**UNITED STATESSECURITIES 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** |
|------------------------|------------|-----------------------------|
| **June  30, 2006**     | ** ** | **333-113982**              |

 

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**AFFINITY GROUP, INC.**

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

 

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

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

**9% Senior Subordinated Notes Due 2012**

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

YES  x                                  NO  o

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

Large accelerated filer   o  Acceleratedfiler  o   Non-accelerated filer  x

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

   YES  o                        NO  x

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

|                                     | ** ** | Outstanding as of | ** ** |
|-------------------------------------|------------|-----------------------------|------------|
| **Class**                           | ** ** | ** **                  | ** ** | **August 14, 2006** | ** ** |
| Common  Stock, $.001 par value |       | 2,000                       |       |
|                                     |            |                             |            |  |  |

 

**DOCUMENTS INCORPORATED BY REFERENCE:  None**

 

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**AFFINITY GROUP,INC. AND SUBSIDIARIES**

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

 

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** **

AFFINITYGROUP, INC. AND SUBSIDIARIESCONSOLIDATED BALANCESHEETSJune 30, 2006 and December 31, 2005(In Thousands)
| ** **                                                                                     | ** ** | **6/30/2006**   | ** ** | **12/31/2005** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|
| ** **                                                                                     | ** ** | **(Unaudited)** | ** ** | ** **     | ** ** |
| **ASSETS**                                                                                     |       |            |       |           |       |
| CURRENT ASSETS:                                                                                |       |            |       |           |       |
| Cash and cash  equivalents                                                                     |       | $               | 12,100     |           | $          | 24,778 |   |
| Accounts  receivable, less allowance for doubtful accounts of $1,128 in 2006 and $952  in 2005 |       | 22,301          |       | 26,508         |       |
| Inventories                                                                                    |       | 50,906          |       | 47,039         |       |
| Prepaid expenses and  other assets                                                             |       | 14,931          |       | 11,218         |       |
| Deferred tax assets,  net                                                                      |       | 1,713           |       | 4,995          |       |
| Total current  assets                                                                          |       | 101,951         |       | 114,538        |       |
|                                                                                           |       |            |       |           |       |
| PROPERTY AND EQUIPMENT,  net                                                                   |       | 31,978          |       | 29,843         |       |
| INVESTMENT IN AFFILIATE                                                                        |       | 81,005          |       | 81,005         |       |
| AFFILIATE NOTES AND  INVESTMENTS                                                               |       | 4,705           |       | 4,722          |       |
| INTANGIBLE ASSETS, net                                                                         |       | 32,270          |       | 34,572         |       |
| GOODWILL                                                                                       |       | 144,428         |       | 144,429        |       |
| DEFERRED TAX ASSETS,  net                                                                      |       | —          |       | 4,620          |       |
| OTHER ASSETS                                                                                   |       | 1,686           |       | 1,731          |       |
| Total assets                                                                                   |       | $               | 398,023    |           | $          | 415,460 |   |
|                                                                                           |       |            |       |           |       |
| **LIABILITIES AND STOCKHOLDER’S  DEFICIT**                                                |       |            |       |           |       |
| CURRENT  LIABILITIES:                                                                          |       |            |       |           |       |
| Accounts payable                                                                               |       | $               | 22,585     |           | $          | 12,683 |   |
| Accrued interest                                                                               |       | 6,135           |       | 6,897          |       |
| Accrued income taxes                                                                           |       | 906             |       | 465            |       |
| Accrued liabilities                                                                            |       | 37,186          |       | 34,094         |       |
| Deferred revenues and  gains                                                                   |       | 63,542          |       | 60,994         |       |
| Current portion of  long-term debt                                                             |       | 3,571           |       | 6,136          |       |
| Total current  liabilities                                                                     |       | 133,925         |       | 121,269        |       |
|                                                                                           |       |            |       |           |       |
| DEFERRED REVENUES AND  GAINS                                                                   |       | 38,819          |       | 37,926         |       |
| LONG-TERM DEBT, net of  current portion                                                        |       | 288,314         |       | 313,864        |       |
| DEFERRED TAX LIABILITY                                                                         |       | 16,530          |       | —         |       |
| OTHER LONG-TERM  LIABILITIES                                                                   |       | 7,480           |       | 8,766          |       |
|                                                                                           |       | 485,068         |       | 481,825        |       |
|                                                                                           |       |            |       |           |       |
| COMMITMENTS AND  CONTINGENCIES                                                                 |       |            |       |           |       |
|                                                                                           |       |            |       |           |       |
| STOCKHOLDER’S DEFICIT:                                                                    |       |            |       |           |       |
|                                                                                           |       |            |       |           |       |
| Common stock,  $.001 par value, 2,000 shares authorized, 2,000 shares issued and outstanding   |       | 1               |       | 1              |       |
| Additional paid-in  capital                                                                    |       | 81,005          |       | 81,005         |       |
| Accumulated deficit                                                                            |       | (168,051        | )          | (147,371       | )          |
| Total  stockholder’s deficit                                                              |       | (87,045         | )          | (66,365        | )          |
| Total liabilities and  stockholder’s deficit                                              |       | $               | 398,023    |           | $          | 415,460 |   |

 

See notes toconsolidated financial statements.

1

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AFFINITY GROUP, INC. ANDSUBSIDIARIESCONSOLIDATED STATEMENTSOF OPERATIONS(In Thousands)(Unaudited)
| ** **                                  | ** ** | **THREE MONTHS ENDED** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **6/30/2006**                    | ** ** | **6/30/2005** | ** ** |
| REVENUES:                                   |       |                             |       |   |   |
| Membership services                         |       | $                                | 37,512     |   | $ | 34,401 |   |
| Publications                                |       | 16,584                           |       | 15,301 |   |
| Retail                                      |       | 84,907                           |       | 83,510 |   |
|                                        |       | 139,003                          |       | 133,212 |   |
|                                        |       |                             |       |   |   |
| COSTS APPLICABLE TO  REVENUES:              |       |                             |       |   |   |
| Membership services                         |       | 25,007                           |       | 22,301 |   |
| Publications                                |       | 11,638                           |       | 10,238 |   |
| Retail                                      |       | 51,064                           |       | 50,098 |   |
|                                        |       | 87,709                           |       | 82,637 |   |
|                                        |       |                             |       |   |   |
| GROSS PROFIT                                |       | 51,294                           |       | 50,575 |   |
|                                        |       |                             |       |   |   |
| OPERATING EXPENSES:                         |       |                             |       |   |   |
| Selling, general and  administrative        |       | 35,114                           |       | 32,698 |   |
| Depreciation and  amortization              |       | 4,595                            |       | 3,820 |   |
|                                        |       | 39,709                           |       | 36,518 |   |
|                                        |       |                             |       |   |   |
| INCOME FROM OPERATIONS                      |       | 11,585                           |       | 14,057 |   |
|                                        |       |                             |       |   |   |
| NON-OPERATING ITEMS:                        |       |                             |       |   |   |
| Interest income                             |       | 395                              |       | 178 |   |
| Interest expense                            |       | (6,700                           | )          | (6,360 | ) |
| Debt extinguishment  expense                |       | (693                             | )          | — |   |
| Other non-operating  items, net             |       | 20                               |       | 14 |   |
|                                        |       | (6,978                           | )          | (6,168 | ) |
|                                        |       |                             |       |   |   |
| INCOME FROM OPERATIONS  BEFORE INCOME TAXES |       | 4,607                            |       | 7,889 |   |
|                                        |       |                             |       |   |   |
| INCOME TAX EXPENSE                          |       | (23,388                          | )          | (2,758 | ) |
|                                        |       |                             |       |   |   |
| NET (LOSS) INCOME                           |       | $                                | (18,781    | ) | $ | 5,131 |   |

 

See notes to consolidatedfinancial statements.

2

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AFFINITYGROUP, INC. AND SUBSIDIARIES

CONSOLIDATEDSTATEMENTS OF OPERATIONS

(InThousands)

(Unaudited)
| ** **                                  | ** ** | **SIX MONTHS ENDED** | ** ** |
|---------------------------------------------|------------|--------------------------------|------------|
| ** **                                  | ** ** | **6/30/2006**                  | ** ** | **6/30/2005** | ** ** |
| REVENUES:                                   |       |                           |       |   |   |
| Membership services                         |       | $                              | 70,460     |   | $ | 66,824 |   |
| Publications                                |       | 39,687                         |       | 32,499 |   |
| Retail                                      |       | 145,726                        |       | 142,576 |   |
|                                        |       | 255,873                        |       | 241,899 |   |
|                                        |       |                           |       |   |   |
| COSTS APPLICABLE TO  REVENUES:              |       |                           |       |   |   |
| Membership services                         |       | 46,123                         |       | 42,502 |   |
| Publications                                |       | 26,213                         |       | 21,759 |   |
| Retail                                      |       | 87,467                         |       | 84,392 |   |
|                                        |       | 159,803                        |       | 148,653 |   |
|                                        |       |                           |       |   |   |
| GROSS PROFIT                                |       | 96,070                         |       | 93,246 |   |
|                                        |       |                           |       |   |   |
| OPERATING EXPENSES:                         |       |                           |       |   |   |
| Selling, general and  administrative        |       | 65,342                         |       | 62,559 |   |
| Depreciation and  amortization              |       | 9,119                          |       | 7,518 |   |
|                                        |       | 74,461                         |       | 70,077 |   |
|                                        |       |                           |       |   |   |
| INCOME FROM OPERATIONS                      |       | 21,609                         |       | 23,169 |   |
|                                        |       |                           |       |   |   |
| NON-OPERATING ITEMS:                        |       |                           |       |   |   |
| Interest income                             |       | 724                            |       | 344 |   |
| Interest expense                            |       | (13,340                        | )          | (12,546 | ) |
| Debt extinguishment  expense                |       | (693                           | )          | — |   |
| Other non-operating  items, net             |       | 53                             |       | 30 |   |
|                                        |       | (13,256                        | )          | (12,172 | ) |
|                                        |       |                           |       |   |   |
| INCOME FROM OPERATIONS  BEFORE INCOME TAXES |       | 8,353                          |       | 10,997 |   |
|                                        |       |                           |       |   |   |
| INCOME TAX EXPENSE                          |       | (24,870                        | )          | (3,968 | ) |
|                                        |       |                           |       |   |   |
| NET(LOSS) INCOME                            |       | $                              | (16,517    | ) | $ | 7,029 |   |

 

Seenotes to consolidated financial statements.

3

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AFFINITYGROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTSOF CASH FLOWS(In Thousands)(Unaudited)
| ** **                                                                                | ** ** | **SIX MONTHS ENDED** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                | ** ** | **6/30/2006**                  | ** ** | **6/30/2005** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                    |       |                           |       |   |   |
| Net (loss)  income                                                                        |       | $                              | (16,517    | ) | $ | 7,029 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |                           |       |   |   |
| Depreciation                                                                              |       | 5,030                          |       | 4,570 |   |
| Amortization                                                                              |       | 4,089                          |       | 2,948 |   |
| Provision for  losses on accounts receivable                                              |       | 431                            |       | 483 |   |
| Deferred  compensation                                                                    |       | 140                            |       | 1,650 |   |
| Deferred tax  provision (benefit)                                                         |       | 24,432                         |       | (1,988 | ) |
| (Gain) loss on  sale of property and equipment                                            |       | (13                            | )          | 2 |   |
| Loss on early  extinguishment of debt                                                     |       | 693                            |       | — |   |
| Changes in  operating assets and liabilities                                              |       |                           |       |   |   |
| Accounts  receivable                                                                      |       | 3,776                          |       | 2,855 |   |
| Inventories                                                                               |       | (3,867                         | )          | (9,630 | ) |
| Prepaid expenses  and other assets                                                        |       | (3,411                         | )          | (3,810 | ) |
| Accounts payable                                                                          |       | 9,902                          |       | 10,288 |   |
| Accrued and  other liabilities                                                            |       | (218                           | )          | 1,399 |   |
| Deferred  revenues and gains                                                              |       | 2,438                          |       | 4,575 |   |
| Net cash  provided by operating activities                                                |       | 26,905                         |       | 20,371 |   |
|                                                                                      |       |                           |       |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                    |       |                           |       |   |   |
| Capital  expenditures                                                                     |       | (7,244                         | )          | (4,827 | ) |
| Net proceeds  from sale of property and equipment                                         |       | 124                            |       | 27 |   |
| Change in  intangible assets                                                              |       | (4                             | )          | (26 | ) |
| Investment in  affiliate                                                                  |       | —                         |       | (81,005 | ) |
| Acquisitions,  net of cash received                                                       |       | (1,334                         | )          | (2,639 | ) |
| Loans receivable                                                                          |       | 17                             |       | 15 |   |
| Net cash used in  investing activities                                                    |       | (8,441                         | )          | (88,455 | ) |
|                                                                                      |       |                           |       |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                    |       |                           |       |   |   |
| Dividends paid                                                                            |       | (2,600                         | )          | — |   |
| Borrowings on  long-term debt                                                             |       | —                         |       | 81,005 |   |
| Payment of debt  issue costs                                                              |       | —                         |       | (21 | ) |
| Principal  payments of long-term debt                                                     |       | (28,542                        | )          | (700 | ) |
| Net cash (used  in) provided by financing activities                                      |       | (31,142                        | )          | 80,284 |   |
|                                                                                      |       |                           |       |   |   |
| NET CHANGE IN CASH AND  CASH EQUIVALENTS                                                  |       | (12,678                        | )          | 12,200 |   |
|                                                                                      |       |                           |       |   |   |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF YEAR                                           |       | 24,778                         |       | 24,564 |   |
|                                                                                      |       |                           |       |   |   |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                |       | $                              | 12,100     |   | $ | 36,764 |   |

 

See notes to consolidatedfinancial statements.

4

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**AFFINITYGROUP, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements(Unaudited)**

**(1) BASIS OF PRESENTATION**

*Principles of Consolidation**–*The consolidated financial statementsinclude the accounts of Affinity Group, Inc. (“AGI”) and its subsidiaries(collectively the “Company”), in accordance with U.S. generally acceptedaccounting principles, and pursuant to the rules and regulations of theSecurities and Exchange Commission. In March 2005, Affinity Group Holding Corp.(“AGHC”) formed a holding company, Affinity Group Holding, Inc., a Delawarecorporation (“AGHI”) at which time contributed 100% of the outstanding sharesof common stock of AGI to AGHI. AGHI is the direct parent of the Company.

On March 7, 2006, AGHCfiled an election with the Internal Revenue Service to change its tax statusfrom a Subchapter C corporation to a Subchapter S corporation (“S corporation”).This change of tax status election was to be effective as of January 1, 2006.The election for change in tax status to an S corporation included AGHC and allits subsidiaries with the exception of Camping World, Inc. and its wholly-ownedsubsidiaries, which are to remain Subchapter C corporations. During the firstquarter of 2006, the Company continued to file as Subchapter C corporationssince AGHC had not received approval from the IRS regarding its S corporationchange of tax status election. As such, the Company recorded a $1.5 million taxprovision for the first quarter of 2006.            Approvalfor the S corporation change of tax status election was received from the IRSin the second quarter of 2006. This approval for change in tax status wasgranted retroactive to January 1, 2006. Pursuant to FAS 109, “Accounting forIncome taxes”, a change in tax status resulting from an S corporation electionrequires that all deferred tax accounts be revalued upon formal approval of theS corporation status. Accordingly, all deferred tax accounts of AGHC and itssubsidiaries, excluding Camping World, Inc. and its wholly owned subsidiaries,were revalued to account for the tax effect for the change to the S corporationstatus. The effect of this revaluation on the deferred tax accounts has beenrecorded in the income tax provision in the second quarter.

Theseinterim consolidated financial statements should be read in conjunction withthe Company’s consolidated financial statements and notes in the Company’s 10-Kreport for the year ended December 31, 2005 as filed with the Securities andExchange Commission. In the opinion of management of the Company, theseconsolidated financial statements contain all adjustments of a normal recurringnature necessary to present fairly the financial position, results ofoperations and cash flows of the Company for the interim periods presented.

5

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**(2) RECENT ACCOUNTINGPRONOUNCEMENTS**

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

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

TheCompany’s three principal lines of business are Membership Services,Publications, and Retail. The Membership Services segment includes theoperations of the Good Sam Club, Coast to Coast Club, Camping World’s President’sClub and Camp Club USA for recreational vehicles (“RV”) owners, campers andoutdoor vacationers, and the Golf Card Club for golf enthusiasts. ThePublications segment publishes a variety of publications for selected marketsin the recreation and leisure industry, including general circulationperiodicals, directories, and RV and powersports industry trade magazines, andproduces outdoor recreational consumer events. The Retail segment sellsspecialty retail merchandise and services for RV owners primarily through theCamping World retail supercenters, mail order catalogs and its website. TheCompany evaluates performance based on profit or loss from operations beforeincome taxes.

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

6

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**(3)DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION**

The Company doesnot allocate income taxes or unusual items to segments. Financial informationby reportable business segment is summarized as follows (in thousands):
| ** **                                     | ** ** | **Membership** | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
|------------------------------------------------|------------|----------------|------------|------------------|------------|------------|------------|------------------|------------|
| ** **                                     | ** ** | **Services**   | ** ** | **Publications** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **THREE  MONTHS ENDED JUNE 30, 2006**          | ** ** | ** **     | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
| Revenues from  external customers              |       | $              | 37,512     |             | $          | 16,584     |       | $                | 84,907     |   | $ | 139,003 |   |
| Depreciation and  amortization                 |       | 889            |       | 1,059            |       | 2,029      |       | 3,977            |       |
| Gain on sale of  property and equipment        |       | —         |       | —           |       | 2          |       | 2                |       |
| Interest income                                |       | 1,563          |       | —           |       | 1          |       | 1,564            |       |
| Interest expense                               |       | —         |       | 87               |       | 3,483      |       | 3,570            |       |
| Segment  operating profit                      |       | 11,215         |       | 2,722            |       | 512        |       | 14,449           |       |
| **THREE MONTHS ENDED JUNE 30, 2005**           | ** ** | ** **     | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
| Revenues from  external customers              |       | 34,401         |       | 15,301           |       | 83,510     |       | 133,212          |       |
| Depreciation and  amortization                 |       | 787            |       | 542              |       | 1,770      |       | 3,099            |       |
| Gain (loss) on  sale of property and equipment |       | —         |       | (5               | )          | 3          |       | (2               | )          |
| Interest income                                |       | 1,167          |       | —           |       | 3          |       | 1,170            |       |
| Interest expense                               |       | —         |       | 69               |       | 2,622      |       | 2,691            |       |
| Segment  operating profit                      |       | 10,653         |       | 3,763            |       | 3,446      |       | 17,862           |       |
|                                                |            |                |            |                  |            |            |            |                  |            |  |  |  |  |

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

 

7

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The following is areconciliation of income from operations to the Company’s consolidatedfinancial statements for the three and six months ended June 30, 2006 and 2005(in thousands):
| ** **                                                     | ** ** | **THREE MONTHS ENDED** | ** ** | **SIX MONTHS ENDED** | ** ** |
|----------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                     | ** ** | **6/30/2006**                    | ** ** | **6/30/2005**                  | ** ** | **6/30/2006** | ** ** | **6/30/2005** | ** ** |
| **Income  From Operations Before Taxes**                       | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total profit for  reportable segments                          |       | $                                | 14,449     |                           | $          | 17,862 |   | $ | 27,064 |   | $ | 30,991 |   |
| Unallocated G  & A expense                                 |       | (4,232                           | )          | (4,591                         | )          | (8,382 | ) | (9,733 | ) |
| Unallocated  depreciation and amortization expense             |       | (618                             | )          | (721                           | )          | (1,235 | ) | (1,255 | ) |
| Unallocated  interest income, net of intercompany elimination  |       | (1,169                           | )          | (992                           | )          | (2,221 | ) | (1,831 | ) |
| Unallocated  interest expense, net of intercompany elimination |       | (3,130                           | )          | (3,669                         | )          | (6,180 | ) | (7,175 | ) |
| Unallocated debt  restructure expense                          |       | (693                             | )          | —                         |       | (693 | ) | — |   |
| Income from  operations before taxes                           |       | $                                | 4,607      |                           | $          | 7,889 |   | $ | 8,353 |   | $ | 10,997 |   |

 

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

|                                                      | ** ** | **6/30/2006** | ** ** | **12/31/2005** | ** ** |
|------------------------------------------------------|------------|---------------|------------|----------------|------------|
| Membership  services segment                         |       | $             | 164,711    |           | $          | 162,562 |   |
| Publications  segment                                |       | 86,405        |       | 89,104         |       |
| Retail segment                                       |       | 216,381       |       | 207,736        |       |
| Total assets for  reportable segments                |       | 467,497       |       | 459,402        |       |
| Capitalized  finance costs not allocated to segments |       | 8,043         |       | 9,568          |       |
| Corporate  unallocated assets                        |       | 8,310         |       | 16,376         |       |
| Elimination of  intersegment receivable              |       | (85,827       | )          | (69,886        | )          |
| Total assets                                         |       | $             | 398,023    |           | $          | 415,460 |   |

 

**(4)STATEMENTS OF CASH FLOWS**

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

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

 

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

8

----

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

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

**5)GOODWILL AND INTANGIBLE ASSETS**

The Company reviewsgoodwill and indefinite-lived intangible assets for impairment at leastannually. The Company performs its annual impairment test during the fourthquarter. Based on the results of this test, we recorded an impairment charge of$4.3 million in 2005 related to the Golf Card Club, which is included in themembership services segment.

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

Finite livedintangible assets, related accumulated amortization and weighted average usefullife consisted of the following at June 30, 2006 (in thousands, except asnoted):
| ** **                                       | ** ** | **Weighted**                  | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|-------------------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                                       | ** ** | **Average Useful**       | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | **Life (in years)** | ** ** | **Gross**  | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
| Membership and  customer lists                   |       | 6                             |       | $          | 26,939     |             | $          | (9,192     | )          | $ | 17,747 |   |
| Resort and golf  course participation agreements |       | 23                            |       | 13,515     |       | (12,074          | )          | 1,441      |       |
| Non-compete and  deferred consulting agreements  |       | 15                            |       | 18,455     |       | (12,064          | )          | 6,391      |       |
| Deferred  financing costs                        |       | 7                             |       | 10,942     |       | (4,251           | )          | 6,691      |       |
|                                             |       |                          |       | $          | 69,851     |             | $          | (37,581    | )          | $ | 32,270 |   |

 

**(6) NOTESOFFERING, GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION**

InFebruary 2004, the Company issued $200.0 million of 9% Senior SubordinatedNotes (“Senior Subordinated Notes”) due 2012 pursuant to the AGI Indenture. OnJune 8, 2006, the Company amended its Amended and Restated Credit Agreement topermit the Company to repurchase up to $30.0 million of the Senior SubordinatedNotes from time to time as and when the Company determines. The Companypurchased and retired $24.8 million of the Senior Subordinated Notes in June2006. Interest is payable on the Senior Subordinated Notes twice a year onFebruary 15 and August 15. The Company’s present and future restrictedsubsidiaries will guarantee the Senior Subordinated Notes

9

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withunconditional guarantees of payment that will rank junior in right of paymentto their existing and future senior debt, but will rank equal in right ofpayment to their existing and future senior subordinated debt.

All ofthe Company’s subsidiaries have jointly and severally guaranteed theindebtedness under the Senior Subordinated Notes except for CWFR Capital Corp. Fullfinancial statements of the Guarantors have not been included because, pursuantto their respective guarantees, the Guarantors are jointly and severally liablewith respect to the Senior Subordinated Notes.

10

----

 

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

 
| ** **                                         | ** ** | **AS OF JUNE 30, 2006** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                         | ** ** | ** **                                  | ** ** | ** ** | ** ** | **NON-** | ** ** | ** ** | ** ** | **AGI** | ** ** |
| ** **                                         | ** ** | **AGI**                                     | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
| Cash & cash  equivalents                       |       | $                                           | 12,968     |   | $ | (868 | ) | $ | — |   | $ | — |   | $ | 12,100 |   |
| Accounts receivable,  net                          |       | 312                                         |       | 107,816 |   | — |   | (85,827 | ) | 22,301 |   |
| Inventories                                        |       | —                                      |       | 50,906 |   | — |   | — |   | 50,906 |   |
| Other current assets                               |       | 2,173                                       |       | 14,471 |   | — |   | — |   | 16,644 |   |
| Total current assets                               |       | 15,453                                      |       | 172,325 |   | — |   | (85,827 | ) | 101,951 |   |
|                                               |       |                                        |       |   |   |   |   |   |   |   |   |
| Property and equipment,  net                       |       | 6,230                                       |       | 25,748 |   | — |   | — |   | 31,978 |   |
| Intangible assets                                  |       | 6,737                                       |       | 25,532 |   | — |   | — |   | 32,269 |   |
| Goodwill                                           |       | 67,584                                      |       | 76,845 |   | — |   | — |   | 144,429 |   |
| Investment in  subsidiaries                        |       | 505,927                                     |       | 81,005 |   | — |   | (586,932 | ) | — |   |
| Affiliate note and  investments                    |       | 44,705                                      |       | — |   | 81,005 |   | (40,000 | ) | 85,710 |   |
| Other assets                                       |       | 809                                         |       | 877 |   | — |   | — |   | 1,686 |   |
| Total assets                                       |       | $                                           | 647,445    |   | $ | 382,332 |   | $ | 81,005 |   | $ | (712,759 | ) | $ | 398,023 |   |
|                                               |       |                                        |       |   |   |   |   |   |   |   |   |
| Accounts payable                                   |       | $                                           | 222        |   | $ | 22,363 |   | $ | — |   | $ | — |   | $ | 22,585 |   |
| Accrued and other  liabilities                     |       | 18,861                                      |       | 25,366 |   | — |   | — |   | 44,227 |   |
| Current portion of  long-term debt                 |       | 87,227                                      |       | 42,171 |   | — |   | (125,827 | ) | 3,571 |   |
| Deferred revenue and  gains                        |       | 1,043                                       |       | 62,499 |   | — |   | — |   | 63,542 |   |
| Total current  liabilities                         |       | 107,353                                     |       | 152,399 |   |   |   | (125,827 | ) | 133,925 |   |
|                                               |       |                                        |       |   |   |   |   |   |   |   |   |
| Deferred revenue and  gains                        |       | 2,723                                       |       | 36,096 |   | — |   | — |   | 38,819 |   |
| Long-term debt                                     |       | 282,934                                     |       | 5,380 |   | — |   | — |   | 288,314 |   |
| Other long-term  liabilities                       |       | 341,480                                     |       | (317,470 | ) | — |   | — |   | 24,010 |   |
| Total liabilities                                  |       | 734,490                                     |       | (123,595 | ) |   |   | (125,827 | ) | 485,068 |   |
| Interdivisional equity                             |       | —                                      |       | 505,927 |   | 81,005 |   | (586,932 | ) | — |   |
| Stockholders’ deficit                         |       | (87,045                                     | )          | — |   | — |   | — |   | (87,045 | ) |
|                                               |       |                                        |       |   |   |   |   |   |   |   |   |
| Total liabilities & stockholders’ deficit |       | $                                           | 647,445    |   | $ | 382,332 |   | $ | 81,005 |   | $ | (712,759 | ) | $ | 398,023 |   |

 
| ** **                                             | ** ** | **SIX MONTHS ENDED JUNE 30, 2006** | ** ** |
|--------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                             | ** ** | ** **                                                  | ** ** | ** ** | ** ** | **NON-** | ** ** | ** ** | ** ** | **AGI** | ** ** |
| ** **                                             | ** ** | **AGI**                                                     | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
| Revenue                                                |       | $                                                           | 3,600      |   | $ | 252,273 |   | $ | — |   | $ | — |   | $ | 255,873 |   |
| Costs applicable  to revenues                          |       | (7,652                                                      | )          | (152,151 | ) | — |   | — |   | (159,803 | ) |
| Operating  expenses                                    |       | (9,258                                                      | )          | (65,203 | ) | — |   | — |   | (74,461 | ) |
| Interest  expense, net                                 |       | (8,401                                                      | )          | (4,215 | ) | — |   | — |   | (12,616 | ) |
| Income from  investment in consolidated subsidiaries   |       | 19,304                                                      |       | — |   | — |   | (19,304 | ) | — |   |
| Other non  operating income (expenses)                 |       | 2,367                                                       |       | (3,007 | ) | — |   | — |   | (640 | ) |
| Income tax  benefit (expense)                          |       | (16,477                                                     | )          | (8,393 | ) | — |   | — |   | (24,870 | ) |
| Net income  (loss)                                     |       | $                                                           | (16,517    | ) | $ | 19,304 |   | $ | — |   | $ | (19,304 | ) | $ | (16,517 | ) |
|                                                   |       |                                                        |       |   |   |   |   |   |   |   |   |
| Cash flows from  operations                            |       | $                                                           | (6,680     | ) | $ | 33,585 |   | $ | — |   | $ | — |   | $ | 26,905 |   |
| Cash flows (used  in) provided by investing activities |       | (1,538                                                      | )          | (6,903 | ) | — |   | — |   | (8,441 | ) |
| Cash flows (used  in) provided by financing activities |       | (5,235                                                      | )          | (25,907 | ) | — |   | — |   | (31,142 | ) |
| Cash at  beginning of year                             |       | 26,421                                                      |       | (1,643 | ) | — |   | — |   | 24,778 |   |
| Cash at end of  year                                   |       | $                                                           | 12,968     |   | $ | (868 | ) | $ | — |   | $ | — |   | $ | 12,100 |   |

** **

11

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

 
| ** **                                           | ** ** | **THREE MONTHS ENDED JUNE 30, 2006** | ** ** |
|------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                           | ** ** | ** **                                                    | ** ** | ** ** | ** ** | **NON-** | ** ** | ** ** | ** ** | **AGI** | ** ** |
| ** **                                           | ** ** | **AGI**                                                       | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
|                                                 |       |                                                          |       |   |   |   |   |   |   |   |   |
| Revenue                                              |       | $                                                             | 2,665      |   | $ | 136,338 |   | $ | — |   | $ | — |   | $ | 139,003 |   |
| Costs applicable  to revenues                        |       | (4,811                                                        | )          | (82,898 | ) | — |   | — |   | (87,709 | ) |
| Operating  expenses                                  |       | (4,686                                                        | )          | (35,023 | ) | — |   | — |   | (39,709 | ) |
| Interest  expense, net                               |       | (4,299                                                        | )          | (2,006 | ) | — |   | — |   | (6,305 | ) |
| Income from  investment in consolidated subsidiaries |       | 11,558                                                        |       | — |   | — |   | (11,558 | ) | — |   |
| Other non  operating income (expenses)               |       | 857                                                           |       | (1,530 | ) | — |   | — |   | (673 | ) |
| Income tax  benefit (expense)                        |       | (20,065                                                       | )          | (3,323 | ) |   |   |   |   | (23,388 | ) |
| Net income (loss)                                    |       | $                                                             | (18,781    | ) | $ | 11,558 |   | $ | — |   | $ | (11,558 | ) | $ | (18,781 | ) |

 

The following are summarized balance sheet statementssetting forth certain financial information concerning the GuarantorSubsidiaries as of December 31, 2005 (in thousands).

 
| ** **                                          | ** ** | **AS OF DECEMBER 31, 2005** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                          | ** ** | ** **                                      | ** ** | ** ** | ** ** | **NON-** | ** ** | ** ** | ** ** | **AGI** | ** ** |
| ** **                                          | ** ** | **AGI**                                         | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
| Cash & cash  equivalents                        |       | $                                               | 26,421     |   | $ | (1,643 | ) | $ | — |   | $ | — |   | $ | 24,778 |   |
| Accounts  receivable, net                           |       | 317                                             |       | 96,077 |   | — |   | (69,886 | ) | 26,508 |   |
| Inventories                                         |       | —                                          |       | 47,039 |   | — |   | — |   | 47,039 |   |
| Other current assets                                |       | 4,769                                           |       | 11,444 |   | — |   | — |   | 16,213 |   |
| Total current  assets                               |       | 31,507                                          |       | 152,917 |   | — |   | (69,886 | ) | 114,538 |   |
|                                                |       |                                            |       |   |   |   |   |   |   |   |   |
| Property and  equipment, net                        |       | 5,680                                           |       | 24,163 |   | — |   | — |   | 29,843 |   |
| Intangible  assets                                  |       | 8,245                                           |       | 26,327 |   | — |   | — |   | 34,572 |   |
| Goodwill                                            |       | 67,584                                          |       | 76,845 |   | — |   | — |   | 144,429 |   |
| Investment in  subsidiaries                         |       | 468,270                                         |       | 81,005 |   | — |   | (549,275 | ) | — |   |
| Affiliate note  and investments                     |       | 44,795                                          |       | — |   | 81,005 |   | (40,073 | ) | 85,727 |   |
| Other assets                                        |       | 11,844                                          |       | (5,493 | ) | — |   | — |   | 6,351 |   |
| Total assets                                        |       | $                                               | 637,925    |   | $ | 355,764 |   | $ | 81,005 |   | $ | (659,234 | ) | $ | 415,460 |   |
|                                                |       |                                            |       |   |   |   |   |   |   |   |   |
| Accounts payable                                    |       | $                                               | 985        |   | $ | 11,698 |   | $ | — |   | $ | — |   | $ | 12,683 |   |
| Accrued and  other liabilities                      |       | 18,932                                          |       | 22,524 |   | — |   | — |   | 41,456 |   |
| Current portion  of long-term debt                  |       | 72,561                                          |       | 43,534 |   | — |   | (109,959 | ) | 6,136 |   |
| Current portion  of deferred revenue                |       | 1,592                                           |       | 59,402 |   | — |   | — |   | 60,994 |   |
| Total current  liabilities                          |       | 94,070                                          |       | 137,158 |   |   |   | (109,959 | ) | 121,269 |   |
|                                                |       |                                            |       |   |   |   |   |   |   |   |   |
| Deferred revenue                                    |       | 2,785                                           |       | 35,141 |   | — |   | — |   | 37,926 |   |
| Long-term debt                                      |       | 308,475                                         |       | 5,389 |   | — |   | — |   | 313,864 |   |
| Other long-term  liabilities                        |       | 298,960                                         |       | (290,194 | ) | — |   | — |   | 8,766 |   |
| Total  liabilities                                  |       | 704,290                                         |       | (112,506 | ) |   |   | (109,959 | ) | 481,825 |   |
|                                                |       |                                            |       |   |   |   |   |   |   |   |   |
| Interdivisional  equity                             |       | —                                          |       | 468,270 |   | 81,005 |   | (549,275 | ) | — |   |
| Stockholders’  deficit                         |       | (66,365                                         | )          | — |   | — |   | — |   | (66,365 | ) |
|                                                |       |                                            |       |   |   |   |   |   |   |   |   |
| Total liabilities &  stockholder’s deficit |       | $                                               | 637,925    |   | $ | 355,764 |   | $ | 81,005 |   | $ | (659,234 | ) | $ | 415,460 |   |

 

12

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The following are summarized statements setting forth certain financialinformation concerning the Guarantor Subsidiaries for the six months ended June30, 2005 (in thousands).

 
| ** **                                             | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|--------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                             | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
| Revenue                                                |       | $          | 1,390      |           | $          | 240,509       |       | $                | —     |             | $          | — |   | $ | 241,899 |   |
| Costs applicable  to revenues                          |       | (5,223     | )          | (143,430       | )          | —        |       | —           |       | (148,653         | )          |
| Operating  expenses                                    |       | (10,809    | )          | (59,268        | )          | —        |       | —           |       | (70,077          | )          |
| Interest  expense, net                                 |       | (9,006     | )          | (3,196         | )          | —        |       | —           |       | (12,202          | )          |
| Other non  operating income (expenses)                 |       | 3,031      |       | (3,001         | )          | —        |       | —           |       | 30               |       |
| Income tax  benefit (expense)                          |       | 7,439      |       | (11,407        | )          | —        |       | —           |       | (3,968           | )          |
| Net income  (loss)                                     |       | $          | (13,178    | )              | $          | 20,207        |       | $                | —     |             | $          | — |   | $ | 7,029 |   |
|                                                   |       |       |       |           |       |          |       |             |       |             |       |
| Cash flows from  operations                            |       | $          | (9,010     | )              | $          | 29,381        |       | $                | —     |             | $          | — |   | $ | 20,371 |   |
| Cash flows (used  in) provided by investing activities |       | (82,405    | )          | (87,055        | )          | (81,005       | )          | 162,010          |       | (88,455          | )          |
| Cash flows (used  in) provided by financing activities |       | 97,270     |       | 64,019         |       | 81,005        |       | (162,010         | )          | 80,284           |       |
| Cash at beginning  of year                             |       | 24,852     |       | (288           | )          | —        |       | —           |       | 24,564           |       |
| Cash at end of year                                    |       | $          | 30,707     |           | $          | 6,057         |       | $                | —     |             | $          | — |   | $ | 36,764 |   |

 

The following are summarized statements setting forth certain financialinformation concerning the Guarantor Subsidiaries for the three months ended June30, 2005 (in thousands).

 
| ** **                             | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|----------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                             | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
|                                   |       |       |       |           |       |          |       |             |       |             |       |
| Revenue                                |       | $          | 629        |           | $          | 132,583       |       | $                | —     |             | $          | — |   | $ | 133,212 |   |
| Costs applicable  to revenues          |       | (2,610     | )          | (80,027        | )          | —        |       | —           |       | (82,637          | )          |
| Operating  expenses                    |       | (5,140     | )          | (31,378        | )          | —        |       | —           |       | (36,518          | )          |
| Interest  expense, net                 |       | (4,661     | )          | (1,521         | )          | —        |       | —           |       | (6,182           | )          |
| Other non  operating income (expenses) |       | 1,488      |       | (1,474         | )          | —        |       | —           |       | 14               |       |
| Income tax  benefit (expense)          |       | 3,420      |       | (6,178         | )          | —        |       | —           |       | (2,758           | )          |
| Net income (loss)                      |       | $          | (6,874     | )              | $          | 12,005        |       | $                | —     |             | $          | — |   | $ | 5,131 |   |

 

**(7) RECENT EVENTS**

 

On March 6, 2006, Camping World, Inc. (“CampingWorld”), a wholly-owned subsidiary of Affinity Group, Inc., entered intoa Joint Venture Agreement with FreedomRoads Holding Company, LLC, a Minnesotalimited liability company (“FreedomRoads”). FreedomRoads is indirectly owned andcontrolled by Stephen Adams, the Chairman and indirect controlling shareholderof Affinity Group, Inc.  FreedomRoads, through its wholly-ownedsubsidiaries, owns and operates RV dealerships across the United States.  The Joint Venture Agreement provides that Camping World andFreedomRoads are to act cooperatively with a view to maximizing synergies andto locate, establish and utilize mutually beneficial relationships that areavailable only to the parties acting together that would not otherwise beavailable to either party independently.

13

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**ITEM 2:**

 

AFFINITY GROUP, INC. ANDSUBSIDIARIES

MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL

CONDITIONAND RESULTS OF OPERATIONS

 

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

 
| ** **                                  | ** ** | **THREE MONTHS ENDED** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **6/30/2006**                    | ** ** | **6/30/2005** | ** ** | **Inc/(Dec)** | ** ** |
| REVENUES:                                   |       |                             |       |   |   |   |   |
| Membership services                         |       | 27.0                             | %          | 25.8 | % | 9.0 | % |
| Publications                                |       | 11.9                             | %          | 11.5 | % | 8.4 | % |
| Retail                                      |       | 61.1                             | %          | 62.7 | % | 1.7 | % |
|                                        |       | 100.0                            | %          | 100.0 | % | 4.3 | % |
|                                        |       |                             |       |   |   |   |   |
| COSTS APPLICABLE  TO REVENUES:              |       |                             |       |   |   |   |   |
| Membership services                         |       | 18.0                             | %          | 16.7 | % | 12.1 | % |
| Publications                                |       | 8.4                              | %          | 7.7 | % | 13.7 | % |
| Retail                                      |       | 36.7                             | %          | 37.6 | % | 1.9 | % |
|                                        |       | 63.1                             | %          | 62.0 | % | 6.1 | % |
|                                        |       |                             |       |   |   |   |   |
| GROSS PROFIT                                |       | 36.9                             | %          | 38.0 | % | 1.4 | % |
|                                        |       |                             |       |   |   |   |   |
| OPERATING  EXPENSES:                        |       |                             |       |   |   |   |   |
| Selling, general and administrative         |       | 25.3                             | %          | 24.5 | % | 7.4 | % |
| Depreciation and amortization               |       | 3.3                              | %          | 2.9 | % | 20.3 | % |
|                                        |       | 28.6                             | %          | 27.4 | % | 8.7 | % |
|                                        |       |                             |       |   |   |   |   |
| INCOME FROM  OPERATIONS                     |       | 8.3                              | %          | 10.6 | % | (17.6 | )% |
|                                        |       |                             |       |   |   |   |   |
| NON-OPERATING  ITEMS:                       |       |                             |       |   |   |   |   |
| Interest income                             |       | 0.3                              | %          | 0.1 | % | 121.9 | % |
| Interest expense                            |       | (4.8                             | )%         | (4.8 | )% | 5.3 | % |
| Debt extinguishment expense                 |       | (0.5                             | )%         | — |   | 100.0 | % |
| Other non-operating items, net              |       | —                           |       | — |   | 42.9 | % |
|                                        |       | (5.0                             | )%         | (4.7 | )% | 13.1 | % |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES |       | 3.3                              | %          | 5.9 | % | (41.6 | )% |
|                                        |       |                             |       |   |   |   |   |
| INCOME TAX  EXPENSE                         |       | (16.8                            | )%         | (2.0 | )% | 748.0 | % |
|                                        |       |                             |       |   |   |   |   |
| NET (LOSS) INCOME                           |       | (13.5                            | )%         | 3.9 | % | (466.0 | )% |

 

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AFFINITYGROUP, INC. AND SUBSIDIARIESMANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS

The following table isderived from the Company’s Consolidated Statements of Operations and expressesthe results from operations as a percentage of revenues and reflects the netincrease (decrease) between periods:
| ** **                                  | ** ** | **SIX  MONTHS ENDED** | ** ** |
|---------------------------------------------|------------|-----------------------|------------|
|                                             | ** ** | **6/30/2006**         | ** ** | **6/30/2005** | ** ** | **Inc/(Dec)** | ** ** |
|                                        |       |                  |       |   |   |   |   |
| REVENUES:                                   |       |                  |       |   |   |   |   |
| Membership  services                        |       | 27.5                  | %          | 27.6 | % | 5.4 | % |
| Publications                                |       | 15.5                  | %          | 13.4 | % | 22.1 | % |
| Retail                                      |       | 57.0                  | %          | 59.0 | % | 2.2 | % |
|                                        |       | 100.0                 | %          | 100.0 | % | 5.8 | % |
|                                        |       |                  |       |   |   |   |   |
| COSTS APPLICABLE TO  REVENUES:              |       |                  |       |   |   |   |   |
| Membership  services                        |       | 18.0                  | %          | 17.6 | % | 8.5 | % |
| Publications                                |       | 10.2                  | %          | 9.0 | % | 20.5 | % |
| Retail                                      |       | 34.3                  | %          | 34.9 | % | 3.6 | % |
|                                        |       | 62.5                  | %          | 61.5 | % | 7.5 | % |
|                                        |       |                  |       |   |   |   |   |
| GROSS PROFIT                                |       | 37.5                  | %          | 38.5 | % | 3.0 | % |
|                                        |       |                  |       |   |   |   |   |
| OPERATING EXPENSES:                         |       |                  |       |   |   |   |   |
| Selling, general  and administrative        |       | 25.5                  | %          | 25.8 | % | 4.4 | % |
| Depreciation and  amortization              |       | 3.6                   | %          | 3.1 | % | 21.3 | % |
|                                        |       | 29.1                  | %          | 28.9 | % | 6.3 | % |
|                                        |       |                  |       |   |   |   |   |
| INCOME FROM OPERATIONS                      |       | 8.4                   | %          | 9.6 | % | (6.7 | )% |
|                                        |       |                  |       |   |   |   |   |
| NON-OPERATING ITEMS:                        |       |                  |       |   |   |   |   |
| Interest income                             |       | 0.3                   | %          | 0.1 | % | 110.5 | % |
| Interest expense                            |       | (5.1                  | )%         | (5.2 | )% | 6.3 | % |
| Debt  extinguishment expense                |       | (0.3                  | )%         | — |   | 100.0 | % |
| Other  non-operating items, net             |       | —                |       | — |   | 76.7 | % |
|                                        |       | (5.1                  | )%         | (5.1 | )% | 8.9 | % |
|                                        |       |                  |       |   |   |   |   |
| INCOME FROM OPERATIONS  BEFORE INCOME TAXES |       | 3.3                   | %          | 4.5 | % | (24.0 | )% |
|                                        |       |                  |       |   |   |   |   |
| INCOME TAX EXPENSE                          |       | (9.8                  | )%         | (1.6 | )% | 526.8 | % |
|                                        |       |                  |       |   |   |   |   |
| NET (LOSS) INCOME                           |       | (6.5                  | )%         | 2.9 | % | (335.0 | )% |

 

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**RESULTSOF OPERATIONS**

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

*Revenues*

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

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

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

Retail revenues of $84.9 millionincreased $1.4 million, or 1.7%, from the comparable period in 2005.  Store merchandise sales increasedapproximately $2.2 million over the second quarter of 2005 due to a $6.7million revenue increase from the addition of seventeen new stores over thepast eighteen months, partially offset by a same store sales decrease of $4.5million, or 7.5%, compared to an 8.4% increase in the second quarter of 2005.

Same store sale calculations for a givenperiod include only those stores that were open both at the end of that periodand at the beginning of the preceding fiscal year.  The increase in store merchandise sales waspartially offset by a $0.5 million decrease in mail order sales, and a $0.3million decrease in installation and service work.

*Costs Applicable to Revenues*

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

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Membership services costs and expenses of$25.0 million increased approximately $2.7 million, or 12.1%, from the comparableperiod in 2005.  This increase consistedof a $2.0 million increase in member event costs primarily due to timing of theGood Sam Club annual rally, $0.4 million of marketing and program expensesassociated with increased enrollment in the extended vehicle warranty programsand emergency road service programs, and $0.3 million of incremental marketingand fulfillment costs relating to the start-up of a new discount camping club,Camp Club USA.

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

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

*Operating Expenses*

Selling, general and administrativeexpenses of approximately $35.1 million for the second quarter of 2006increased $2.4 million compared to the second quarter of 2005 primarily due toan increase in retail selling and general and administrative expenses ofapproximately $2.4 million consisting of increases in wages, advertising,operating insurance, travel and training, and other retail general and administrativeexpenses, and a $0.6 million increase due to the newly acquired consumer shows,partially offset by a $0.6 million decrease in deferred executive compensationexpense.  The increase in selling,general and administrative expenses was primarily due to new store openings andother marketing programs.

Depreciation and amortization expense of$4.6 million increased approximately $0.8 million over the prior year primarilydue to increased depreciation on additional capital expenditures at CampingWorld, and amortization of intangible assets associated with the purchase of *Powerboat Magazine*in May 2005 and the acquisition ofconsumer shows in December 2005 and February 2006.

*Income from Operations*

Incomefrom operations for the second quarter of 2006 totaling $11.6 million decreased$2.5 million compared to the second quarter of 2005.  This decrease was primarily due to increasedoperating expenses of $3.2 million and reduced gross profit for thepublications operations of $0.1 million partially offset by increased grossprofit for retail and membership services operations of $0.4 million each.

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*Non-Operating Items*

Non-operating items were $7.0 million forthe second quarter of 2006, compared to $6.2 million for the same period in2005.  This $0.8 million increasecomprises of $0.7 million of debt extinguishment expense relating to therepurchase and retirement of $24.8 million of the Company’s Senior SubordinatedNotes, and $0.3 million of additional interest expense in 2006 primarily due tohigher interest rates, partially offset by a $0.2 million increase in interestincome.

*Income before Income Taxes*

Income before income taxes for the secondquarter of 2006 was $4.6 million, or $3.3 million lower than the second quarterof 2005.  This decrease was attributableto a $2.5 million decrease in income from operations for the current period,$0.7 million of debt extinguishment expense and a $0.1 million increase in netinterest expense.

*Income Tax Expense*

TheCompany recorded $23.4 million of income tax expense for the second quarter of2006, an increase of $20.6 million from the second quarter of 2005.  This increase was primarily due to AGHC’s Scorporation change of tax status election effective for 2006, which includedAGI and all its subsidiaries, with the exception of Camping World, Inc. and itswholly-owned subsidiaries which will remain Subchapter C corporations.  As a result, all deferred tax assets andliabilities were revalued with the exception of those related to Camping World,Inc. and its wholly-owned subsidiaries and other potential built-in gains.

# *Net (Loss) Income*

Net loss in the second quarter of 2006was $18.8 million compared to net income of $5.1 million for the same period in2005 primarily due to income tax expense of $23.4 million in the second quarterof 2006 as a result of the S corporation change of tax status election for theCompany (other than Camping World, Inc. and its wholly-owned subsidiaries)being effective during the quarter as discussed above.

*Segment Profit*

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

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

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Publication segmentprofit of $2.7 million for the second quarter of 2006 decreased $1.0 million,or 27.7%, from the comparable period in 2005. This decrease was largely attributable to a $0.5 million profit decreaseattributable to period costs within the newly acquired show groups, a $0.4million decrease in profit relating to a reduced number of issues of *ATV* M*agazine*, and a$0.1 million decrease in profit from the books group.

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

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

*Revenues*

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

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

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

Retail revenues of $145.7 millionincreased $3.2 million, or 2.2%, over the first six months of 2005.  Store merchandise sales increasedapproximately $4.0 million over

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the first six months of 2005 due to a$9.3 million revenue increase from the addition of seventeen new stores overthe past eighteen months, partially offset by a same store sales decrease of$5.3 million or 5.1%, compared to a 7.3% increase in the first six months of2005.  Same store sale calculations for agiven period include only those stores that were open both at the end of thatperiod and at the beginning of the preceding fiscal year.  This revenue increase was partially offset bya $0.4 million decrease in mail order sales, and a $0.4 million decrease ininstallation and service fees.

*Costs Applicable to Revenues*

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

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

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

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

*Operating Expenses*

Selling, general and administrativeexpenses of approximately $65.3 million for the first six months of 2006increased $2.8 million, or 4.4%, compared to the first six months of 2005primarily due to an increase in retail selling and general and administrativeexpenses of approximately $3.5 million consisting of increases in wages,operating insurance, travel and training, and other retail general andadministrative expenses, a $0.5 million increase due to the newly acquiredconsumer shows, and $0.3 million of other general and administrative expenses,partially offset by a $1.5 million decrease in deferred executive compensationexpense.

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Depreciation and amortization expense of$9.1 million increased approximately $1.6 million over the prior year primarilydue to increased depreciation resulting from additional capital expenditures atCamping World, amortization of intangible assets associated with the purchaseof *Powerboat Magazine*in May 2005 and theacquisition of consumer shows in December 2005 and February 2006.

*Income from Operations*

Incomefrom operations for the first six months of 2006 totaling $21.6 milliondecreased $1.6 million compared to the first six months of 2005.  This decrease was primarily due to increasedoperating expenses of $4.4 million partially offset by increased gross profitfor the publications operations of $2.8 million.

*Non-Operating Items*

Non-operating items were approximately$13.3 million for the first six months of 2006, a $1.0 million increase over2005.  This increase comprises of $0.7million of additional interest expense in 2006 due to increased interest ratesand $0.7 million of debt extinguishment expense relating to the repurchase andretirement of $24.8 million of the Company’s Senior Subordinated Notes,partially offset by a $0.4 million increase in interest income.

*Income before Income Taxes*

Income before income taxes for the firstsix months of 2006 was $8.4 million, or $2.6 million lower than the first sixmonths of 2005.  This decrease wasattributable to a $1.6 million decrease in income from operations for thecurrent period, a $0.3 million increase in net interest expense, and $0.7million of debt extinguishment expense.

*Income Tax Expense*

TheCompany recorded $24.9 million of income tax expense for the first six monthsof 2006, an increase of $20.9 million from the first six months of 2005.  This increase was primarily due to AGHC’s Scorporation change of tax status election effective for 2006, which includedAGI and all its subsidiaries, with the exception of Camping World, Inc. and itswholly-owned subsidiaries which will remain Subchapter C corporations.  As a result, all deferred tax assets andliabilities were revalued with the exception of those related to Camping World,Inc. and its wholly-owned subsidiaries and other potential built-in gains.

# *Net (Loss) Income*

Net loss in the first six months of 2006was $16.5 million compared to net income $7.0 million for the same period in2005 primarily due to income tax expense of $23.4 million in the second quarterof 2006 as a result of the S corporation change of tax status election for theCompany (other than Camping World, Inc. and its wholly-owned subsidiaries)being effective during the quarter as discussed above.

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*Segment Profit*

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

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

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

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

**LIQUIDITY AND CAPITAL RESOURCES**

TheCompany has historically operated with a working capital deficit.  The working capital deficit as of June 30,2006 and December 31, 2005 was $32.0 million and $6.7 million,respectively.  The primary reason for theworking capital deficit is the deferred revenue and gains reported undercurrent liabilities in the amount of $63.5 million and $61.0 million as of June30, 2006 and December 31, 2005, 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. The working capital deficit increased compared to the prioryear-end primarily due to the purchase and retirement of $24.8 million of theSenior Subordinated Notes and a seasonal increase in accounts payable.  Management believes that funds generated byoperations together with available borrowings under the Company’s revolvingcredit line will be sufficient to meet all of the Company’s debt servicerequirements and capital requirements over the next twelve months.

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*Contractual Obligations andCommercial Commitments*

Thefollowing table reflects our contractual obligations and commercial commitmentsat June 30, 2006.  This table includesprincipal and future interest due under our debt agreements based on interestrates as of June 30, 2006 and assumes debt obligations will be held tomaturity.
| ** **                                | ** ** | **Payments Due by Period** | ** ** |
|-------------------------------------------|------------|----------------------------|------------|
| (in thousands)                       | ** ** | **Total**                  | ** ** | **Balance of  2006** | ** ** | **2007 and  2008** | ** ** | **2009 and  2010** | ** ** | **Thereafter** | ** ** |
|                                      |       |                       |       |   |   |   |   |   |   |   |   |
| Long-term debt and  future interest       |       | $                          | 406,340    |   | $ | 14,726 |   | $ | 56,295 |   | $ | 142,425 |   | $ | 192,894 |   |
| Operating lease  obligations              |       | 132,818                    |       | 7,476 |   | 21,381 |   | 17,484 |   | 86,477 |   |
| Deferred compensation                     |       | 5,380                      |       | — |   | 4,285 |   | 1,095 |   | — |   |
| Standby and commercial  letters of credit |       | 7,104                      |       | 6,754 |   | 350 |   | — |   | — |   |
| Grand total                               |       | $                          | 551,642    |   | $ | 28,956 |   | $ | 82,311 |   | $ | 161,004 |   | $ | 279,371 |   |

 

On June 24, 2003, theCompany entered into an Amended and Restated Credit Agreement and a SeniorSecured Floating Rate Note Purchase Agreement (as amended, the Senior CreditFacility).  The Senior Credit Facilityprovides for a revolving credit facility of $35.0 million and term loans in theaggregate of $140.0 million.  As of June30, 2006, $109.2 million was outstanding under the term loans.  No borrowings were outstanding on therevolving credit facility as of June 30, 2006. Reborrowings under the term loans are not permitted.  The interest on borrowings under the SeniorCredit Facility is 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 June 30, 2006, the averageinterest rate on the term loans was 7.85%, and permitted borrowings under theundrawn revolving facility were $27.9 million. The Company also pays a commitment fee of 0.5% per annum on the unusedamount of the revolving credit facility. The aggregate quarterly scheduled payments on the term loans are$350,000.  The revolving credit facilitymatures on June 24, 2008, and the term loans mature on June 24, 2009.  The funds available under the Senior CreditFacility may be utilized for borrowings or letters of credit; however, amaximum of $12.5 million may be allocated to such letters of credit.  As of June 30, 2006, the Company had lettersof credit in the aggregate amount of $7.1 million outstanding.  The Senior Credit Facility is secured byvirtually all of the Company’s assets and a pledge of the Company’s stock andthe stock of the Company’s subsidiaries.

In February 2004, we issued $200.0 million aggregateprincipal amount of 9% Senior Subordinated Notes due 2012 (“Senior SubordinatedNotes”).  The Company completed a registeredexchange of the Senior Subordinated Notes under the Securities Act of 1933 inAugust 2004.  The proceeds from the saleof the Senior Subordinated Notes were used to fund the tender offer anddefeasance of the remaining $100.0 million outstanding principal amount of thesubordinated notes previously issued by AGI, prepay $25.0 million of the TermLoans under our Senior Credit Facility, pay a $60.0 million dividenddistribution, create a $15.0 million segregated cash account, pay certainprepayment and transaction costs and for

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general corporate purposes.  The amount held in this segregated account,including any earnings thereon, was available to pay stockholder dividends uponsatisfaction of a leverage test specified in our Senior Credit Facility.  In August and November of 2004, we satisfiedthe specific leverage test and paid $3.6 million and $11.5 million individends, respectively.

On March 3, 2006,Affinity Group, Inc. amended its Senior Credit Facility to revise thedefinition of Consolidated Fixed Charges Ratio and Permitted TaxDistributions.  This amendment allows AGIto distribute taxes to its ultimate parent based on its stand-alone taxobligation rather than the tax obligation of its parent, AGHI, until such timethat AGHI pays interest on its 10 7/8% Senior Notes in cash instead of by theissuance of additional notes.  Further,Affinity Group, Inc. amended the Senior Credit Facility’s covenant restrictionswith affiliates to permit a joint venture arrangement between Camping World andFreedomRoads Holding Company, an affiliate of the Company.

OnMarch 6, 2006, Camping World, Inc. (“Camping World”), a wholly-owned subsidiaryof Affinity Group, Inc., entered into a Joint Venture Agreement withFreedomRoads Holding Company, LLC, a Minnesota limited liability company(“FreedomRoads”).  FreedomRoads isindirectly owned and controlled by Stephen Adams, the Chairman and indirectcontrolling shareholder of Affinity Group, Inc.   FreedomRoads, through its wholly-ownedsubsidiaries, owns and operates RV dealerships across the United States.  The Joint Venture Agreement provides thatCamping World and FreedomRoads are to act cooperatively with a view tomaximizing synergies and to locate, establish and utilize mutually beneficialrelationships that are available only to the parties acting together that wouldnot otherwise be available to either party independently.

On June 8, 2006, AGIamended its Senior Credit Facility to permit the Company to repurchase up to$30.0 million of the Company’s Senior Subordinated Notes from time to time asand when the Company determines.  TheCompany purchased $4,841,000 and $20,000,000 of the Senior Subordinated Noteson June 14, 2006 and June 20, 2006, respectively.  The Senior Subordinated Note purchases weremade with available cash and the notes purchased have been retired.  As of June 30, 2006, $175.2 million of SeniorSubordinated Notes remain outstanding.

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

In March 2005, AGHI, theCompany’s parent, issued $88.2 million principal amount of the 10-7/8% seniornotes due February 15, 2012 (the “AGHI Notes”). Interest on the AGHI notes is payable semi-annually on February 15 andAugust 15.  For interest payments on andprior to February 15, 2008, AGHI may elect to pay interest on the AGHI Notes incash or by issuance of additional notes of the same tenor as the AGHI Notes,except the maturity date is March 15, 2010. AGI has not paid any dividends to

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AGHI to fund payment ofinterest on the AGHI Notes and AGHI made the interest payments due on August15, 2005 and February 15, 2006 through issuance of additional notes.  AGI expects to issue additional notes of thesame tenor as the AGHI Notes through February 15, 2008 to pay interest on theAGHI Notes when and as such interest is due.

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

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

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

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

**CRITICAL ACCOUNTING POLICIES**

*General*

The discussion andanalysis of the Company’s financial condition and results of operations arebased upon the Company’s consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States.  The preparation of thesefinancial statements requires the Company to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses, andrelated disclosure of contingent assets and liabilities.  On an on-going basis, the Company evaluatesits estimates, including those related to membership programs and incentives,bad debts, inventories, intangible assets, employee health insurance benefits,income taxes, restructuring, contingencies and litigation.  The Company bases its estimates on historicalexperience and on various other assumptions that are believed to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities that are not

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readily apparent fromother sources.  Actual results may differfrom these estimates under different assumptions or conditions.

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

*Revenue Recognition*

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

*Accounts Receivable*

The Company estimates thecollectability of its trade receivables. A considerable amount of judgment is required in assessing the ultimaterealization of these receivables including the current credit-worthiness ofeach customer.  Changes in requiredreserves have been recorded in recent periods and may occur in the future dueto the market environment.

*Inventory*

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

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*Long-Lived Assets*

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

Long-lived assets, suchas property, plant and equipment and purchased intangible assets with finitelives are evaluated for impairment whenever events or changes in circumstancesindicate the carrying value of an asset may not be recoverable in accordancewith SFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets.”  The Company assesses the fairvalue of the assets based on the future cash flow the assets are expected togenerate and recognize an impairment loss when estimated undiscounted futurecash flow expected to result from the use of the asset plus net proceedsexpected from disposition of the asset (if any) are less than the carryingvalue of the asset.  When an impairmentis identified, the Company reduces the carrying amount of the asset to itsestimated fair value based on a discounted cash flow approach or, whenavailable and appropriate, comparable market values.  The Company determined there were no indicatorsof impairment of long-lived assets as of December 31, 2005 or June 30, 2006.

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

*Indefinite Lived IntangibleAssets*

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

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

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

Based on the results ofthe annual impairment tests, the Company recorded an impairment charge of $4.3million in 2005 related to Golf Card Club, which is included in the membershipservices segment.  Future goodwillimpairment tests could result in a charge to earnings.  The Company will continue to evaluategoodwill on an annual basis and whenever events and changes in circumstancesindicate that there may be a potential impairment.

*Income Taxes*

Significantjudgment is required in determining the Company’s tax provision and inevaluating its tax positions.  TheCompany establishes accruals for certain tax contingencies when, despite thebelief that 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, as considered appropriate by management.

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

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

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

*Interest Rate Sensitivity Analysis*

At June 30, 2006, we had debt totaling $291.9 million, comprised of$109.2 million of variable rate debt and $182.7 million of fixed ratedebt.  Holding other variables constant(such as debt levels), the earnings and cash flow impact of a one-percentagepoint

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increase/ decrease in interest rates would have an unfavorable/ favorableimpact of approximately $1.1 million.

*Credit Risk*

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

**ITEM 4:CONTROL AND PROCEDURES**

Within 90 daysprior to the filing of this Quarterly Report on Form 10-Q, the Company carriedout an evaluation, under the supervision and with the participation of theCompany’s management, including the President and Chief Executive Officer andthe Senior Vice President and Chief Financial Officer, of the effectiveness ofthe design and operation of the Company’s disclosure controls and procedurespursuant to Regulation 13a-14 under the Securities Exchange Act of 1934.  Based upon that evaluation, the President andChief Executive Officer along with the Senior Vice President and ChiefFinancial Officer concluded that the disclosure controls and procedures areeffective in timely alerting them to material information relating to theCompany (including its consolidated subsidiaries) required to be included in theperiodic SEC filings.  There have been nosignificant changes in the Company’s internal controls or in other factors thatcould significantly affect these controls subsequent to the date the Companycarried out its evaluation.

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**PARTII:  OTHER INFORMATION.**

None.

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**SIGNATURES:**

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

 

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