       | $          | 985        |           | $          | 11,698        |       | $                | —     |             | $          | — |   | $ | 12,683 |   |
| Accrued and  other liabilities                      |       | 18,932     |       | 22,524         |       | —        |       | —           |       | 41,456           |       |
| Current portion  of long-term debt                  |       | 72,561     |       | 43,534         |       | —        |       | (109,959         | )          | 6,136            |       |
| Current portion  of deferred revenue                |       | 1,592      |       | 59,402         |       | —        |       | —           |       | 60,994           |       |
| Total current  liabilities                          |       | 94,070     |       | 137,158        |       |          |       | (109,959         | )          | 121,269          |       |
|                                                |       |       |       |           |       |          |       |             |       |             |       |
| Deferred revenue                                    |       | 2,785      |       | 35,141         |       | —        |       | —           |       | 37,926           |       |
| Long-term debt                                      |       | 308,475    |       | 5,389          |       | —        |       | —           |       | 313,864          |       |
| Other long-term  liabilities                        |       | 298,960    |       | (290,194       | )          | —        |       | —           |       | 8,766            |       |
| Total  liabilities                                  |       | 704,290    |       | (112,506       | )          |          |       | (109,959         | )          | 481,825          |       |
|                                                |       |       |       |           |       |          |       |             |       |             |       |
| Interdivisional  equity                             |       | —     |       | 468,270        |       | 81,005        |       | (549,275         | )          | —           |       |
| Stockholders’  deficit                         |       | (66,365    | )          | —         |       | —        |       | —           |       | (66,365          | )          |
|                                                |       |       |       |           |       |          |       |             |       |             |       |
| Total liabilities &  stockholder’s deficit |       | $          | 637,925    |           | $          | 355,764       |       | $                | 81,005     |             | $          | (659,234 | ) | $ | 415,460 |   |

 

12

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**(6) NOTES OFFERING, GUARANTOR ANDNON-GUARANTOR FINANCIAL INFORMATION (continued)**

The following are summarized statementssetting forth certain financial information concerning the GuarantorSubsidiaries for the nine months ended September 30, 2005 (in thousands).

 
| ** **                                             | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|--------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                             | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
| Revenue                                                |       | $          | 4,648      |           | $          | 361,968       |       | $                | —     |             | $          | — |   | $ | 366,616 |   |
| Costs applicable  to revenues                          |       | (10,176    | )          | (218,567       | )          | —        |       | —           |       | (228,743         | )          |
| Operating  expenses                                    |       | (16,820    | )          | (88,957        | )          | —        |       | —           |       | (105,777         | )          |
| Interest  expense, net                                 |       | (13,951    | )          | (4,406         | )          | —        |       | —           |       | (18,357          | )          |
| Income from  investment in consolidated subsidiaries   |       | 29,013     |       | —         |       | —        |       | (29,013          | )          | —           |       |
| Other non  operating income (expenses)                 |       | 4,448      |       | (4,399         | )          | —        |       | —           |       | 49               |       |
| Income tax  benefit (expense)                          |       | 11,603     |       | (16,626        | )          | —        |       | —           |       | (5,023           | )          |
| Net income  (loss)                                     |       | $          | 8,765      |           | $          | 29,013        |       | $                | —     |             | $          | (29,013 | ) | $ | 8,765 |   |
|                                                   |       |       |       |           |       |          |       |             |       |             |       |
| Cash flows from  operations                            |       | $          | (20,476    | )              | $          | 34,823        |       | $                | —     |             | $          | — |   | $ | 14,347 |   |
| Cash flows used  in investing activities               |       | (83,309    | )          | (89,905        | )          | (81,005       | )          | 162,010          |       | (92,209          | )          |
| Cash flows (used  in) provided by financing activities |       | 107,026    |       | 53,893         |       | 81,005        |       | (162,010         | )          | 79,914           |       |
| Cash at  beginning of year                             |       | 24,852     |       | (288           | )          | —        |       | —           |       | 24,564           |       |
| Cash at end of period                                  |       | $          | 28,093     |           | $          | (1,477        | )          | $                | —     |             | $          | — |   | $ | 26,616 |   |

 

The following are summarized statementssetting forth certain financial information concerning the GuarantorSubsidiaries for the three months ended September 30, 2005 (in thousands).

** **
| ** **                                           | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                           | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
|                                                 |       |       |       |           |       |          |       |             |       |             |       |
| Revenue                                              |       | $          | 3,258      |           | $          | 121,459       |       | $                | —     |             | $          | — |   | $ | 124,717 |   |
| Costs applicable  to revenues                        |       | (4,953     | )          | (75,137        | )          | —        |       | —           |       | (80,090          | )          |
| Operating  expenses                                  |       | (6,011     | )          | (29,689        | )          | —        |       | —           |       | (35,700          | )          |
| Interest  expense, net                               |       | (4,945     | )          | (1,210         | )          | —        |       | —           |       | (6,155           | )          |
| Income from  investment in consolidated subsidiaries |       | 8,806      |       | —         |       | —        |       | (8,806           | )          | —           |       |
| Other non  operating income (expenses)               |       | 1,417      |       | (1,398         | )          | —        |       | —           |       | 19               |       |
| Income tax  benefit (expense)                        |       | 4,164      |       | (5,219         | )          | —        |       | —           |       | (1,055           | )          |
| Net income (loss)                                    |       | $          | 1,736      |           | $          | 8,806         |       | $                | —     |             | $          | (8,806 | ) | $ | 1,736 |   |

 

**(7) RECENT EVENTS**

On March 6, 2006, Camping World, Inc. (“Camping World”), a wholly-ownedsubsidiary of Affinity Group, Inc., entered into a Joint Venture Agreementwith FreedomRoads Holding Company, LLC, a Minnesota limited liability company (“FreedomRoads”).  FreedomRoadsis indirectly owned and controlled by Stephen Adams, the Chairman and indirectcontrolling shareholder of Affinity Group, Inc.  FreedomRoads, through its wholly-ownedsubsidiaries, owns and operates RV dealerships across the United States.  The Joint Venture Agreement provides that Camping World andFreedomRoads are to act cooperatively with a view to maximizing synergies andto locate, establish and utilize mutually beneficial relationships that areavailable only to the parties acting together that would not otherwise beavailable to either party independently. Certain executives of Camping World share their time with FreedomRoadsand are compensated separately by each company for their services.

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**ITEM2:**

 

AFFINITYGROUP, INC. AND SUBSIDIARIESMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION 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:
| ** **                                  | ** ** | **THREE MONTHS ENDED** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **9/30/2006**                    | ** ** | **9/30/2005** | ** ** | **Inc/(Dec)** | ** ** |
|                                        |       |                             |       |   |   |   |   |
| REVENUES:                                   |       |                             |       |   |   |   |   |
| Membership  services                        |       | 26.2                             | %          | 28.1 | % | (2.8 | )% |
| Publications                                |       | 11.0                             | %          | 11.2 | % | 2.4 | % |
| Retail                                      |       | 62.8                             | %          | 60.7 | % | 7.9 | % |
|                                        |       | 100.0                            | %          | 100.0 | % | 4.3 | % |
|                                        |       |                             |       |   |   |   |   |
| COSTS APPLICABLE TO  REVENUES:              |       |                             |       |   |   |   |   |
| Membership  services                        |       | 17.1                             | %          | 19.5 | % | (8.4 | )% |
| Publications                                |       | 7.7                              | %          | 8.3 | % | (4.0 | )% |
| Retail                                      |       | 37.7                             | %          | 36.4 | % | 8.1 | % |
|                                        |       | 62.5                             | %          | 64.2 | % | 1.5 | % |
|                                        |       |                             |       |   |   |   |   |
| GROSS PROFIT                                |       | 37.5                             | %          | 35.8 | % | 9.2 | % |
|                                        |       |                             |       |   |   |   |   |
| OPERATING EXPENSES:                         |       |                             |       |   |   |   |   |
| Selling, general  and administrative        |       | 27.7                             | %          | 25.4 | % | 13.2 | % |
| Depreciation and  amortization              |       | 3.6                              | %          | 3.2 | % | 20.1 | % |
|                                        |       | 31.3                             | %          | 28.6 | % | 14.0 | % |
|                                        |       |                             |       |   |   |   |   |
| INCOME FROM OPERATIONS                      |       | 6.2                              | %          | 7.2 | % | (10.0 | )% |
|                                        |       |                             |       |   |   |   |   |
| NON-OPERATING ITEMS:                        |       |                             |       |   |   |   |   |
| Interest income                             |       | 0.2                              | %          | 0.3 | % | (41.6 | )% |
| Interest expense                            |       | (4.8                             | )%         | (5.3 | )% | (4.9 | )% |
| Debt  extinguishment expense                |       | (0.1                             | )%         | — |   | (100.0 | )% |
| Other  non-operating items, net             |       | —                           |       | — |   | 26.3 | % |
|                                        |       | (4.7                             | )%         | (5.0 | )% | (0.6 | )% |
|                                        | ** ** | ** **                       |       |   |   |   |   |
| INCOME FROM OPERATIONS  BEFORE INCOME TAXES |       | 1.5                              | %          | 2.2 | % | (30.6 | )% |
|                                        |       |                             |       |   |   |   |   |
| INCOME TAX (EXPENSE)  BENEFIT               |       | 1.8                              | %          | (0.8 | )% | (317.3 | )% |
|                                        |       |                             |       |   |   |   |   |
| NET INCOME                                  |       | 3.3                              | %          | 1.4 | % | 143.5 | % |

 

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AFFINITY GROUP, INC. AND SUBSIDIARIESMANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIALCONDITION 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:
| ** **                                  | ** ** | **NINE MONTHS ENDED** | ** ** |
|---------------------------------------------|------------|---------------------------------|------------|
| ** **                                  | ** ** | **9/30/2006**                   | ** ** | **9/30/2005** | ** ** | **Inc/(Dec)** | ** ** |
|                                        |       |                            |       |   |   |   |   |
| REVENUES:                                   |       |                            |       |   |   |   |   |
| Membership services                         |       | 27.1                            | %          | 27.8 | % | 2.6 | % |
| Publications                                |       | 14.0                            | %          | 12.7 | % | 16.2 | % |
| Retail                                      |       | 58.9                            | %          | 59.5 | % | 4.2 | % |
|                                        |       | 100.0                           | %          | 100.0 | % | 5.3 | % |
|                                        |       |                            |       |   |   |   |   |
| COSTS APPLICABLE  TO REVENUES:              |       |                            |       |   |   |   |   |
| Membership services                         |       | 17.7                            | %          | 18.2 | % | 2.4 | % |
| Publications                                |       | 9.4                             | %          | 8.8 | % | 12.5 | % |
| Retail                                      |       | 35.4                            | %          | 35.4 | % | 5.2 | % |
|                                        |       | 62.5                            | %          | 62.4 | % | 5.4 | % |
|                                        |       |                            |       |   |   |   |   |
| GROSS PROFIT                                |       | 37.5                            | %          | 37.6 | % | 5.0 | % |
|                                        |       |                            |       |   |   |   |   |
| OPERATING  EXPENSES:                        |       |                            |       |   |   |   |   |
| Selling, general and administrative         |       | 26.2                            | %          | 25.7 | % | 7.4 | % |
| Depreciation and amortization               |       | 3.6                             | %          | 3.1 | % | 20.9 | % |
|                                        |       | 29.8                            | %          | 28.8 | % | 8.9 | % |
|                                        |       |                            |       |   |   |   |   |
| INCOME FROM  OPERATIONS                     |       | 7.7                             | %          | 8.8 | % | (7.6 | )% |
|                                        |       |                            |       |   |   |   |   |
| NON-OPERATING  ITEMS:                       |       |                            |       |   |   |   |   |
| Interest income                             |       | 0.2                             | %          | 0.2 | % | 33.7 | % |
| Interest expense                            |       | (5.0                            | )%         | (5.2 | )% | 2.5 | % |
| Debt extinguishment expense                 |       | (0.2                            | )%         | — |   | 100.0 | % |
| Other non-operating items, net              |       | —                          |       | — |   | 57.1 | % |
|                                        |       | (5.0                            | )%         | (5.0 | )% | 5.7 | % |
|                                        | ** ** | ** **                      |       |   |   |   |   |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES |       | 2.7                             | %          | 3.8 | % | (25.4 | )% |
|                                        |       |                            |       |   |   |   |   |
| INCOME TAX  EXPENSE                         |       | (5.9                            | )%         | (1.4 | )% | 349.5 | % |
|                                        |       |                            |       |   |   |   |   |
| NET (LOSS)  INCOME                          |       | (3.2                            | )%         | 2.4 | % | (240.2 | )% |

 

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**RESULTSOF OPERATIONS**

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

*Revenues*

Revenuesof $130.0 million for the third quarter of 2006 increased by $5.3 million, or4.3%, from the comparable period in 2005.

Membershipservices revenues of $34.1 million for the third quarter of 2006 decreased by$1.0 million, or 2.8%, from the comparable period in 2005.  This revenue decrease was largelyattributable to a $1.9 million decrease 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, and a $0.4 million reductionin dealer advertising program marketing revenue, partially offset by a $0.6million increase in extended vehicle warranty program revenue due to thecontinued growth of contracts in force, a $0.3 million revenue increase inemergency road service programs due to increased enrollment, a $0.2 millionrevenue increase from the rollout of our new discount camping club, Camp ClubUSA and a $0.2 million revenue increase in other ancillary products.

Publicationrevenues of $14.3 million for the third quarter of 2006 increased $0.3 million,or 2.4%, from the comparable period in 2005 primarily attributable to $0.7million of revenue from the consumer shows acquired in December 2005 andFebruary 2006, and a $0.2 million increase in advertising revenue formotorcycle-related magazines.  Theseincreases were partially offset by $0.6 million of reduced revenue relating tothe discontinuation of *Snowmobile Magazine*,an annual publication, and fewer issues of *Snow Week Magazine*.

Retail revenues of $81.6 millionincreased $6.0 million, or 7.9%, from the comparable period in 2005.  Store merchandise sales increasedapproximately $6.6 million over the third quarter of 2005 due to a $9.2 millionrevenue increase from the addition of seventeen new stores over the pasttwenty-one months, partially offset by a same store sales decrease of $2.6million, or 4.8%, compared to a 0.4% increase in the third 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 $1.0 million decrease in mail order sales, and a $0.4million increase in installation and service work.

*Costs Applicable to Revenues*

Costsapplicable to revenues totaled $81.3 million for the third quarter of 2006, anincrease of $1.2 million, or 1.5%, from the comparable period in 2005.

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Membership services costs and expenses of$22.3 million decreased $2.0 million, or 8.4%, from the comparable period in2005.  This decrease consisted of a $1.9million decrease in member event costs primarily due to timing of the Good SamClub annual rally and a $0.4 million decrease in costs associated with reduceddealer marketing revenue, partially offset by $0.3 million of incrementalmarketing and fulfillment costs relating to the start-up of a new discountcamping club, Camp Club USA.

Publication costs and expenses of $10.0million for the third quarter of 2006 decreased $0.4 million, or 4.0%, from thecomparable period in 2005.  This decreasewas attributable to reduced costs associated with the reduction of snow-relatedissues, partially offset by increased costs associated with the recentlyacquired consumer shows.

Retail costs applicable to revenuesincreased approximately $3.7 million, or 8.1%, to $49.0 million primarily as aresult of seventeen new stores opened over the past twenty-one months.  The retail gross profit margin of 39.9% forthe third quarter of 2006 decreased slightly from 40.1% for the comparableperiod in 2005.

*Operating Expenses*

Selling, general and administrativeexpenses of approximately $36.0 million for the third quarter of 2006 increased$4.2 million compared to the third quarter of 2005 primarily due to an increasein retail selling and general and administrative expenses of approximately $4.4million consisting of increases in wages, advertising, and other retail generaland administrative expenses, and a $0.3 million increase due to the newlyacquired consumer shows, partially offset by a $0.5 million decrease in deferredexecutive compensation expense.  Theincrease in retail selling, general and administrative expenses was primarilydue to new 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 related to new store openings, and amortization of intangible assetsassociated with the purchase of *Powerboat Magazine*inMay 2005 and the consumer show acquisitions in December 2005 and February 2006.

*Income from Operations*

Incomefrom operations for the third quarter of 2006 totaling $8.0 million decreased$0.9 million compared to the third quarter of 2005.  This decrease was primarily due to increasedoperating expenses of $5.0 million partially offset by increased gross profitfor retail, membership services and publications operations of $2.3 million,$1.1 million and $0.7 million, respectively.

*Non-Operating Items*

Non-operating items of $6.1 million forthe third quarter of 2006 remained unchanged from the same period in 2005.  A $0.3 million decrease in interest expensein 2006, 

17

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primarily due to a reduction inoutstanding debt resulting from the purchase and retirement of $29.9 million ofthe Senior Subordinated Notes, was offset by a $0.2 million decrease ininterest income and a $0.1 million increase in debt extinguishment expense,relating to the purchase and retirement of $5.1 million of the Company’s SeniorSubordinated Notes in the third quarter.

*Income before Income Taxes*

Income before income taxes for the thirdquarter of 2006 was $1.9 million, or $0.9 million lower than the third quarterof 2005.  This decrease was attributableto the $0.9 million decrease in income from operations for the current period.

*Income Tax (Expense) Benefit*

The Company recorded a $2.3 millionincome tax benefit for the third quarter of 2006, compared to a $1.1 millionincome tax expense for the third quarter of 2005.  This increase was primarily due to an incometax benefit recorded as a result of adjustments to the deferred assets andliabilities originally revalued in the second quarter of 2006.  Income taxes were not recorded in the third quarterfor the other companies which elected Subchapter S effective for 2006. OnlyCamping World Inc. and its wholly-owned subsidiaries remain Subchapter Ccorporations.  In 2005 the Company andall of its subsidiaries were Subchapter C corporations.

# *Net Income*

Net income in the third quarter of 2006was $4.2 million compared to $1.7 million for the same period in 2005 primarilydue an income tax benefit recognized in the third quarter of 2006 relating toCamping World, Inc. and its wholly-owned subsidiaries which remained SubchapterC corporations, partially offset by reduced operating income.

*Segment Profit*

Segment profit of $12.2million for the third quarter of 2006 (before unallocated depreciation andamortization, general and administrative, interest, and income tax expense)decreased $1.7 million, or 12.3%, from the comparable period in 2005.

Membership servicessegment profit of approximately $10.5 million for the third quarter of 2006increased $1.2 million, or 13.3%, from the comparable period in 2005.  This increase was largely attributable to a$0.9 million increase in profit from emergency road service products, a $0.2million increase in profit from the extended vehicle warranty programs, and$0.1 million of other ancillary product segment profit.

Publication segmentprofit of $2.1 million for the third quarter of 2006 decreased $0.1 million, or4.2%, from the comparable period in 2005. This decrease was largely attributable to an increase in amortization ofintangibles primarily relating to the show purchases in December 2005 and February2006, partially offset by an increase in profit for the motorcycle-relatedmagazines due to increased advertising revenue.

18

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Retail segment profitdecreased $2.9 million, or 114.7% from the third quarter in 2005 to a $0.4million loss in the third quarter of 2006. This decreaseresulted primarily from a $4.4 million increase in selling, general andadministrative expenses, a $0.6 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 on December 23,2005, and a $0.3 million increase indepreciation expense, partially offset by a $2.4 million increase in gross profit margin.

**Nine Months Ended September 30,2006Compared With Nine Months Ended September 30, 2005**

*Revenues*

Revenuesof $385.9 million for the first nine months of 2006 increased by approximately$19.3 million, or 5.3%, from the comparable period in 2005.

Membershipservices revenues of $104.6 million for the first nine months of 2006 increasedby approximately $2.7 million, or 2.6%, from the comparable period in2005.  This revenue increase was largelyattributable to a $2.2 million increase in extended vehicle warranty programrevenue due to the continued growth of contracts in force, a $0.7 millionrevenue increase in emergency road service programs due to increasedenrollment, a $0.3 million revenue increase from the rollout of the newdiscount camping club, Camp Club USA, a $0.2 million increase in advertisingrevenue for Highways Magazine, and a $0.4 million increase in other ancillaryproduct revenue.  These increases werepartially offset by a $1.1 million reduction in dealer program marketingrevenue.

Publicationrevenues of $54.0 million for the first nine months of 2006 increased $7.5million, or 16.2%, from the comparable period in 2005 primarily attributable to$6.6 million of revenue from the consumershow acquisitions, $1.3 million of additional revenue from the boating magazinegroup, primarily relating to the acquisition of *PowerboatMagazine*in May 2005, $0.5 million of additional advertising revenuefor powersports-related magazines, and $0.4 million of revenue from the updatededition of the campground atlas.  Theserevenue increases were partially offset by a $0.7million decrease in revenue relating to thediscontinuation of *Snowmobile Magazine*,an annual publication, and fewer issues of *Snow Week Magazine*, and a $0.6million decrease in advertising and subscription revenue associated with theRV-related titles.

Retail revenues of $227.3 millionincreased $9.1 million, or 4.2%, over the first nine months of 2005.  Store merchandise sales increasedapproximately $10.5 million over the first nine months of 2005 due to an $18.4million revenue increase from the addition of seventeen new stores over thepast twenty-one months, partially offset by a same store sales decrease of $7.9million or 5.0%, compared to a 4.9% increase in the first nine 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 

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preceding fiscal year.  This revenue increase was partially offset bya $1.4 million decrease in mail order sales.

*Costs Applicable to Revenues*

Costsapplicable to revenues totaled $241.1 million for the first nine months of2006, an increase of $12.4 million, or 5.4%, from the comparable period in2005.

Membership services costs and expenses of$68.4 million increased approximately $1.6 million, or 2.4%, from the firstnine months of 2005.  This increaseconsisted of $1.2 million of marketing and program expenses associated withincreased enrollment in the extended vehicle warranty programs and emergencyroad service programs, $1.1 million of costs associated with the start-up ofCamp Club USA, and $0.2 million of additional ancillary product costs.  These increases were partially offset by a$0.9 million reduction in costs related to reduced dealer program marketingrevenue.

Publication costs and expenses of $36.2 millionfor the first nine months of 2006 increased $4.0 million, or 12.5%, from thecomparable period in 2005 primarily due to a $3.0 million increase relating tothe newly acquired consumer shows, $1.1 million of additional costsattributable to *Powerboat Magazine* acquired May2005, $0.4 million of additional costs associated with an updated edition ofthe campground atlas and $0.3 million of costs associated with increased booksize of powersports-related magazines. These increases were partially offset by $0.4 million of reducedRV-related magazine expenses, and $0.4 million of reduced expenses related to afewer issues of snow-related titles.

Retail costs applicable to revenuesincreased $6.8 million, or 5.2%, to $136.5 million primarily due to an increasein sales due to the seventeen new stores opened over the past twenty-one monthsand a slight decrease in the retail gross profit margin.  The retail gross profit margin of 40.0% forthe first nine months of 2006 decreased from 40.6% for the comparable period in2005 primarily due to an increase in lower margin wholesale sales to dealers.

*Operating Expenses*

Selling, general and administrativeexpenses of approximately $101.3 million for the first nine months of 2006increased $7.0 million, or 7.4%, compared to the first nine months of 2005primarily due to an increase in retail selling and general and administrativeexpenses of approximately $7.9 million consisting of increases in wages,selling expenses, and other retail general and administrative expensesassociated primarily with new stores opened, a $0.8 million increase due to thenewly acquired consumer shows, and $0.3 million of other general andadministrative expenses, partially offset by a $2.0 million decrease indeferred executive compensation expense.

Depreciation and amortization expense of$13.8 million increased $2.4 million over the prior year primarily due toincreased depreciation on additional capital expenditures at Camping Worldrelated to new stores and amortization of intangible assets associated 

20

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with the purchase of *PowerboatMagazine*in May 2005 and the acquisition of consumer shows inDecember 2005 and February 2006.

*Income from Operations*

Incomefrom operations for the first nine months of 2006 totaling $29.6 milliondecreased $2.4 million compared to the first nine months of 2005.  This decrease was primarily due to increasedoperating expenses of $9.4 million partially offset by increased gross profitfor the publications, retail and membership services operations of $3.5 million,$2.4 million and $1.1 million, respectively.

*Non-Operating Items*

Non-operating items were approximately$19.4 million for the first nine months of 2006, a $1.1 million increase over2005.  This increase is comprised of $0.5million of additional interest expense in 2006 due to higher interest rates and$0.8 million of debt extinguishment expense relating to the purchase andretirement of $29.9 million of the Company’s Senior Subordinated Notes,partially offset by a $0.2 million increase in interest income.

*Income before Income Taxes*

Income before income taxes for the firstnine months of 2006 was $10.3 million, or $3.5 million lower than the firstnine months of 2005.  This decrease wasattributable to a $2.4 million decrease in income from operations for thecurrent period, a $0.3 million increase in net interest expense, and $0.8million of debt extinguishment expense.

*Income Tax Expense*

The Company recorded$22.6 million of income tax expense for the first nine months of 2006, anincrease of $17.6 million from the first nine months of 2005.  This increase was primarily due to AGHC’s Scorporation change of tax status election effective for 2006, which includedAGI and all its subsidiaries, with the exception of Camping World, Inc. and itswholly-owned subsidiaries which remain Subchapter C corporations.  As a result, all deferred tax assets andliabilities were revalued in the second quarter of 2006, with the exception ofthose related to Camping World, Inc. and its wholly-owned subsidiaries.  Deferred tax liabilities related to CampingWorld, Inc and its wholly-owned subsidiaries which remained Subchapter Ccorporations were approximately $12.6 million. As a result of the Company’s change of tax status to S corporation, adeferred tax liability related to a Subchapter S corporation of approximately$2.8 million was recorded on the financial statements for a potential taxliability in prior C corporation years. As of September 30, 2006, all deferredtax assets relate solely to Camping World, Inc.

# *Net (Loss) Income*

Net loss in the first nine months of 2006was $12.3 million compared to net income $8.8 million for the same period in2005 primarily due to income tax expense of $23.4 million in the third quarterof 2006 as a result of the S corporation change of tax status election 

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for the Company (other than CampingWorld, Inc. and its wholly-owned subsidiaries) being effective during thesecond quarter as discussed above.

*Segment Profit*

Segment profit of $39.3million for the first nine months of 2006 (before unallocated depreciation andamortization, general and administrative, interest, and income tax expense)decreased $5.6 million, or 12.6%, from the comparable period in 2005.

Membership servicessegment profit of $32.2 million for the first nine months of 2006 increased$1.9 million, or 6.3%, from the comparable period in 2005.  This increase was largely attributable to a$2.0 million increase in profit from emergency road service products, and a $0.8million increase in profit from the extended vehicle warranty programs,partially offset by a $0.9 million decrease in profit attributable to themarketing rollout of Camp Club USA.

Publication segmentprofit of $11.3 million for the first nine months of 2006 increased $0.9million, or 8.7%, from the comparable period in 2005.  This increase was largely attributable to a$1.1 million profit increase for the newly acquired show group and a $0.2million profit increase related to the *Powerboat Magazine*acquisition,partially offset by a $0.4 million decrease in profit for the RV-relatedmagazines.

Retail segment loss forthe first nine months of 2006 was $4.2 million, resulting in a reduction ofprofit of $8.5 million from the comparable period in 2005.  This decrease in profit resulted primarily from a $7.9 million increasein selling, general and administrative expenses, a $0.9 million increase indepreciation and amortization expense and a $2.4 million increase in interestexpense relating to intercompany debt issued as a result of the CampingWorld, Inc. $40.0 million dividend declared and paid in the form of a noteDecember 23, 2005, partially offset bya $2.7 million increase in gross profit margin.

**LIQUIDITY AND CAPITAL RESOURCES**

The Company has historically operated with a workingcapital deficit.  The working capitaldeficit as of September 30, 2006 and December 31, 2005 was $34.5 million and$6.7 million, respectively.  The primaryreason for the working capital deficit is the deferred revenue and gainsreported under current liabilities in the amount of $72.2 million and $61.0million as of September 30, 2006 and December 31, 2005, respectively.  Deferred revenue is primarily comprised ofcash collected for club memberships in advance, which is amortized over thelife of the membership.  The Company usesnet proceeds from this deferred membership revenue to lower its long-termborrowings. The working capital deficit increased compared to the prioryear-end primarily due to the purchase and retirement of $29.9 million of the SeniorSubordinated Notes and a seasonal increase in deferred revenue and accountspayable.  Management believes that fundsgenerated by operations together with available borrowings under the Company’srevolving credit line will be sufficient to meet all of the Company’s debtservice requirements and capital requirements over the next twelve months.  Further, management believes that the changein the tax status to a 

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Subchapter S corporation for the Company and all itssubsidiaries, with the exception of Camping World, Inc. and its wholly-ownedsubsidiaries, has not limited the Company’s ability to issue debt through thecapital markets but may limit the ability of the Company to raise funds in theequity market.

*Contractual Obligations andCommercial Commitments*

Thefollowing table reflects our contractual obligations and commercial commitmentsat September 30, 2006.  This tableincludes principal and future interest due under our debt agreements based oninterest rates as of September 30, 2006 and assumes debt obligations will beheld to maturity.
| ** **                                | ** ** | **Payments Due by Period** | ** ** |
|-------------------------------------------|------------|-------------------------------------------|------------|
| ***(in thousands)***                 | ** ** | **Total**                                 | ** ** | **Balance of   2006** | ** ** | **2007 and   2008** | ** ** | **2009 and   2010** | ** ** | **Thereafter** | ** ** |
|                                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Long-term debt  and future interest       |       | $                                         | 394,435    |   | $ | 4,305 |   | $ | 55,598 |   | $ | 141,475 |   | $ | 193,057 |   |
| Operating lease  obligations              |       | 130,341                                   |       | 3,503 |   | 21,789 |   | 17,624 |   | 87,425 |   |
| Deferred  compensation                    |       | 6,160                                     |       | 25 |   | 4,780 |   | 1,355 |   | — |   |
| Standby and  commercial letters of credit |       | 7,214                                     |       | 6,364 |   | 850 |   | — |   | — |   |
| Grand total                               |       | $                                         | 538,150    |   | $ | 14,197 |   | $ | 83,017 |   | $ | 160,454 |   | $ | 280,482 |   |

 

On June 24, 2003, theCompany entered into an Amended and Restated Credit Agreement and a SeniorSecured Floating Rate Note Purchase Agreement (as amended, the Senior CreditFacility).  The Senior Credit Facilityprovides for a revolving credit facility of $35.0 million and term loans in theaggregate of $140.0 million.  As ofSeptember 30, 2006, $108.8 million was outstanding under the term loans.  No borrowings were outstanding on therevolving credit facility as of September 30, 2006.  Reborrowings under the term loans are notpermitted.  The interest on borrowingsunder the Senior Credit Facility is at variable rates based on the ratio oftotal cash flow to outstanding indebtedness (as defined).  Interest rates float with prime and theLondon Interbank Offered Rates, or LIBOR, plus an applicable margin rangingfrom 1.50% to 2.50% over the stated rates. As of September 30, 2006, the average interest rate on the term loanswas 7.82%, and permitted borrowings under the undrawn revolving facility were $27.8million.  The Company also pays acommitment fee of 0.5% per annum on the unused amount of the revolving creditfacility.  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 Senior CreditFacility 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 September 30, 2006, the Company hadletters of credit in the aggregate amount of $7.2 million outstanding.  The 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, we issued $200.0 million aggregateprincipal amount of 9% Senior Subordinated Notes due 2012 (“Senior SubordinatedNotes”).  The Company completed aregistered exchange of the Senior Subordinated Notes under the Securities Actof 1933 in August 2004.  The proceedsfrom the sale of the Senior 

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Subordinated Notes were used to fund the tender offerand defeasance of the remaining $100.0 million outstanding principal amount ofthe subordinated notes previously issued by AGI, prepay $25.0 million of theTerm Loans under our Senior Credit Facility, pay a $60.0 million dividenddistribution, create a $15.0 million segregated cash account, pay certainprepayment and transaction costs and for general corporate purposes.  The amount held in this segregated account,including any earnings thereon, was available to pay stockholder dividends uponsatisfaction of a leverage test specified in our Senior Credit Facility.  In August and November of 2004, we satisfiedthe specific leverage test and paid $3.6 million and $11.5 million individends, respectively.

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

On March 6, 2006, Camping World, a wholly-ownedsubsidiary of AGI, entered into a Joint Venture Agreement withFreedomRoads.  FreedomRoads is indirectly owned and controlled by Stephen Adams, theChairman and indirect controlling shareholder of Affinity Group, Inc.   FreedomRoads, through its wholly-ownedsubsidiaries, owns and operates RV dealerships across the United States.  The Joint Venture Agreement provides that Camping World andFreedomRoads are to act cooperatively with a view to maximizing synergies andto locate, establish and utilize mutually beneficial relationships that areavailable only to the parties acting together that would not otherwise beavailable to either party independently.

OnJune 8, 2006, the Company amended its Senior Credit Facility to permit theCompany to purchase up to $30.0 million of the AGI Senior Subordinated Notesfrom time to time as and when the Company determines.  The Company purchased $4,841,000,$20,000,000, $3,365,000, $1,500,000 and $200,000 of the Senior SubordinatedNotes on June 14, 2006, June 20, 2006, July 18, 2006, July 24, 2006 and August3, 2006, respectively.  The SeniorSubordinated Note purchases were made with available cash and the notespurchased have been retired.  As of September30, 2006, $170.1 million of Senior Subordinated Notes remain outstanding.

The AGI Indenturepursuant to which the AGI Senior Subordinated Notes were issued and the SeniorCredit Facility contain certain restrictive covenants relating to, but notlimited to, mergers, changes in the nature of the business, acquisitions,additional indebtedness, sale of assets, investments, and the payment ofdividends subject to certain limitations and minimum operating covenants.  The Company was in compliance with all debtcovenants at September 30, 2006.

In March 2005, AGHI, theCompany’s parent, issued $88.2 million principal amount of the 10-7/8% seniornotes due February 15, 2012 (the “AGHI Notes”). Interest on the 

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AGHI notes is payablesemi-annually on February 15 and August 15. For interest payments on and prior to February 15, 2008, AGHI may electto pay interest on the AGHI Notes in cash or by issuance of additional notes ofthe same tenor as the AGHI Notes, except the maturity date is March 15,2010.  AGI has not paid any dividends toAGHI to fund payment of interest on the AGHI Notes and AGHI made the interestpayments due on August 15, 2005, February 15, 2006 and August 15, 2006 throughissuance of additional notes.  AGIexpects to issue additional notes of the same tenor as the AGHI Notes throughFebruary 15, 2008 to pay interest on the AGHI Notes when and as such interestis due.

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 from 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., a subsidiaryof Ehlert Publishing Group, Inc., acquired the consumer outdoor recreation showassets of Royal Productions, Inc. for $8.5 million. As part of the purchase,the Company issued $0.6 million of debt and assumed $1.8 million ofliabilities.

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 $1.0million of liabilities.  In August 2006,TL Enterprises, Inc. acquired the consumer park guides and related assets ofAmerican Guide Services, Inc for $1.0 million. As part of the purchase, the Company issued $0.1 million of debt andassumed $0.3 million of liabilities.  InSeptember 2006, Ehlert Publishing, Inc. acquired the consumer shows and relatedassets of Apple Rock Advertising and Promotions, Inc. for $1.2 million.  As part of the purchase, the Company issued$0.2 million of debt and assumed $0.4 million of liabilities.

For the nine months endedSeptember 30, 2006, the Company incurred $0.9 million of deferred executivecompensation expense under the phantom stock agreements and made payments of$0.8 million on the pay-out provisions of mature phantom stock agreements.  The earned incentives under these agreementsare scheduled to be paid at various times over the next three years.  Phantom stock payments of $25,000 arescheduled to**be made for the remainder of 2006.

Capital expenditures forthe first nine months of 2006 totaling $9.2 million increased $0.6 million fromthe first nine months of 2005 primarily due to the addition of new retailstores in 2006.  Additional capitalexpenditures of $6.5 million are anticipated for the balance of 2006, primarilyfor new Camping World stores, updating existing store fronts, and computerhardware and software upgrades and enhancements.

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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.

*RevenueRecognition*

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

*AccountsReceivable*

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

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

*Inventory*

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

*Long-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 September30, 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.

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*Indefinite Lived IntangibleAssets*

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

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

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

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.

*Income Taxes*

Significant judgment is required in determiningthe Company’s tax provision and in evaluating its tax positions.  The Company establishes accruals for certaintax contingencies when, despite the belief that the Company’s tax returnpositions are fully supported, the Company believes that certain positions maybe challenged and that the Company’s positions may not be fully sustained.  The tax contingency accruals are adjusted inlight of changing facts and circumstances, such as the progress of tax audits,case law and emerging legislation.  TheCompany’s tax provision includes the impact of tax contingency accruals andchanges to the accruals, including related interest, as considered appropriateby management.

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**ITEM3:  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

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

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

*Interest Rate SensitivityAnalysis*

At September 30, 2006, we had debt totaling$286.8 million, comprised of $108.8 million of variable rate debt and $178.0million of fixed rate debt.  Holdingother variables constant (such as debt levels), the earnings and cash flowimpact of a one-percentage point increase/ decrease in interest rates wouldhave an unfavorable/ favorable impact of approximately $1.1 million.

*Credit Risk*

We are exposed to credit risk on accountsreceivable.  We provide credit tocustomers in the ordinary course of business and perform ongoing creditevaluations.  Concentrations of creditrisk with respect to trade receivables are limited due to the number ofcustomers comprising our customer base. We currently believe our allowance for doubtful accounts is sufficientto 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 ChiefFinancial Officer concluded that the disclosure controls and procedures areeffective in timely alerting them to material information relating to theCompany (including its consolidated subsidiaries) required to be included inthe periodic SEC filings.  There havebeen no significant changes in the Company’s internal controls or in otherfactors that could significantly affect these controls subsequent to the datethe Company carried out 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, INC.**   |
|-------------------------|--------|----------------------------|
| ** **              |   | ** **                 |
| ** **              |   | ** **                 |
|                    |   | /s/ Thomas F. Wolfe        |
| Date: November  3, 2006 |   | Thomas F. Wolfe            |
|                    |   | Senior Vice  President and |
|                    |   | Chief Financial  Officer   |

 

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