** **

**UNITED STATES**

##### **SECURITIES AND EXCHANGE COMMISSION**

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

###### ** **

**FORM 10-Q**

** **

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

 

| **For  Quarter Ended:**  | ** ** | **Commission  File Number** |
|--------------------------|------------|-----------------------------|
| **March 31,  2008** |       | **333-113982**              |

 

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**AFFINITYGROUP, INC.**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                              | ** ** | **13-3377709**                        |
|-------------------------------------------|------------|---------------------------------------|
| (State of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |

 

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

 

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

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

**9% SeniorSubordinated Notes Due 2012**

 

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

 

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

 

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

 

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

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).

 

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

 

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

 

|                          |       | **Outstanding  as of** |
|-------------------------------|------------|------------------------|
| **Class**                     | ** ** | **May 9,  2008**  |
| Common Stock, $.001 par value |       | 2,000                  |

 

**DOCUMENTSINCORPORATED BY REFERENCE:  None**

** **

** **

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**AFFINITY GROUP, INC. ANDSUBSIDIARIES**

** **

**INDEX**

 
| ** **                                                                                                |   |
|-----------------------------------------------------------------------------------------------------------|--------|
|                                                                                                      |   |
| **Part I.**Financial  Information                                                                    |   |
|                                                                                                      |   |
| **Item 1: Financial Statements**                                                                          |   |
|                                                                                                      |   |
| Consolidated Balance Sheets  as of March 31, 2008 (unaudited) and December 31, 2007             |   |
|                                                                                                      |   |
| Unaudited Consolidated Statements  of Operations  for the three months ended March 31, 2008 and 2007 |   |
|                                                                                                      |   |
| Unaudited Consolidated  Statements of Cash Flows  for the three months ended March 31, 2008 and 2007 |   |
|                                                                                                      |   |
| Notes to Unaudited Consolidated Financial Statements                                                      |   |
|                                                                                                      |   |
| **Item 2: Management’s Discussion and Analysis of  Financial Condition and Results of Operations**   |   |
|                                                                                                      |   |
| **Item 3: Quantitative and Qualitative Disclosures about  Market Risk**                                   |   |
|                                                                                                      |   |
| **Item  4: Controls and Procedures**                                                                      |   |
|                                                                                                      |   |
| **Part II. Other Information**                                                                       |   |
|                                                                                                      |   |
| **Signatures**                                                                                            |   |

 

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AFFINITYGROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 31,2008 and December 31, 2007

(Inthousands except shares and par value)

 
| ** **                                                                                      | ** ** | **3/31/2008**   | ** ** | **12/31/2007** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|
| ** **                                                                                      | ** ** | **(Unaudited)** | ** ** | ** **     | ** ** |
| **ASSETS**                                                                                      |       |            |       |           |       |
| CURRENT ASSETS:                                                                                 |       |            |       |           |       |
| Cash and cash equivalents                                                                       |       | $               | 705        |           | $          | 8,357 |   |
| Accounts receivable, less allowance for doubtful  accounts of $1,522 in 2008 and $1,473 in 2007 |       | 31,466          |       | 33,330         |       |
| Inventories                                                                                     |       | 67,428          |       | 64,209         |       |
| Prepaid expenses and other assets                                                               |       | 16,684          |       | 14,430         |       |
| Deferred tax assets                                                                             |       | 3,980           |       | 3,922          |       |
| Total current assets                                                                            |       | 120,263         |       | 124,248        |       |
|                                                                                            |       |            |       |           |       |
| PROPERTY AND EQUIPMENT, net                                                                     |       | 44,796          |       | 44,307         |       |
| INVESTMENT IN AFFILIATE                                                                         |       | 81,005          |       | 81,005         |       |
| AFFILIATE NOTES AND INVESTMENTS                                                                 |       | 4,640           |       | 4,650          |       |
| INTANGIBLE ASSETS, net                                                                          |       | 26,607          |       | 23,695         |       |
| GOODWILL                                                                                        |       | 144,429         |       | 144,429        |       |
| OTHER ASSETS                                                                                    |       | 1,998           |       | 1,979          |       |
| Total assets                                                                                    |       | $               | 423,738    |           | $          | 424,313 |   |
|                                                                                            |       |            |       |           |       |
| **LIABILITIES AND STOCKHOLDER’S DEFICIT**                                                  |       |            |       |           |       |
| CURRENT LIABILITIES:                                                                            |       |            |       |           |       |
| Accounts payable                                                                                |       | $               | 28,731     |           | $          | 27,171 |   |
| Accrued interest                                                                                |       | 3,247           |       | 6,700          |       |
| Accrued income taxes                                                                            |       | 1,247           |       | 1,189          |       |
| Accrued liabilities                                                                             |       | 33,103          |       | 36,069         |       |
| Deferred revenues and gains                                                                     |       | 64,075          |       | 65,855         |       |
| Current portion of long-term debt                                                               |       | 4,920           |       | 4,406          |       |
| Total current liabilities                                                                       |       | 135,323         |       | 141,390        |       |
|                                                                                            |       |            |       |           |       |
| DEFERRED REVENUES AND GAINS                                                                     |       | 37,938          |       | 38,535         |       |
| LONG-TERM DEBT, net of current portion                                                          |       | 290,305         |       | 282,767        |       |
| DEFERRED TAX LIABILITY                                                                          |       | 2,760           |       | 2,702          |       |
| OTHER LONG-TERM LIABILITIES                                                                     |       | 28,558          |       | 25,829         |       |
|                                                                                            |       | 494,884         |       | 491,223        |       |
|                                                                                            |       |            |       |           |       |
| 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                                                                             |       | (143,096        | )          | (143,211       | )          |
| Accumulated other comprehensive loss                                                            |       | (9,056          | )          | (4,705         | )          |
| Total stockholder’s deficit                                                                |       | (71,146         | )          | (66,910        | )          |
| Total liabilities and stockholder’s deficit                                                |       | $               | 423,738    |           | $          | 424,313 |   |

 

See notes to consolidatedfinancial statements.

 

1

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AFFINITYGROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(InThousands)

(Unaudited)

 
| ** **                                 | ** ** | **THREE MONTHS ENDED** | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|
| ** **                                 | ** ** | **3/31/2008**                    | ** ** | **3/31/2007** | ** ** |
|                                       |       |                             |       |   |   |
| REVENUES:                                  |       |                             |       |   |   |
| Membership services                        |       | $                                | 35,545     |   | $ | 34,061 |   |
| Publications                               |       | 26,256                           |       | 24,689 |   |
| Retail                                     |       | 63,184                           |       | 69,057 |   |
|                                       |       | 124,985                          |       | 127,807 |   |
|                                       |       |                             |       |   |   |
| COSTS APPLICABLE TO REVENUES:              |       |                             |       |   |   |
| Membership services                        |       | 23,141                           |       | 21,667 |   |
| Publications                               |       | 17,217                           |       | 15,777 |   |
| Retail                                     |       | 36,863                           |       | 41,836 |   |
|                                       |       | 77,221                           |       | 79,280 |   |
|                                       |       |                             |       |   |   |
| GROSS PROFIT                               |       | 47,764                           |       | 48,527 |   |
|                                       |       |                             |       |   |   |
| OPERATING EXPENSES:                        |       |                             |       |   |   |
| Selling, general and administrative        |       | 36,431                           |       | 34,547 |   |
| Depreciation and amortization              |       | 5,004                            |       | 4,777 |   |
|                                       |       | 41,435                           |       | 39,324 |   |
|                                       |       |                             |       |   |   |
| INCOME FROM OPERATIONS                     |       | 6,329                            |       | 9,203 |   |
|                                       |       |                             |       |   |   |
| NON-OPERATING ITEMS:                       |       |                             |       |   |   |
| Interest income                            |       | 143                              |       | 174 |   |
| Interest expense                           |       | (6,060                           | )          | (6,199 | ) |
| Debt extinguishment expense                |       | —                           |       | (775 | ) |
| Other non-operating items, net             |       | 2                                |       | 49 |   |
|                                       |       | (5,915                           | )          | (6,751 | ) |
|                                       |       |                             |       |   |   |
| INCOME FROM OPERATIONS BEFORE INCOME TAXES |       | 414                              |       | 2,452 |   |
|                                       |       |                             |       |   |   |
| INCOME TAX (EXPENSE) BENEFIT               |       | (299                             | )          | 98 |   |
|                                       |       |                             |       |   |   |
| NET INCOME                                 |       | $                                | 115        |   | $ | 2,550 |   |

 

Seenotes to consolidated financial statements.

 

2

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AFFINITYGROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(InThousands)

(Unaudited)

 
| ** **                                                                     | ** ** | **THREE MONTHS ENDED** | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                     | ** ** | **3/31/2008**                    | ** ** | **3/31/2007** | ** ** |
|                                                                           |       |                             |       |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                          |       |                             |       |   |   |
| Net income                                                                     |       | $                                | 115        |   | $ | 2,550 |   |
| Adjustments to reconcile net income to net cash used  in operating activities: |       |                             |       |   |   |
| Depreciation                                                                   |       | 2,999                            |       | 2,398 |   |
| Amortization                                                                   |       | 2,005                            |       | 2,379 |   |
| Provision for losses on accounts receivable                                    |       | 262                              |       | 283 |   |
| Deferred compensation                                                          |       | (300                             | )          | 120 |   |
| Deferred tax (benefit) provision                                               |       | —                           |       | (413 | ) |
| Loss on sale of property and equipment                                         |       | 26                               |       | — |   |
| Loss on early extinguishment of debt                                           |       | —                           |       | 775 |   |
| Changes in operating assets and liabilities                                    |       |                             |       |   |   |
| Accounts receivable                                                            |       | 1,602                            |       | 815 |   |
| Inventories                                                                    |       | (3,219                           | )          | (11,405 | ) |
| Prepaid expenses and other assets                                              |       | (1,852                           | )          | (3,041 | ) |
| Accounts payable                                                               |       | 1,560                            |       | (4,765 | ) |
| Accrued and other liabilities                                                  |       | (7,683                           | )          | (3,040 | ) |
| Deferred revenues and gains                                                    |       | (3,438                           | )          | 234 |   |
| Net cash used in operating activities                                          |       | (7,923                           | )          | (13,110 | ) |
|                                                                           |       |                             |       |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                          |       |                             |       |   |   |
| Capital expenditures                                                           |       | (3,515                           | )          | (5,549 | ) |
| Net proceeds from sale of property and equipment                               |       | 1                                |       | — |   |
| Change in intangible assets                                                    |       | —                           |       | (2 | ) |
| Investment in affiliate                                                        |       | 10                               |       | 9 |   |
| Acquisitions, net of cash received                                             |       | (3,409                           | )          | (304 | ) |
| Net cash used in investing activities                                          |       | (6,913                           | )          | (5,846 | ) |
|                                                                           |       |                             |       |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                          |       |                             |       |   |   |
| Borrowings on long-term debt                                                   |       | 22,400                           |       | 39,000 |   |
| Payment of debt issue costs                                                    |       | —                           |       | (291 | ) |
| Principal payments of long-term debt                                           |       | (15,216                          | )          | (32,452 | ) |
| Net cash provided by financing activities                                      |       | 7,184                            |       | 6,257 |   |
|                                                                           |       |                             |       |   |   |
| NET CHANGE IN CASH AND CASH EQUIVALENTS                                        |       | (7,652                           | )          | (12,699 | ) |
|                                                                           |       |                             |       |   |   |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                               |       | 8,357                            |       | 15,006 |   |
|                                                                           |       |                             |       |   |   |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                     |       | $                                | 705        |   | $ | 2,307 |   |

 

See notes to consolidated financial statements.

 

3

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**AFFINITYGROUP, INC. AND SUBSIDIARIES**

**Notes to Consolidated Financial Statements**

**(Unaudited)**

 

**(1) BASIS OF PRESENTATION**

 

*Principles of Consolidation**–*The consolidated financial statements includethe 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 regulationsof the Securities and Exchange Commission. Affinity Group Holding, Inc. (“AGHI”) is the direct parent of theCompany. The ultimate parent company of AGHI is AGI Holding Corp. (“AGHC”), aprivately-owned corporation.

 

These interimconsolidated financial statements should be read in conjunction with theCompany’s consolidated financial statements and notes in the Company’s 10-Kreport for the year ended December 31, 2007 as filed with the Securitiesand Exchange Commission.  In the opinionof management of the Company, these consolidated financial statements containall adjustments of a normal recurring nature necessary to present fairly thefinancial position, results of operations and cash flows of the Company for theinterim periods presented.

 

**(2) RECENT ACCOUNTINGPRONOUNCEMENTS**

 

The Company adopted theprovisions of Financial Accounting Standards Board (“FASB”) issued Statement ofFinancial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements”(“SFAS 157”) on January 1, 2008. The FASB delayed the effective date of SFAS 157 until January 1,2009 with respect to fair value measurement requirements for non-financialassets and liabilities that are not re-measured on a recurring basis.  SFAS 157 defines fair value, establishes aframework and gives guidance regarding the method used for measuring fair value,and expands disclosures about fair value measurements.  SFAS 157 requires companies to disclose thefair value of their financial instruments according to a fair value hierarchy,as defined, and may require companies to provide additional disclosures basedon that hierarchy.  SFAS 157 is effectivefor financial statements issued for fiscal years beginning after November 15,2007, and interim periods within those fiscal years.  The adoption of the provisions of SFAS 157did not have a material impact on the Company’s consolidated financial statements.

 

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

 

4

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

 

election dates and reportunrealized gains and losses on items for which the fair value option has beenelected in earnings at each subsequent reporting date.  Eligible items include, but are not limitedto, accounts and loans receivable, available-for-sale and held-to-maturitysecurities, equity method investments, accounts payable, guarantees, issueddebt and firm commitments.  If elected,SFAS 159 would be effective for fiscal years beginning after November 15, 2007.  The Company has elected not to adopt SFAS159.

 

In December 2007,the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS141(R)”).  SFAS 141(R) establishesprinciples and requirements for how an acquirer recognizes and measures in itsfinancial statements the identifiable assets acquired, the liabilities assumed,any noncontrolling interest in the acquiree and the goodwill acquired.  SFAS 141(R) also establishes disclosurerequirements to enable the evaluation of the nature and financial effects ofthe business combination.  SFAS 141(R) iseffective for fiscal years beginning after December 15, 2008.  The Company will adopt SFAS 141(R) inthe first quarter of fiscal 2009 and apply the provisions of the Statement forany acquisition after the adoption date. The Company is currently evaluating the potential impact, if any, of theadoption of SFAS 141(R) on its consolidated financial statements.

 

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

 

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

 

**(3) DISCLOSURES ABOUTSEGMENTS OF AN 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

 

5

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**(3) DISCLOSURES ABOUTSEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (continued)**

 

Club,Coast to Coast Club, Camping World’s President’s Club, Camp Club USA, and RV HandymanClub for recreational vehicles (“RV”) owners, campers and outdoor vacationers,and the Golf Card Club for golf enthusiasts. The Publications segment publishes a variety of publications forselected markets in the recreation and leisure industry, including generalcirculation periodicals, directories, and RV and powersports industry trademagazines, and produces outdoor recreational consumer events.  The Retail segment sells specialty retailmerchandise and services for RV owners primarily through the Camping Worldretail supercenters, mail order catalogs and its website.  The Company evaluates performance based onprofit or loss from operations before income taxes.

 

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

 

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

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

 
| **QUARTER  ENDED MARCH 31, 2007** |   |   |   |   |   |   |   |   |   |
|----------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Revenues from  external customers      |   | $      | 34,061 |   | $      | 24,689 |   | $      | 69,057 |   | $ | 127,807 |   |
| Depreciation and  amortization         |   | 894    |   | 1,240  |   | 1,885  |   | 4,019  |   |
| Interest income                        |   | 2,176  |   | — |   | 32     |   | 2,208  |   |
| Interest expense                       |   | — |   | 70     |   | 3,571  |   | 3,641  |   |
| Segment profit  (loss)                 |   | 11,151 |   | 6,410  |   | (3,739 | )      | 13,822 |   |
|                                        |        |        |        |        |        |        |        |        |        |  |  |  |  |

 

Thefollowing is a reconciliation of income from operations to the Company’sconsolidated financial statements for the quarter ended March 31, 2008 and2007 (in thousands):

 
| ** **                                                     | ** ** | **QUARTER ENDED** | ** ** |
|----------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                     | ** ** | **3/31/2008**          | ** ** | **3/31/2007** | ** ** |
| **Income  From Operations Before Income Taxes**                |       |                   |       |   |   |
| Total profit for  reportable segments                          |       | $                      | 7,382      |   | $ | 13,822 |   |
| Unallocated  G & A expense                            |       | (3,830                 | )          | (5,245 | ) |
| Unallocated  depreciation and amortization expense             |       | (452                   | )          | (758 | ) |
| Elimination of  intercompany interest income                   |       | (785                   | )          | (2,034 | ) |
| Unallocated  interest expense, net of intercompany elimination |       | (1,901                 | )          | (2,558 | ) |
| Unallocated debt  restructure expense                          |       | —                 |       | (775 | ) |
| Income from  operations before income taxes                    |       | $                      | 414        |   | $ | 2,452 |   |

 

6

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**(3) DISCLOSURES ABOUTSEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (continued)**

 

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

 
| ** **                                           | ** ** | **3/31/2008** | ** ** | **12/31/2007** | ** ** |
|------------------------------------------------------|------------|---------------|------------|----------------|------------|
| Membership  services segment                         |       | $             | 198,390    |           | $          | 203,836 |   |
| Publications  segment                                |       | 91,306        |       | 89,074         |       |
| Retail segment                                       |       | 251,521       |       | 249,174        |       |
| Total assets for  reportable segments                |       | 541,217       |       | 542,084        |       |
| Capitalized  finance costs not allocated to segments |       | 5,055         |       | 5,348          |       |
| Corporate  unallocated assets                        |       | 3,370         |       | 3,334          |       |
| Elimination of  intersegment receivable              |       | (125,904      | )          | (126,453       | )          |
| Total assets                                         |       | $             | 423,738    |           | $          | 424,313 |   |

 

**(4) STATEMENTSOF CASH FLOWS**

 

Supplementaldisclosures of cash flow information for the quarter ended March 31 (inthousands):

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

 

In January 2007, theCompany assumed $0.3 million of liabilities in connection with the acquisitionof the Madison Boat Show from MAC Events, LLC.

 

In February 2007,the Company assumed $0.6 million of liabilities and issued $1.5 million of debtin connection with the acquisition of five RV and Sportsman Shows fromIndustrial Expositions, Inc.

 

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

 

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

 

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

 

7

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

 

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

 

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

 

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

 

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

 

Finite-lived intangibleassets, related accumulated amortization and weighted average useful lifeconsisted of the following at March 31, 2008 (in thousands, except asnoted):

 
| ** **                                       | ** ** | **Weighted**                  | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|-------------------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                                       | ** ** | **Average Useful**       | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | **Life (in years)** | ** ** | **Gross**  | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
|                                             |       |                          |       |       |       |             |       |       |       |
| Membership and  customer lists                   |       | 6                             |       | $          | 36,384     |             | $          | (18,108    | )          | $ | 18,276 |   |
| Resort and golf  course participation agreements |       | 4                             |       | 13,401     |       | (13,379          | )          | 22         |       |
| Non-compete and  deferred consulting agreements  |       | 15                            |       | 18,830     |       | (14,190          | )          | 4,640      |       |
| Deferred  financing costs                        |       | 7                             |       | 10,414     |       | (6,745           | )          | 3,669      |       |
|                                             |       |                          |       | $          | 79,029     |             | $          | (52,422    | )          | $ | 26,607 |   |

 

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

 

In February 2004, the Company issued $200.0 million of 9% SeniorSubordinated Notes (“Senior Subordinated Notes”) due 2012 pursuant to the AGIIndenture.  The Company

 

8

----

 

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

 

purchased and retired $29.9 million of the Senior Subordinated Notes in2006 and $17.7 million in March 2007. Interest is payable on the remaining $152.4 million Senior SubordinatedNotes twice a year on February 15 and August 15.  The Company’s present and future restrictedsubsidiaries guarantee the Senior Subordinated Notes with unconditionalguarantees of payment that rank junior in right of payment to their existingand future senior debt, but rank equal in right of payment to their existingand future senior subordinated debt.  Allof the Company’s subsidiaries have jointly and severally guaranteed theindebtedness under the Senior Subordinated Notes except for CWFR CapitalCorp.  Full financial statements of theGuarantors have not been included because, pursuant to their respectiveguarantees, the Guarantors are jointly and severally liable with respect to theSenior Subordinated Notes.

 

The following are summarized statementssetting forth certain financial information concerning the GuarantorSubsidiaries as of and for the quarter ended March 31, 2008 (inthousands).

 
| ** **                                               | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|----------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                               | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Cash &  cash equivalents                        |       | $          | (108       | )              | $          | 813           |       | $                | —     |             | $          | — |   | $ | 705 |   |
| Accounts  receivable, net                                |       | 400        |       | 156,970        |       | —        |       | (125,904         | )          | 31,466           |       |
| Inventories                                              |       | —     |       | 67,428         |       | —        |       | —           |       | 67,428           |       |
| Other current  assets                                    |       | 3,392      |       | 17,272         |       | —        |       | —           |       | 20,664           |       |
| Total current  assets                                    |       | 3,684      |       | 242,483        |       | —        |       | (125,904         | )          | 120,263          |       |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Property and  equipment, net                             |       | 7,096      |       | 37,700         |       | —        |       | —           |       | 44,796           |       |
| Intangible  assets                                       |       | 3,669      |       | 22,938         |       | —        |       | —           |       | 26,607           |       |
| Goodwill                                                 |       | 67,584     |       | 76,845         |       | —        |       | —           |       | 144,429          |       |
| Investment in  subsidiaries                              |       | 604,918    |       | 81,005         |       | —        |       | (685,923         | )          | —           |       |
| Affiliate note  and investments                          |       | 40,000     |       | 4,640          |       | 81,005        |       | (40,000          | )          | 85,645           |       |
| Other assets                                             |       | 759        |       | 1,239          |       | —        |       | —           |       | 1,998            |       |
| Total assets                                             |       | $          | 727,710    |           | $          | 466,850       |       | $                | 81,005     |             | $          | (851,827 | ) | $ | 423,738 |   |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Accounts payable                                         |       | $          | 831        |           | $          | 27,900        |       | $                | —     |             | $          | — |   | $ | 28,731 |   |
| Accrued and  other liabilities                           |       | 9,305      |       | 28,292         |       | —        |       | —           |       | 37,597           |       |
| Current portion  of long-term debt                       |       | 127,554    |       | 43,270         |       | —        |       | (165,904         | )          | 4,920            |       |
| Deferred revenue  and gains                              |       | 2,651      |       | 61,424         |       | —        |       | —           |       | 64,075           |       |
| Total current  liabilities                               |       | 140,341    |       | 160,886        |       |          |       | (165,904         | )          | 135,323          |       |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Deferred revenue  and gains                              |       | 2,507      |       | 35,431         |       | —        |       | —           |       | 37,938           |       |
| Long-term debt                                           |       | 288,541    |       | 1,764          |       | —        |       | —           |       | 290,305          |       |
| Other long-term  liabilities                             |       | 367,467    |       | (336,149       | )          | —        |       | —           |       | 31,318           |       |
| Total  liabilities                                       |       | 798,856    |       | (138,068       | )          |          |       | (165,904         | )          | 494,884          |       |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Interdivisional  equity                                  |       | —     |       | 604,918        |       | 81,005        |       | (685,923         | )          | —           |       |
| Stockholders’  deficit                              |       | (71,146    | )          | —         |       | —        |       | —           |       | (71,146          | )          |
| Total  liabilities & stockholders’ deficit |       | $          | 727,710    |           | $          | 466,850       |       | $                | 81,005     |             | $          | (851,827 | ) | $ | 423,738 |   |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Revenue                                                  |       | $          | 947        |           | $          | 124,038       |       | $                | —     |             | $          | — |   | $ | 124,985 |   |
| Costs applicable  to revenues                            |       | (3,026     | )          | (74,195        | )          | —        |       | —           |       | (77,221          | )          |
| Operating expenses                                       |       | (4,384     | )          | (37,051        | )          | —        |       | —           |       | (41,435          | )          |
| Interest  expense, net                                   |       | (2,686     | )          | (3,231         | )          | —        |       | —           |       | (5,917           | )          |
| Income from  investment in consolidated subsidiaries     |       | 7,780      |       | —         |       | —        |       | (7,780           | )          | —           |       |
| Other non  operating income (expenses)                   |       | 1,579      |       | (1,577         | )          | —        |       | —           |       | 2                |       |
| Income tax  benefit (expense)                            |       | (95        | )          | (204           | )          | —        |       | —           |       | (299             | )          |
| Net income                                               |       | $          | 115        |           | $          | 7,780         |       | $                | —     |             | $          | (7,780 | ) | $ | 115 |   |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Cash flows from  (used by) operations                    |       | $          | (13,843    | )              | $          | 5,920         |       | $                | —     |             | $          | — |   | $ | (7,923 | ) |
| Cash flows used  in investing activities                 |       | (37        | )          | (6,876         | )          | —        |       | —           |       | (6,913           | )          |
| Cash flows (used  in) provided by financing activities   |       | 8,435      |       | (1,251         | )          | —        |       | —           |       | 7,184            |       |
| Cash at  beginning of year                               |       | 5,337      |       | 3,020          |       | —        |       | —           |       | 8,357            |       |
| Cash at end of  period                                   |       | $          | (108       | )              | $          | 813           |       | $                | —     |             | $          | — |   | $ | 705 |   |

 

9

----

 

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

 

The following are summarized balance sheetstatements setting forth certain financial information concerning the GuarantorSubsidiaries as of December 31, 2007 (in thousands).

 
| ** **                                               | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|----------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                               | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Cash &  cash equivalents                        |       | $          | 5,337      |           | $          | 3,020         |       | $                | —     |             | $          | — |   | $ | 8,357 |   |
| Accounts  receivable- net                                |       | 431        |       | 159,352        |       |          |       | (126,453         | )          | 33,330           |       |
| Inventories                                              |       | —     |       | 64,209         |       | —        |       | —           |       | 64,209           |       |
| Other current  assets                                    |       | 2,481      |       | 15,871         |       | —        |       | —           |       | 18,352           |       |
| Total current  assets                                    |       | 8,249      |       | 242,452        |       | —        |       | (126,453         | )          | 124,248          |       |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Property and  equipment, net                             |       | 7,744      |       | 36,563         |       | —        |       | —           |       | 44,307           |       |
| Intangible  assets                                       |       | 3,962      |       | 19,733         |       | —        |       | —           |       | 23,695           |       |
| Goodwill                                                 |       | 67,584     |       | 76,845         |       | —        |       | —           |       | 144,429          |       |
| Investment in  subsidiaries                              |       | 597,138    |       | 81,005         |       | —        |       | (678,143         | )          | —           |       |
| Affiliate note  and investments                          |       | 40,000     |       | 4,650          |       | 81,005        |       | (40,000          | )          | 85,655           |       |
| Other assets                                             |       | 759        |       | 1,220          |       | —        |       | —           |       | 1,979            |       |
| Total assets                                             |       | $          | 725,436    |           | $          | 462,468       |       | $                | 81,005     |             | $          | (844,596 | ) | $ | 424,313 |   |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Accounts payable                                         |       | $          | 1,380      |           | $          | 25,791        |       | $                | —     |             | $          | — |   | $ | 27,171 |   |
| Accrued and  other liabilities                           |       | 13,792     |       | 30,166         |       | —        |       | —           |       | 43,958           |       |
| Current portion  of long-term debt                       |       | 128,103    |       | 42,756         |       | —        |       | (166,453         | )          | 4,406            |       |
| Current portion  of deferred revenue                     |       | 2,029      |       | 63,826         |       | —        |       | —           |       | 65,855           |       |
| Total current  liabilities                               |       | 145,304    |       | 162,539        |       |          |       | (166,453         | )          | 141,390          |       |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Deferred revenue                                         |       | 2,538      |       | 35,997         |       | —        |       | —           |       | 38,535           |       |
| Long-term debt                                           |       | 279,354    |       | 3,413          |       | —        |       | —           |       | 282,767          |       |
| Other long-term  liabilities                             |       | 365,150    |       | (336,619       | )          | —        |       | —           |       | 28,531           |       |
| Total  liabilities                                       |       | 792,346    |       | (134,670       | )          |          |       | (166,453         | )          | 491,223          |       |
|                                                     |       |       |       |           |       |          |       |             |       |             |       |
| Interdivisional  equity                                  |       | —     |       | 597,138        |       | 81,005        |       | (678,143         | )          | —           |       |
| Stockholders’  deficit                              |       | (66,910    | )          | —         |       | —        |       |             |       | (66,910          | )          |
| Total  liabilities & stockholders’ deficit |       | $          | 725,436    |           | $          | 462,468       |       | $                | 81,005     |             | $          | (844,596 | ) | $ | 424,313 |   |

 

Thefollowing are summarized statements setting forth certain financial informationconcerning the Guarantor Subsidiaries for the three months ended March 31,2007 (in thousands).

 
| ** **                                             | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|--------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                             | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
| Revenue                                                |       | $          | 830        |           | $          | 126,977       |       | $                | —     |             | $          | — |   | $ | 127,807 |   |
| Costs applicable  to revenues                          |       | (2,827     | )          | (76,453        | )          | —        |       | —           |       | (79,280          | )          |
| Operating  expenses                                    |       | (5,911     | )          | (33,413        | )          | —        |       | —           |       | (39,324          | )          |
| Interest  expense, net                                 |       | (4,592     | )          | (1,433         | )          | —        |       | —           |       | (6,025           | )          |
| Income from  investment in consolidated subsidiaries   |       | 14,252     |       | —         |       | —        |       | (14,252          | )          | —           |       |
| Other non  operating income (expenses)                 |       | 911        |       | (1,637         | )          | —        |       | —           |       | (726             | )          |
| Income tax  benefit (expense)                          |       | (113       | )          | 211            |       | —        |       | —           |       | 98               |       |
| Net income                                             |       | $          | 2,550      |           | $          | 14,252        |       | $                | —     |             | $          | (14,252 | ) | $ | 2,550 |   |
|                                                   |       |       |       |           |       |          |       |             |       |             |       |
| Cash flows from  (used by) operations                  |       | $          | (14,426    | )              | $          | 1,316         |       | $                | —     |             | $          | — |   | $ | (13,110 | ) |
| Cash flows used  in investing activities               |       | (1,141     | )          | (4,705         | )          | —        |       | —           |       | (5,846           | )          |
| Cash flows (used  in) provided by financing activities |       | 6,485      |       | (228           | )          | —        |       | —           |       | 6,257            |       |
| Cash at  beginning of year                             |       | 12,609     |       | 2,397          |       | —        |       | —           |       | 15,006           |       |
| Cash at end of  period                                 |       | $          | 3,527      |           | $          | (1,220        | )          | $                | —     |             | $          | — |   | $ | 2,307 |   |

 

10

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**(7) INCOME TAXES**

 

Thefollowing table summarizes the activity related to unrecognized tax benefits:

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

 

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

 

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

 

**(8) FAIRVALUE MEASUREMENTS**

 

The Company has adopted theprovisions of SFAS 157 as of January 1, 2008, for financialinstruments.  Although the adoption ofSFAS 157 did not materially impact its financial condition, results ofoperations, or cash flow, the Company is now required to provide additionaldisclosures as part of its financial statements.

 

SFAS 157 establishes athree-tier fair value hierarchy, which prioritizes the inputs used in measuringfair value.  These tiers include: Level1, defined as observable inputs such as quoted prices in active markets; Level2, defined as inputs other than quoted prices in active markets that are eitherdirectly or indirectly observable; and Level 3, defined as unobservable inputsin which little or no market data exists, therefore requiring an entity todevelop its own assumptions.

 

As of March 31, 2008,the Company held an interest rate swap that is required to be measured at fairvalue on a recurring basis.  The Company’sinterest rate swap is not traded on a public exchange.  See Notes 6 and 9 for further information onthe interest rate swap.  The fair valueof this swap Is determined based on inputs that are readily available in publicmarkets or can be derived from information available in publicly quotedmarkets.  Therefore, the Company hascategorized this swap contract as Level 2.

 

11

----

 

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

 

The Company’s liability at March 31,2008, measured at fair value on a recurring basis subject to the disclosurerequirements of SFAS 157, was as follows:

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

 

**(9) RECENT EVENTS**

 

On March 19, 2008,the Company entered into a 4.5 year interest rate swap agreement effective April 30,2008, with a notional amount of $35.0 million from which it will receiveperiodic payments at the 3 month LIBOR-based variable rate determined at periodicreset dates, and make periodic payments at a fixed rate of 3.43% percent, withsettlement and rate reset dates every January 31, April 30, July 31,and October 31.  The interest rateswap will be effective beginning April 30, 2008 and expires on October 31,2012.

 

12

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**ITEM 2:**

 

AFFINITYGROUP, INC. AND SUBSIDIARIES

MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL

CONDITIONAND RESULTS OF OPERATIONS

 

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

 
| ** **                                 | ** ** | **THREE MONTHS ENDED** | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|
| ** **                                 | ** ** | **3/31/2008**                    | ** ** | **3/31/2007** | ** ** | **Inc/(Dec)** | ** ** |
| REVENUES:                                  |       |                             |       |   |   |   |   |
| Membership services                        |       | 28.4                             | %          | 26.7 | % | 4.4 | % |
| Publications                               |       | 21.0                             | %          | 19.3 | % | 6.3 | % |
| Retail                                     |       | 50.6                             | %          | 54.0 | % | (8.5 | )% |
|                                       |       | 100.0                            | %          | 100.0 | % | (2.2 | )% |
|                                       |       |                             |       |   |   |   |   |
| COSTS APPLICABLE TO REVENUES:              |       |                             |       |   |   |   |   |
| Membership services                        |       | 18.5                             | %          | 17.0 | % | 6.8 | % |
| Publications                               |       | 13.8                             | %          | 12.3 | % | 9.1 | % |
| Retail                                     |       | 29.5                             | %          | 32.7 | % | (11.9 | )% |
|                                       |       | 61.8                             | %          | 62.0 | % | (2.6 | )% |
|                                       |       |                             |       |   |   |   |   |
| GROSS PROFIT                               |       | 38.2                             | %          | 38.0 | % | (1.6 | )% |
|                                       |       |                             |       |   |   |   |   |
| OPERATING EXPENSES:                        |       |                             |       |   |   |   |   |
| Selling, general and administrative        |       | 29.1                             | %          | 27.1 | % | 5.5 | % |
| Depreciation and amortization              |       | 4.0                              | %          | 3.7 | % | 4.8 | % |
|                                       |       | 33.1                             | %          | 30.8 | % | 5.4 | % |
|                                       |       |                             |       |   |   |   |   |
| INCOME FROM OPERATIONS                     |       | 5.1                              | %          | 7.2 | % | (31.2 | )% |
|                                       |       |                             |       |   |   |   |   |
| NON-OPERATING ITEMS:                       |       |                             |       |   |   |   |   |
| Interest income                            |       | 0.1                              | %          | 0.1 | % | (17.8 | )% |
| Interest expense                           |       | (4.9                             | )%         | (4.9 | )% | (2.2 | )% |
| Debt extinguishment expense                |       | —                           |       | (0.6 | )% | 100.0 | % |
| Other non-operating items, net             |       | —                           |       | 0.1 |  % | (95.9 | )% |
|                                       |       | (4.8                             | )%         | (5.3 | )% | (12.4 | )% |
|                                       |       |                             |       |   |   |   |   |
| INCOME FROM OPERATIONS BEFORE INCOME TAXES |       | 0.3                              | %          | 1.9 | % | (83.1 | )% |
|                                       |       |                             |       |   |   |   |   |
| INCOME TAX (EXPENSE) BENEFIT               |       | (0.2                             | )%         | 0.1 | % | (405.1 | )% |
|                                       |       |                             |       |   |   |   |   |
| NET INCOME                                 |       | (0.1                             | )%         | 2.0 | % | (95.5 | )% |

 

13

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**RESULTS OF OPERATIONS**

 

**ThreeMonths Ended March 31, 2008**

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

 

*Revenues*

 

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

 

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

 

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

 

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

 

*CostsApplicable to Revenues*

 

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

 

Membershipservices costs and expenses of $23.1 million increased $1.5 million, or 6.8%,from the comparable period in 2007.  Thisincrease consisted of $0.7 million of 

 

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incrementalcosts associated with increased extended vehicle warranty program revenue andemergency road service revenue and a $0.4 million increase in program costsassociated with increased marketing fee revenue from health and life insuranceproducts.  In addition, membershipservices costs increased approximately $0.4 million due to increased marketingcosts related to the Presidents’ Club, Good Sam Club and Camp Club USA, and thestartup of our new RV Handyman Club, partially offset by reduced marketing andprogram costs related to the Coast to Coast Club and the Golf Card Club.

 

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

 

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

 

*OperatingExpenses*

 

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

 

Depreciationand amortization expense of $5.0 million increased $0.2 million from the prioryear primarily due to increased depreciation from the retail store openingspartially offset by a reduction in amortization due to the write-off of financecosts associated with the retirement of $17.7 million of Senior SubordinatedNotes in the first quarter of 2007.

 

*Incomefrom Operations*

 

Incomefrom operations for the first quarter of 2008 totaling $6.3 million decreased$2.9 million compared to the first quarter of 2007.  This decrease was primarily due to increasedoperating expenses of $2.1 million and reduced gross profit for retailoperations of $0.9 million, partially offset increased gross profit for thepublications operations of $0.1 million.

 

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*Non-OperatingItems*

 

Non-operatingitems of approximately $5.9 million for the first quarter of 2008 decreased$0.9 million compared to the first quarter of 2007 due to $0.8 million of debtextinguishment expense associated with the retirement of Senior SubordinatedNotes in 2007, and a $0.1 million decrease in net interest expense.

 

*Incomebefore Income Taxes*

 

Incomebefore income taxes for the first quarter of 2008 was $0.4 million, or $2.0million lower than the first quarter of 2007. This decrease was attributable to the $2.9 million decrease in incomefrom operations and the $0.9 million of reduced non-operating items mentionedabove.

 

*IncomeTax Expense*

 

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

 

# *Net Income*

# * *

Netincome in the first quarter of 2008 was $0.1 million compared to net income of$2.6 million for the same period in 2007 mainly due to the reasons discussedabove.

 

*SegmentProfit (Loss)*

 

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

 

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

 

Publicationsegment profit of $5.8 million for the first quarter of 2008 decreased $0.6million, or 9.4%, from the comparable period in 2007.  This decrease was largely attributed to a$0.5 million decrease in segment profit related to our outdoor powersportsmagazine group, primarily relating to the timing of the Cruising Rider annualpublication and reduced ad revenue, and a $0.6 million decrease in profit inthe RV-related publications, partially offset by a $0.7 million increase insegment profit from our consumer shows group*.*

 

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Retail segmentloss increased $4.7 million, or 125.4% from the first quarter of 2007 to a lossof $8.4 million for the first quarter of 2008. This increase in segment loss resulted primarily from a $2.8 million increase inselling, general and administrative expenses primarily related to the increasein new stores, a $0.9 million decrease in gross profit margin, a $0.5 millionincrease in interest expense, anda $0.5 million increase in depreciationexpense.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

The Company hashistorically operated with a working capital deficit.  The working capital deficit as of March 31,2008 and December 31, 2007 was $15.1 million and $17.1 million,respectively.  The primary reason for theworking capital deficit is the deferred revenue and gains reported undercurrent liabilities in the amount of $64.1 million and $65.9 million as of March 31,2008 and December 31, 2007, respectively. Deferred revenue is primarily comprised of cash collected for clubmemberships in advance, which is amortized over the life of themembership.  The Company uses netproceeds from this deferred membership revenue to lower its long-termborrowings.  Management believes thatfunds generated by operations together with available borrowings under theCompany’s revolving credit line will be sufficient to meet all of the Company’sdebt service requirements, capital requirements and working capital needs overthe next twelve months.  Further,management believes that the change in the tax status to a Subchapter Scorporation in 2006 for the Company and all its subsidiaries, with theexception of Camping World, Inc. and its wholly-owned subsidiaries, hasnot limited the Company’s ability to issue debt through the capital markets butmay limit the ability of the Company to raise funds in the equity market.

 

*Contractual Obligations andCommercial Commitments*

 

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

 
| ** **                         | ** ** | **Payments Due by Period** | ** ** |
|------------------------------------|------------|-------------------------------------------|------------|
| **(in thousands)**            | ** ** | **Total**                                 | ** ** | **Balance of  2008** | ** ** | **2009 and  2010** | ** ** | **2011 and  2012** | ** ** | **Thereafter** | ** ** |
|                               |       |                                      |       |   |   |   |   |   |   |   |   |
| Long-term debt and future interest |       | $                                         | 365,427    |   | $ | 19,336 |   | $ | 173,033 |   | $ | 173,058 |   | $ | — |   |
| Operating lease obligations        |       | 205,989                                   |       | 15,480 |   | 38,850 |   | 33,712 |   | 117,947 |   |
| Deferred compensation              |       | 1,435                                     |       | 31 |   | 1,404 |   | — |   | — |   |
| Standby letters of credit          |       | 7,046                                     |       | 6,546 |   | 500 |   | — |   | — |   |
| Grand total                        |       | $                                         | 579,897    |   | $ | 41,393 |   | $ | 213,787 |   | $ | 206,770 |   | $ | 117,947 |   |

 

On June 24,2003, the Company entered into an Amended and Restated Credit Agreement and aSenior Secured Floating Rate Note Purchase Agreement (as amended, the “SeniorCredit Facility”).  The Senior CreditFacility provides for a revolving credit facility of $35.0 million and termloans in the aggregate of $140.0 million. As of March 31, 2008, $9.6 million was outstanding under therevolving credit facility and $128.2 

 

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million wasoutstanding under the term loans. Reborrowings under the term loans are not permitted.  The interest on borrowings under the SeniorCredit Facility was at variable rates based on the ratio of total cash flow tooutstanding indebtedness (as defined). Interest rates float with prime and the London Interbank Offered Rates,or LIBOR, plus an applicable margin ranging from 1.50% to 2.50% over the statedrates.  As of March 31, 2008, theaverage interest rates on the term loans and the revolving credit facility were7.10% and 5.81%, respectively, and permitted borrowings under the revolvingfacility were $28.0 million.  The Companyalso pays a commitment fee of 0.5% per annum on the unused amount of therevolving credit facility.  The aggregatequarterly scheduled payments on the term loans are $0.4 million.  Both the revolving credit facility and theterm loans mature on June 24, 2009. The funds available under the Senior Credit Facility may be utilized forborrowings or letters of credit; however, a maximum of $12.5 million may beallocated to such letters of credit.  Asof March 31, 2008, the Company had letters of credit in the aggregateamount of $7.0 million outstanding.  TheSenior Credit Facility is secured by virtually all of the Company’s assets anda pledge of the Company’s stock and the stock of the Company’s subsidiaries.

 

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

 

On March 3,2006, AGI amended its Senior Credit Facility to revise the definition ofConsolidated Fixed Charges Ratio and Permitted Tax Distributions.  This amendment allows the Company todistribute taxes to its ultimate parent based on its stand-alone tax obligationrather than the tax obligation of its 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 FreedomRoadsHolding Company, LLC (“FreedomRoads”), an affiliate of the Company.

 

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

 

On March 8,2007, the Company purchased $17.7 million of the Senior SubordinatedNotes.  The Company funded the purchasethrough the issuance of the $25.0 million in additional incremental term loansas permitted under the February 27, 2007 amendment to the Senior CreditFacility.  The balance of the $25.0million issued was used to pay down the Company’s revolving credit facility by$6.5 million and to pay associated loan fees and transaction expenses.  The terms on the additional incremental loansare 

 

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consistent withthe remaining term loan outstanding under the Senior Credit Facility.  As of March 31, 2008, $152.4 million ofSenior 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 not limitedto, mergers, changes in the nature of the business, acquisitions, additionalindebtedness, sale of assets, investments, and the payment of dividends subjectto certain limitations and minimum operating covenants.  The Company was in compliance with all debtcovenants at March 31, 2008.

 

On March 24,2005 in a private placement, AGHI, the Company’s parent, issued $88.2 millionprincipal amount of the 10-7/8% senior notes due February 15, 2012 (the “AGHINotes”).  Interest on the AGHI notes ispayable semi-annually on February 15 and August 15.  For interest payments on and prior to February 15,2008, AGHI had the election to pay interest on the AGHI Notes in cash or by theissuance of additional notes of the same tenor as the AGHI Notes, except thematurity date is March 15, 2010. AGI has not paid any dividends to AGHI to fund payment of interest onthe AGHI Notes and AGHI made the interest payments due on August 15, 2005,February 15, 2006, August 15, 2006, February 15, 2007, and February 15,2008 through the issuance of additional notes. AGHI paid the interest on the AGHI Notes due August 15, 2007 of$5.9 million from proceeds of a $5.9 million contribution made by AGHI’sparent, AGHC.

 

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

 

On April 16,2007, the Company entered into a stock purchase agreement with FreedomRoads, anentity under common ownership with the Company’s ultimate parent corporation,pursuant to which the Company agreed, subject to satisfaction of certainconditions, to sell all of the outstanding stock of its wholly-owned subsidiaryCamping World, Inc. (“Camping World”) to FreedomRoads for $175.8 millionsubject to certain adjustments. The transactions contemplated by the purchaseagreement were not consummated within the time periods contemplated by thepurchase agreement because the uncertainty in the capital markets preventedFreedomRoads from achieving a desirable capital structure to effect theacquisition.  Although Freedom Roads andthe Company may enter into a new purchase agreement on substantially the sameterms if the capital markets become more favorable, no assurance can beprovided that the appropriate financing will be obtained or such new agreementmade.

 

On October 15,2007, the Company entered into a five-year interest rate swap agreement with anotional amount of $100.0 million from which it will receive periodic paymentsat the 3 month LIBOR-based variable rate (4.96% percent at December 31,2007 based upon the October 31, 2007 reset date) and make periodicpayments at a fixed rate of 5.135% percent, with settlement and rate resetdates every January 31, April 30, July 31, and October 31.  On March 19, 2008, the Company enteredinto an interest rate swap agreement with a notional amount of $35.0 millionfrom which it will receive periodic 

 

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payments at the 3month LIBOR-based variable rate determined at periodic reset dates and makeperiodic payments at a fixed rate of 3.430% percent, with settlement and ratereset dates every January 31, April 30, July 31, and October 31.  The fair value of the swaps was zero atinception.  The interest rate swap willbe effective beginning April 30, 2008 and expires on October 31,2012.  The Company entered into theinterest rate swaps to limit the effect of increases on our floating ratedebt.  The interest rate swaps aredesignated as a cash flow hedge of the variable rate interest payments due on$135 million of the term loans and the revolving credit facility issued June 24,2003, and accordingly, gains and losses on the fair value of the interest rateswap agreements are reported in accumulated other comprehensive loss andreclassified to earnings in the same period in which the hedged interestpayment affects earnings.  The interestrate swap agreements expire on October 31, 2012.  The fair value of these swaps is included inother accrued liabilities and was $8.9 million and $4.7 million as of March 31,2008 and December 31, 2007, respectively.

 

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

 

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

 

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

 

**CRITICALACCOUNTING POLICIES**

 

*General*

 

The discussion andanalysis of the Company’s financial condition and results of operations arebased upon the Company’s consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States.  The preparation of thesefinancial statements requires the Company to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses, andrelated disclosure of contingent assets and liabilities.  On an on-going basis, the Company evaluatesits estimates, including those related to membership programs and incentives,bad debts, inventories, intangible assets, employee health insurance benefits,income taxes, restructuring, contingencies and litigation.  The

 

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Company bases itsestimates on historical experience and on various other assumptions that arebelieved to be reasonable under the circumstances, the results of which formthe basis for making judgments about the carrying values of assets andliabilities that are not readily apparent from other sources.  Actual results may differ from theseestimates under different assumptions or conditions.

 

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

 

*Revenue Recognition*

 

Merchandiserevenue is recognized when products are sold in the retail stores, shipped formail and Internet orders, or when services are provided to customers. Publicationadvertising and newsstand sales, net of estimated provision for returns, arerecorded at time of delivery. Subscription sales of publications are deferred and recognized over thelives of the subscriptions.  Revenuesfrom the emergency road service program (“ERS”) are deferred and recognizedover the life of the membership.  ERSclaim expenses are recognized when incurred. Advances on third party credit card fee revenues are deferred andrecognized based primarily on a percentage of credit card receivables held bythird parties.  Membership revenue isgenerated from annual, multi-year and lifetime memberships.  The revenue and expenses associated withthese memberships are deferred and amortized over the membership period.  For lifetime memberships, an 18-year periodis used, which is the actuarially determined estimated fulfillment period.  Promotional expenses, consisting primarily ofdirect mail advertising, are deferred and expensed over the period of expectedfuture benefit.  Renewal expenses areexpensed at the time related materials are mailed.  Recognized revenues and profit are subject torevisions as the membership progresses to completion.  Revisions to membership period estimateswould change the amount of income and expense amortized in future accountingperiods.  Revenue and related expensesfor consumer shows are recognized when the show occurs.

 

*Accounts Receivable*

 

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

 

*Inventory*

 

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

 

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changes inrequired inventory reserves may continue to occur in the future due to themarket conditions.

 

*Long-LivedAssets*

 

Purchasedintangible assets with finite lives are amortized using the straight-line methodover the estimated economic lives of the assets, ranging from one to fifteenyears.

 

Long-lived assets,such as property, plant and equipment and purchased intangible assets withfinite lives 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 ofLong-Lived Assets.”  The Company assessesthe fair value of the assets based on the future cash flow the assets areexpected to generate and recognize an impairment loss when estimatedundiscounted future cash flow expected to result from the use of the asset plusnet proceeds expected from disposition of the asset (if any) are less than thecarrying value of the asset.  When animpairment is identified, the Company reduces the carrying amount of the assetto its estimated fair value based on a discounted cash flow approach or, whenavailable and appropriate, comparable market values.  The Company determined there were noindicators of impairment of long-lived assets as of December 31, 2007 or March 31,2008.

 

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

 

*Indefinite-LivedIntangible Assets*

 

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

 

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

 

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changes to theCompany’s business operations.  Suchchanges may result in impairment charges recorded in future periods.

 

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

 

Future goodwillimpairment tests could result in a charge to earnings.  The Company will continue to evaluategoodwill on an annual basis and whenever events and changes in circumstancesindicate that there may be a potential impairment.

 

*AccumulatedOther Comprehensive Loss*

 

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

 

*Derivative Financial Instruments**–*The Companyaccounts for derivative instruments and hedging activities in accordance withSFAS No. 133, “Accounting for Derivative Instruments and HedgingActivities” (“SFAS 133”).  Allderivatives are recognized on the balance sheet at their fair value.  On the date that the Company enters into aderivative contract, management formally documents all relationships betweenhedging instruments and hedged items, as well as risk management objectives andstrategies for undertaking various hedge transactions.

 

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

 

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

 

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*FairValue Measurements*

 

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

 

*IncomeTaxes*

 

Significantjudgment is required in determining the Company’s tax provision and inevaluating its tax positions.  The Companyestablishes accruals for certain tax contingencies when, despite the beliefthat the Company’s tax return positions are fully supported, the Companybelieves that certain positions may be challenged and that the Company’spositions may not be fully sustained. The tax contingency accruals are adjusted in light of changing facts andcircumstances, such as the progress of tax audits, case law and emerginglegislation.  The Company’s tax provisionincludes the impact of tax contingency accruals and changes to the accruals,including related interest and penalties, as considered appropriate bymanagement.

 

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

 

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

 

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

 

*InterestRate Sensitivity Analysis*

 

At March 31,2008, we had debt totaling $295.2 million, comprised of $37.8 million ofvariable rate debt and $257.4 million of fixed rate debt, comprised of $100.0million of debt fixed through the interest rate swap agreement dated October 15,2007, $152.4 million of Senior Notes and $5.0 million of purchase debt.  Holding other variables constant (such asdebt levels), the earnings and cash flow impact of a one-percentage pointincrease/ decrease in interest rates would have an unfavorable/ favorableimpact of approximately $0.4 million. The new interest rate swap agreement dated March 19, 2008 to fix anadditional $35.0 million of debt is effective in April 30, 2008.

 

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*CreditRisk*

 

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

 

**ITEM 4: CONTROLS AND PROCEDURES**

 

Within 90 days prior to the filing of this Quarterly Report on Form 10-Q,the Company carried out an evaluation, under the supervision and with theparticipation of the Company’s management, including the President and ChiefExecutive Officer and the Senior Vice President and Chief Financial Officer, ofthe effectiveness of the design and operation of the Company’s disclosurecontrols and procedures pursuant to Regulation 13a-15e under the SecuritiesExchange Act of 1934, as amended.  Basedupon that evaluation, the President and Chief Executive Officer along with theSenior Vice President and Chief Financial Officer concluded that the disclosurecontrols and procedures are effective in timely alerting them to materialinformation relating to the Company (including its consolidated subsidiaries)required to be included in the periodic SEC filings.  Management determined that, as of March 31,2008, there have been no significant changes in the Company’s internal controlover financial reporting or in other factors that could significantly affectthese controls subsequent to the date the Company carried out its evaluation.

 

**PART II: OTHER INFORMATION.**

 

**ITEM 5:OTHER INFORMATION**

 

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

 

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**SIGNATURES:**

 

 

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

 

 
| ** **        | **AFFINITY  GROUP, INC.**  |
|-------------------|----------------------------|
|              |                       |
|              |                       |
|              | /s/ Thomas F.  Wolfe       |
| Date: May 9, 2008 | Thomas F. Wolfe            |
|              | Senior Vice  President and |
|              | Chief Financial  Officer   |

 

26

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