**UNITED STATES**

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

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

**FORM 10-Q**

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

**TheSecurities Exchange Act of 1934**
| **For Quarter Ended:** | ** ** | **Commission  File Number** |
|------------------------|------------|-----------------------------|
| **June 30, 2007**      |       | **333-113982**              |

 

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**AFFINITY GROUP, INC.**

(Exact name ofregistrant as specified in its charter)

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

 

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

SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:

**9% SeniorSubordinated Notes Due 2012**

Indicate by check mark whether the registrant(1) has filed 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 | Accelerated filer | 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  13, 2007**   |
| Common Stock,  $.001 par value |       | 2,000                  |

 

**DOCUMENTS INCORPORATED BY REFERENCE:  None**

 

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**AFFINITYGROUP, INC. AND SUBSIDIARIES**

**INDEX**
|                                                                                                         | ** ** | **Page** |
|---------------------------------------------------------------------------------------------------------|------------|----------|
| **Part I.**Financial Information                                                                        |       |     |
| ** **                                                                                              |       |     |
| **Item 1:  Financial Statements**                                                                       |       |     |
| ** **                                                                                              |       |     |
| Consolidated Balance Sheets  as of June 30, 2007 (unaudited) and December 31, 2006                      |       | 1        |
|                                                                                                    |       |     |
| Unaudited Consolidated Statements of Operations  for the three months ended June 30, 2007 and 2006      |       | 2        |
|                                                                                                    |       |     |
| Unaudited Consolidated Statements of Operations  for the six months ended June 30, 2007 and 2006        |       | 3        |
|                                                                                                    |       |     |
| Unaudited Consolidated Statements of Cash Flows  for the six months ended June 30, 2007 and 2006        |       | 4        |
|                                                                                                    |       |     |
| Notes to Unaudited Consolidated Financial Statements                                                    |       | 5        |
|                                                                                                    |       |     |
| **Item 2: Management’s Discussion and Analysis of  Financial Condition and Results of Operations** |       | 18       |
| ** **                                                                                              |       |     |
| **Item 3: Quantitative and Qualitative Disclosures about  Market Risk**                                 |       | 32       |
| ** **                                                                                              |       |     |
| **Item 4: Controls and Procedures**                                                                     |       | 33       |
| ** **                                                                                              |       |     |
| **Part  II. Other Information**                                                                         |       | 33       |
| ** **                                                                                              |       |     |
| **Signatures**                                                                                          |       | 34       |

 

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AFFINITYGROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

June30, 2007 and December 31, 2006

(Inthousands except shares and par value)

 
| ** **                                                                                       | ** ** | **6/30/2007**   | ** ** | **12/31/2006** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|
| ** **                                                                                       | ** ** | **(Unaudited)** | ** ** | ** **     | ** ** |
| **ASSETS**                                                                                       |       |            |       |           |       |
| CURRENT ASSETS:                                                                                  |       |            |       |           |       |
| Cash and cash  equivalents                                                                       |       | $               | 2,390      |           | $          | 15,006 |   |
| Accounts  receivable, less allowance for doubtful accounts of $1,446 in 2007 and $1,193  in 2006 |       | 25,169          |       | 27,199         |       |
| Inventories                                                                                      |       | 69,064          |       | 52,703         |       |
| Prepaid expenses  and other assets                                                               |       | 17,784          |       | 12,995         |       |
| Deferred tax  assets                                                                             |       | 3,279           |       | 3,203          |       |
| Total current  assets                                                                            |       | 117,686         |       | 111,106        |       |
|                                                                                             |       |            |       |           |       |
| PROPERTY AND  EQUIPMENT, net                                                                     |       | 41,081          |       | 34,765         |       |
| INVESTMENT IN  AFFILIATE                                                                         |       | 81,005          |       | 81,005         |       |
| AFFILIATE NOTES  AND INVESTMENTS                                                                 |       | 4,669           |       | 4,688          |       |
| INTANGIBLE  ASSETS, net                                                                          |       | 28,153          |       | 30,311         |       |
| GOODWILL                                                                                         |       | 144,429         |       | 144,429        |       |
| OTHER ASSETS                                                                                     |       | 1,441           |       | 1,704          |       |
| Total assets                                                                                     |       | $               | 418,464    |           | $          | 408,008 |   |
|                                                                                             |       |            |       |           |       |
| **LIABILITIES AND STOCKHOLDER’S  DEFICIT**                                                  |       |            |       |           |       |
| CURRENT  LIABILITIES:                                                                            |       |            |       |           |       |
| Accounts payable                                                                                 |       | $               | 27,576     |           | $          | 32,577 |   |
| Accrued interest                                                                                 |       | 5,340           |       | 5,936          |       |
| Accrued income  taxes                                                                            |       | 1,418           |       | 1,736          |       |
| Accrued liabilities                                                                              |       | 35,705          |       | 35,663         |       |
| Deferred  revenues and gains                                                                     |       | 66,533          |       | 62,906         |       |
| Current portion  of long-term debt                                                               |       | 4,698           |       | 7,271          |       |
| Total current  liabilities                                                                       |       | 141,270         |       | 146,089        |       |
|                                                                                             |       |            |       |           |       |
| DEFERRED  REVENUES AND GAINS                                                                     |       | 39,570          |       | 37,183         |       |
| LONG-TERM DEBT,  net of current portion                                                          |       | 285,543         |       | 277,884        |       |
| DEFERRED TAX  LIABILITY                                                                          |       | 790             |       | 15,724         |       |
| OTHER LONG-TERM  LIABILITIES                                                                     |       | 20,317          |       | 6,511          |       |
|                                                                                             |       | 487,490         |       | 483,391        |       |
|                                                                                             |       |            |       |           |       |
| 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                                                                             |       | (150,032        | )          | (156,389       | )          |
| Total  stockholder’s deficit                                                                |       | (69,026         | )          | (75,383        | )          |
| Total liabilities and stockholder’s deficit                                                 |       | $               | 418,464    |           | $          | 408,008 |   |

 

See notes to consolidatedfinancial statements.

1

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AFFINITYGROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(InThousands)

(Unaudited)

 
| ** **                                  | ** ** | **THREE MONTHS ENDED** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **6/30/2007**                    | ** ** | **6/30/2006** | ** ** |
|                                        |       |                             |       |   |   |
| REVENUES:                                   |       |                             |       |   |   |
| Membership services                         |       | $                                | 38,092     |   | $ | 37,512 |   |
| Publications                                |       | 17,529                           |       | 16,584 |   |
| Retail                                      |       | 98,243                           |       | 84,907 |   |
|                                        |       | 153,864                          |       | 139,003 |   |
| COSTS APPLICABLE  TO REVENUES:              |       |                             |       |   |   |
| Membership services                         |       | 24,294                           |       | 25,007 |   |
| Publications                                |       | 12,263                           |       | 11,638 |   |
| Retail                                      |       | 60,073                           |       | 51,064 |   |
|                                        |       | 96,630                           |       | 87,709 |   |
|                                        |       |                             |       |   |   |
| GROSS PROFIT                                |       | 57,234                           |       | 51,294 |   |
|                                        |       |                             |       |   |   |
| OPERATING  EXPENSES:                        |       |                             |       |   |   |
| Selling, general and administrative         |       | 38,930                           |       | 35,114 |   |
| Depreciation and amortization               |       | 4,714                            |       | 4,595 |   |
|                                        |       | 43,644                           |       | 39,709 |   |
|                                        |       |                             |       |   |   |
| INCOME FROM  OPERATIONS                     |       | 13,590                           |       | 11,585 |   |
|                                        |       |                             |       |   |   |
| NON-OPERATING  ITEMS:                       |       |                             |       |   |   |
| Interest income                             |       | 183                              |       | 395 |   |
| Interest expense                            |       | (6,345                           | )          | (6,700 | ) |
| Debt extinguishment expense                 |       | —                           |       | (693 | ) |
| Other non-operating items, net              |       | 44                               |       | 20 |   |
|                                        |       | (6,118                           | )          | (6,978 | ) |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES |       | 7,472                            |       | 4,607 |   |
|                                        |       |                             |       |   |   |
| INCOME TAX  BENEFIT (EXPENSE)               |       | 85                               |       | (23,388 | ) |
|                                        |       |                             |       |   |   |
| NET INCOME (LOSS)                           |       | $                                | 7,557      |   | $ | (18,781 | ) |

 

See notes to consolidatedfinancial statements.

2

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AFFINITYGROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(InThousands)

(Unaudited)

 
| ** **                                  | ** ** | **SIX MONTHS ENDED** | ** ** |
|---------------------------------------------|------------|--------------------------------|------------|
| ** **                                  | ** ** | **6/30/2007**                  | ** ** | **6/30/2006** | ** ** |
| REVENUES:                                   |       |                           |       |   |   |
| Membership services                         |       | $                              | 72,153     |   | $ | 70,460 |   |
| Publications                                |       | 42,218                         |       | 39,687 |   |
| Retail                                      |       | 167,300                        |       | 145,726 |   |
|                                        |       | 281,671                        |       | 255,873 |   |
|                                        |       |                           |       |   |   |
| COSTS APPLICABLE  TO REVENUES:              |       |                           |       |   |   |
| Membership services                         |       | 45,961                         |       | 46,123 |   |
| Publications                                |       | 28,040                         |       | 26,213 |   |
| Retail                                      |       | 101,909                        |       | 87,467 |   |
|                                        |       | 175,910                        |       | 159,803 |   |
|                                        |       |                           |       |   |   |
| GROSS PROFIT                                |       | 105,761                        |       | 96,070 |   |
|                                        |       |                           |       |   |   |
| OPERATING  EXPENSES:                        |       |                           |       |   |   |
| Selling, general and administrative         |       | 73,477                         |       | 65,342 |   |
| Depreciation and amortization               |       | 9,491                          |       | 9,119 |   |
|                                        |       | 82,968                         |       | 74,461 |   |
|                                        |       |                           |       |   |   |
| INCOME FROM  OPERATIONS                     |       | 22,793                         |       | 21,609 |   |
|                                        |       |                           |       |   |   |
| NON-OPERATING  ITEMS:                       |       |                           |       |   |   |
| Interest income                             |       | 357                            |       | 724 |   |
| Interest expense                            |       | (12,544                        | )          | (13,340 | ) |
| Debt extinguishment expense                 |       | (775                           | )          | (693 | ) |
| Other non-operating items, net              |       | 93                             |       | 53 |   |
|                                        |       | (12,869                        | )          | (13,256 | ) |
|                                        |       |                           |       |   |   |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES |       | 9,924                          |       | 8,353 |   |
|                                        |       |                           |       |   |   |
| INCOME TAX  BENEFIT (EXPENSE)               |       | 183                            |       | (24,870 | ) |
|                                        |       |                           |       |   |   |
| NET INCOME (LOSS)                           |       | $                              | 10,107     |   | $ | (16,517 | ) |

 

See notes to consolidatedfinancial statements.

3

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AFFINITYGROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(InThousands)

(Unaudited)

 
| ** **                                             | ** ** | **SIX MONTHS ENDED** | ** ** |
|--------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                             | ** ** | **6/30/2007**                  | ** ** | **6/30/2006** | ** ** |
|                                                   |       |                           |       |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                 |       |                           |       |   |   |
| Net income                                             |       | $                              | 10,107     |   | $ | (16,517 | ) |
| Adjustments to reconcile net income(loss) to net  cash |       |                           |       |   |   |
| (used in) provided by operating activities:            |       |                           |       |   |   |
| Depreciation                                           |       | 4,846                          |       | 5,030 |   |
| Amortization                                           |       | 4,645                          |       | 4,089 |   |
| Provision for losses on accounts receivable            |       | 726                            |       | 431 |   |
| Deferred compensation                                  |       | 240                            |       | 140 |   |
| Deferred tax (benefit) provision                       |       | (826                           | )          | 24,432 |   |
| Gain on sale of property and equipment                 |       | (5                             | )          | (13 | ) |
| Loss on early extinguishment of debt                   |       | 775                            |       | 693 |   |
| Changes in operating assets and liabilities            |       |                           |       |   |   |
| Accounts receivable                                    |       | 1,304                          |       | 3,776 |   |
| Inventories                                            |       | (16,361                        | )          | (3,867 | ) |
| Prepaid expenses and other assets                      |       | (4,244                         | )          | (3,411 | ) |
| Accounts payable                                       |       | (5,001                         | )          | 9,902 |   |
| Accrued and other liabilities                          |       | (1,490                         | )          | (218 | ) |
| Deferred revenues and gains                            |       | 5,208                          |       | 2,438 |   |
| Net cash (used in) provided by operating activities    |       | (76                            | )          | 26,905 |   |
|                                                   |       |                           |       |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                 |       |                           |       |   |   |
| Capital expenditures                                   |       | (11,167                        | )          | (7,244 | ) |
| Net proceeds from sale of property and equipment       |       | 10                             |       | 124 |   |
| Change in intangible assets                            |       | (4                             | )          | (4 | ) |
| Acquisitions, net of cash received                     |       | (304                           | )          | (1,334 | ) |
| Repayment of loans receivable                          |       | 19                             |       | 17 |   |
| Net cash used in investing activities                  |       | (11,446                        | )          | (8,441 | ) |
|                                                   |       |                           |       |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                 |       |                           |       |   |   |
| Dividends paid                                         |       | (3,750                         | )          | (2,600 | ) |
| Borrowings on long-term debt                           |       | 45,000                         |       | — |   |
| Payment of debt issue costs                            |       | (291                           | )          | — |   |
| Principal payments of long-term debt                   |       | (42,053                        | )          | (28,542 | ) |
| Net cash used in financing activities                  |       | (1,094                         | )          | (31,142 | ) |
|                                                   |       |                           |       |   |   |
| NET CHANGE IN  CASH AND CASH EQUIVALENTS               |       | (12,616                        | )          | (12,678 | ) |
|                                                   |       |                           |       |   |   |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF PERIOD      |       | 15,006                         |       | 24,778 |   |
|                                                   |       |                           |       |   |   |
| CASH AND CASH  EQUIVALENTS AT END OF PERIOD            |       | $                              | 2,390      |   | $ | 12,100 |   |

 

See notes toconsolidated financial statements.

4

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**AFFINITY GROUP, INC. ANDSUBSIDIARIES**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

**(1) BASIS OF PRESENTATION**

*Principles of Consolidation –***The consolidated financial statementsinclude the accounts of Affinity Group, Inc. (“AGI”) and its subsidiaries(collectively the “Company”), presented in accordance with U.S. generallyaccepted accounting principles, and pursuant to the rules and regulations ofthe Securities and Exchange Commission. Affinity Group Holding, Inc. (“AGHI”) is the direct parent of theCompany. The parent company of AGHI is AGI Holding Corp. (“AGHC”), aprivately-owned corporation.

Inthe second quarter of 2006, AGHC received approval from the Internal RevenueService to change its tax status from a Subchapter C corporation to a SubchapterS corporation (“S corporation”) to be effective as of January 1, 2006.  The election for change in tax status to an Scorporation included AGHC and all its subsidiaries with the exception ofCamping World, Inc. and its wholly-owned subsidiaries, which are to remainSubchapter C corporations.  Pursuant toSFAS 109, “Accounting for Income taxes”, a change in tax status resulting froman S corporation election requires that all deferred tax accounts be revaluedupon formal approval of the S corporation status.  Accordingly, all deferred tax accounts ofAGHC and its subsidiaries, excluding Camping World, Inc. and its wholly-ownedsubsidiaries, were revalued to account for the tax effect for the change to theS corporation status in the second quarter of 2006.

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, 2006 as filed with the Securities andExchange Commission.  In the opinion ofmanagement of the Company, these consolidated financial statements contain alladjustments of a normal recurring nature necessary to present fairly thefinancial position, results of operations and cash flows of the Company for theinterim periods presented.

**(2) RECENT ACCOUNTINGPRONOUNCEMENTS**

The Company adopted theprovisions of Financial Accounting Standards Board (“FASB”) Interpretation No.48, “Accounting for Uncertainty in Income Taxes,” on January 1, 2007.  At the date of adoption, the Company had$14.2 million of unrecognized tax benefits. Accounting for the unrecognized tax benefits had no affect on currentperiod earnings or retained earnings as the liability had been previouslyrecorded and was reclassified from long-term deferred tax liabilities to otherlong-term liabilities.  There would be noaffect on the effective tax rate if the unrecognized tax benefits wererecognized.  The Company did not have anymaterial increases in unrecognized tax benefits in the current period and doesnot anticipate any material increases over the next twelve months.

5

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

During the second quarterof 2007 and for the six months ended June 30, 2007, the Company recorded anadditional $0.2 million and $0.4 million, respectively, of accrued interest andpenalties related to the unrecognized tax benefits.  The Company’s policy is to classify interestand penalties as income tax expense in the financial statements.

The Company and itssubsidiaries file income tax returns in the U.S. and various states.  With few exceptions, the Company is no longersubject to U.S. federal, state, and local income tax examinations by taxauthorities for years before 2002.

In September 2006, theFASB issued SFAS No. 157, “Fair Value Measurements”.  This standard provides guidance for usingfair value to measure assets and liabilities. The standard also responds to investors’ requests for expandedinformation about the extent to which companies measure assets and liabilitiesat fair value, the information used to measure fair value, and the effect offair value measurements on earnings.  Thestandard applies whenever other standards require (or permit) assets orliabilities to be measured at fair value, but does not expand the use of fairvalue in any new circumstances.  SFAS No.157 is effective for financial statements issued for fiscal years beginningafter November 15, 2007, and interim periods within those fiscal years.  There are numerous previously issued statementsdealing with fair values that are amended by SFAS No. 157.  We have not evaluated the impact, if any,that the adoption of SFAS No. 157 will have on our consolidated financialstatements.

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

TheCompany’s three principal lines of business are Membership Services,Publications, and Retail.  The MembershipServices segment includes the operations of the Good Sam Club, Coast to CoastClub, Camping World’s President’s Club and Camp Club USA for recreationalvehicles (“RV”) owners, campers and outdoor vacationers, and the Golf Card Clubfor golf enthusiasts.  The Publicationssegment publishes a variety of publications for selected markets in therecreation and leisure industry, including general circulation periodicals,directories, and RV and powersports industry trade magazines, and producesoutdoor recreational consumer events. The Retail segment sells specialty retail merchandise and services forRV owners primarily through the Camping World retail supercenters, mail ordercatalogs and its website.  For recentevents regarding the Retail segment, see Note 7 below.  The Company evaluates performance based onprofit or loss from operations before income taxes.

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

6

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

TheCompany does not allocate income taxes or unusual items to segments.  Financial information by reportable businesssegment is summarized as follows (in thousands):
| ** **                             | ** ** | **Membership** | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
|----------------------------------------|------------|----------------|------------|------------------|------------|------------|------------|------------------|------------|
| ** **                             | ** ** | **Services**   | ** ** | **Publications** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **THREE  MONTHS ENDED JUNE 30, 2007**  |       |           |       |             |       |       |       |             |       |
| Revenues from external customers       |       | $              | 38,092     |             | $          | 17,529     |       | $                | 98,243     |   | $ | 153,864 |   |
| Depreciation and amortization          |       | 903            |       | 1,309            |       | 1,930      |       | 4,142            |       |
| Gain on sale of property and equipment |       | —         |       | 5                |       | —     |       | 5                |       |
| Interest income                        |       | 2,377          |       | —           |       | 35         |       | 2,412            |       |
| Interest expense                       |       | —         |       | 76               |       | 3,839      |       | 3,915            |       |
| Segment operating profit               |       | 12,793         |       | 2,380            |       | 1,755      |       | 16,928           |       |
|                                   |       |           |       |             |       |       |       |             |       |
| **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           |       |
|                                        |            |                |            |                  |            |            |            |                  |            |  |  |  |  |

 
| ** **                             | ** ** | **Membership** | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
|----------------------------------------|------------|----------------|------------|------------------|------------|------------|------------|------------------|------------|
| ** **                             | ** ** | **Services**   | ** ** | **Publications** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **SIX  MONTHS ENDED JUNE 30, 2007**    |       |           |       |             |       |       |       |             |       |
| Revenues from external customers       |       | $              | 72,153     |             | $          | 42,218     |       | $                | 167,300    |   | $ | 281,671 |   |
| Depreciation and amortization          |       | 1,797          |       | 2,549            |       | 3,815      |       | 8,161            |       |
| Gain on sale of property and equipment |       | —         |       | 5                |       | —     |       | 5                |       |
| Interest income                        |       | 4,553          |       | —           |       | 67         |       | 4,620            |       |
| Interest expense                       |       | —         |       | 146              |       | 7,410      |       | 7,556            |       |
| Segment operating profit (loss)        |       | 23,944         |       | 8,790            |       | (1,984     | )          | 30,750           |       |
|                                   |       |           |       |             |       |       |       |             |       |
| **SIX  MONTHS ENDED JUNE 30, 2006**    |       |           |       |             |       |       |       |             |       |
| Revenues from external customers       |       | 70,460         |       | 39,687           |       | 145,726    |       | 255,873          |       |
| Depreciation and amortization          |       | 1,799          |       | 2,079            |       | 4,006      |       | 7,884            |       |
| Gain on sale of property and equipment |       | —         |       | 5                |       | 8          |       | 13               |       |
| Interest income                        |       | 2,939          |       | —           |       | 6          |       | 2,945            |       |
| Interest expense                       |       | —         |       | 181              |       | 6,979      |       | 7,160            |       |
| Segment operating profit (loss)        |       | 21,687         |       | 9,184            |       | (3,807     | )          | 27,064           |       |
|                                        |            |                |            |                  |            |            |            |                  |            |  |  |  |  |

 

7

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

Thefollowing is a reconciliation of income from operations to the Company’sconsolidated financial statements for the three months ended and the six monthsended June 30, 2007 and 2006 (in thousands):
| ** **                                                     | ** ** | **THREE MONTHS ENDED** | ** ** | **SIX MONTHS ENDED** | ** ** |
|----------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                     | ** ** | **6/30/2007**                    | ** ** | **6/30/2006**                  | ** ** | **6/30/2007** | ** ** | **6/30/2006** | ** ** |
| **Income  From Operations Before Taxes**                       |       |                             |       |                           |       |   |   |   |   |
| Total profit for  reportable segments                          |       | $                                | 16,928     |                           | $          | 14,449 |   | $ | 30,750 |   | $ | 27,064 |   |
| Unallocated G  & A expense                                 |       | (4,225                           | )          | (4,232                         | )          | (9,470 | ) | (8,382 | ) |
| Unallocated  depreciation and amortization expense             |       | (572                             | )          | (618                           | )          | (1,330 | ) | (1,235 | ) |
| Unallocated  interest income, net of intercompany elimination  |       | (2,229                           | )          | (1,169                         | )          | (4,263 | ) | (2,221 | ) |
| Unallocated  interest expense, net of intercompany elimination |       | (2,430                           | )          | (3,130                         | )          | (4,988 | ) | (6,180 | ) |
| Unallocated debt  restructure expense                          |       | —                           |       | (693                           | )          | (775 | ) | (693 | ) |
| Income from operations  before taxes                           |       | $                                | 7,472      |                           | $          | 4,607 |   | $ | 9,924 |   | $ | 8,353 |   |

The following is areconciliation of assets of reportable segments to the Company’s consolidatedfinancial statements as of June 30, 2007 and December 31, 2006 (in thousands):
|                                                      | ** ** | **6/30/2007** | ** ** | **12/31/2006** | ** ** |
|------------------------------------------------------|------------|---------------|------------|----------------|------------|
| Membership  services segment                         |       | $             | 175,691    |           | $          | 167,837 |   |
| Publications  segment                                |       | 86,459        |       | 87,122         |       |
| Retail segment                                       |       | 250,252       |       | 225,680        |       |
| Total assets for  reportable segments                |       | 512,402       |       | 480,639        |       |
| Capitalized  finance costs not allocated to segments |       | 6,116         |       | 8,190          |       |
| Corporate  unallocated assets                        |       | 6,481         |       | 6,353          |       |
| Elimination of  intersegment receivable              |       | (106,535      | )          | (87,174        | )          |
| Total assets                                         |       | $             | 418,464    |           | $          | 408,008 |   |

 

**(4)STATEMENTS OF CASH FLOWS**

Supplemental disclosuresof cash flow information for the six months ended June 30 (in thousands):
|                                              | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------------------|------------|----------|------------|----------|------------|
| Cash paid  (received) during the period for: |       |     |       |     |       |
| Interest                                     |       | $        | 13,140     |     | $          | 14,123 |   |
| Income taxes                                 |       | (192     | )          | 75       |       |
|                                              |            |          |            |          |            |  |  |

 

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

8

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(**5) GOODWILLAND INTANGIBLE ASSETS**

In February 2007, theCompany assumed $0.6 million of liabilities and issued $1.5 million of debt inconnection with the acquisition of five RV and Sportsman Shows from IndustrialExpositions, Inc.

The Company reviewsgoodwill and indefinite-lived intangible assets for impairment at leastannually and more often when impairment indicators are present.  The Company performs its annual impairmenttest during the fourth quarter.  Therewere no changes in the Company’s goodwill by business segment for the sixmonths ended June 30, 2007 and 2006 and no indicators of impairment.

The Company completed twoacquisitions in the first six months of 2007. These acquisitions have been accounted for as a purchase in accordancewith SFAS No. 141, “Business Combinations,” and accordingly, the acquiredassets and liabilities have been recorded at fair value.  The allocations of purchase price to assetsand liabilities include various finite-lived assets and no additional goodwill.  The operations of each entity are included inthe operations of the Company as of their respective acquisition dates.

Finite-lived intangibleassets, related accumulated amortization and weighted average useful lifeconsisted of the following at June 30, 2007 (in thousands, except as noted):
| ** **                                       | ** ** | **Weighted**                  | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|-------------------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                                       | ** ** | **Average Useful**       | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | **Life (in years)** | ** ** | **Gross**  | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
|                                             |       |                          |       |       |       |             |       |       |       |
| Membership and  customer lists                   |       | 6                             |       | $          | 31,552     |             | $          | (14,179    | )          | $ | 17,373 |   |
| Resort and golf  course participation agreements |       | 23                            |       | 13,442     |       | (12,946          | )          | 496        |       |
| Non-compete and  deferred consulting agreements  |       | 15                            |       | 18,830     |       | (13,276          | )          | 5,554      |       |
| Deferred  financing costs                        |       | 7                             |       | 10,414     |       | (5,684           | )          | 4,730      |       |
|                                             |       |                          |       | $          | 74,238     |             | $          | (46,085    | )          | $ | 28,153 |   |

 

**(6) NOTES OFFERING, GUARANTOR AND NON-GUARANTORFINANCIAL INFORMATION**

In February 2004, the Company issued $200.0million of 9% Senior Subordinated Notes (“Senior Subordinated Notes”) due 2012pursuant to the AGI Indenture.  TheCompany purchased and retired $29.9 million of the Senior Subordinated Notes in2006 and $17.7 million in March 2007. Interest is payable on the remaining $152.4 million Senior SubordinatedNotes twice a year on February 15 and August 15.  The Company’s present and future restrictedsubsidiaries guarantee the Senior Subordinated Notes with unconditionalguarantees of payment that rank junior in right of payment to their existingand future senior debt, but rank equal in right of payment to their existingand future senior subordinated debt.  Allof the Company’s subsidiaries have jointly and severally guaranteed theindebtedness under the Senior Subordinated Notes except for CWFR Capital Corp.

9

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

Full financial statements of the Guarantorshave not been included because, pursuant to their respective guarantees, theGuarantors are jointly and severally liable with respect to the SeniorSubordinated Notes.

The followingare summarized statements setting forth certain financial information concerningthe Guarantor Subsidiaries as of and for the six months ended June 30, 2007 (inthousands).
| ** **                                           | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                           | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
|                                                 |       |       |       |           |       |          |       |             |       |             |       |
| Cash & cash  equivalents                         |       | $          | (319       | )              | $          | 2,709         |       | $                | —     |             | $          | — |   | $ | 2,390 |   |
| Accounts  receivable, net                            |       | 387        |       | 131,317        |       | —        |       | (106,535         | )          | 25,169           |       |
| Inventories                                          |       | —     |       | 69,064         |       | —        |       | —           |       | 69,064           |       |
| Other current  assets                                |       | 3,439      |       | 17,624         |       | —        |       | —           |       | 21,063           |       |
| Total current  assets                                |       | 3,507      |       | 220,714        |       | —        |       | (106,535         | )          | 117,686          |       |
|                                                 |       |       |       |           |       |          |       |             |       |             |       |
| Property and  equipment, net                         |       | 7,668      |       | 33,413         |       | —        |       | —           |       | 41,081           |       |
| Intangible  assets                                   |       | 4,743      |       | 23,410         |       | —        |       | —           |       | 28,153           |       |
| Goodwill                                             |       | 67,584     |       | 76,845         |       | —        |       | —           |       | 144,429          |       |
| Investment in  subsidiaries                          |       | 568,846    |       | 81,005         |       | —        |       | (649,851         | )          | —           |       |
| Affiliate note  and investments                      |       | 40,000     |       | 4,669          |       | 81,005        |       | (40,000          | )          | 85,674           |       |
| Other assets                                         |       | 756        |       | 685            |       | —        |       | —           |       | 1,441            |       |
| Total assets                                         |       | $          | 693,104    |           | $          | 440,741       |       | $                | 81,005     |             | $          | (796,386 | ) | $ | 418,464 |   |
|                                                 |       |       |       |           |       |          |       |             |       |             |       |
| Accounts payable                                     |       | $          | 861        |           | $          | 26,715        |       | $                | —     |             | $          | — |   | $ | 27,576 |   |
| Accrued and  other liabilities                       |       | 12,622     |       | 29,841         |       | —        |       | —           |       | 42,463           |       |
| Current portion  of long-term debt                   |       | 108,185    |       | 43,048         |       | —        |       | (146,535         | )          | 4,698            |       |
| Deferred revenue  and gains                          |       | 3,065      |       | 63,468         |       | —        |       | —           |       | 66,533           |       |
| Total current  liabilities                           |       | 124,733    |       | 163,072        |       |          |       | (146,535         | )          | 141,270          |       |
|                                                 |       |       |       |           |       |          |       |             |       |             |       |
| Deferred revenue  and gains                          |       | 2,600      |       | 36,970         |       | —        |       | —           |       | 39,570           |       |
| Long-term debt                                       |       | 281,679    |       | 3,864          |       | —        |       | —           |       | 285,543          |       |
| Other long-term  liabilities                         |       | 353,118    |       | (332,011       | )          | —        |       | —           |       | 21,107           |       |
| Total  liabilities                                   |       | 762,130    |       | (128,105       | )          |          |       | (146,535         | )          | 487,490          |       |
|                                                 |       |       |       |           |       |          |       |             |       |             |       |
| Interdivisional  equity                              |       | —     |       | 568,846        |       | 81,005        |       | (649,851         | )          | —           |       |
| Stockholders’  deficit                          |       | (69,026    | )          | —         |       | —        |       | —           |       | (69,026          | )          |
| Total  liabilities & stockholders’ deficit  |       | $          | 693,104    |           | $          | 440,741       |       | $                | 81,005     |             | $          | (796,386 | ) | $ | 418,464 |   |
|                                                 |       |       |       |           |       |          |       |             |       |             |       |
| Revenue                                              |       | $          | 1,339      |           | $          | 280,332       |       | $                | —     |             | $          | — |   | $ | 281,671 |   |
| Costs applicable  to revenues                        |       | (5,178     | )          | (170,732       | )          | —        |       | —           |       | (175,910         | )          |
| Operating  expenses                                  |       | (10,649    | )          | (72,319        | )          | —        |       | —           |       | (82,968          | )          |
| Interest  expense, net                               |       | (9,251     | )          | (2,936         | )          | —        |       | —           |       | (12,187          | )          |
| Income from  investment in consolidated subsidiaries |       | 31,435     |       | —         |       | —        |       | (31,435          | )          | —           |       |
| Other non  operating income (expenses)               |       | 2,648      |       | (3,330         | )          | —        |       | —           |       | (682             | )          |
| Income tax  benefit (expense)                        |       | (237       | )          | 420            |       | —        |       | —           |       | 183              |       |
| Net income  (loss)                                   |       | $          | 10,107     |           | $          | 31,435        |       | $                | —     |             | $          | (31,435 | ) | $ | 10,107 |   |
|                                                 |       |       |       |           |       |          |       |             |       |             |       |
| Cash flows from  operations                          |       | $          | (19,715    | )              | $          | 19,639        |       | $                | —     |             | $          | — |   | $ | (76 | ) |
| Cash flows used  in investing activities             |       | (2,284     | )          | (9,162         | )          | —        |       | —           |       | (11,446          | )          |
| Cash flows used  in financing activities             |       | 9,071      |       | (10,165        | )          | —        |       | —           |       | (1,094           | )          |
| Cash at  beginning of year                           |       | 12,609     |       | 2,397          |       | —        |       | —           |       | 15,006           |       |
| Cash at end of year                                  |       | $          | (319       | )              | $          | 2,709         |       | $                | —     |             | $          | — |   | $ | 2,390 |   |

 

10

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

The followingare summarized statements setting forth certain financial informationconcerning the Guarantor Subsidiaries as of and for the three months ended June30, 2007 (in thousands).
| ** **                             | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|----------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                             | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
|                                   |       |       |       |           |       |          |       |             |       |             |       |
| Revenue                                |       | $          | 509        |           | $          | 153,355       |       | $                | —     |             | $          | — |   | $ | 153,864 |   |
| Costs applicable  to revenues          |       | (2,351     | )          | (94,279        | )          | —        |       | —           |       | (96,630          | )          |
| Operating  expenses                    |       | (4,738     | )          | (38,906        | )          | —        |       | —           |       | (43,644          | )          |
| Interest  expense, net                 |       | (4,659     | )          | (1,503         | )          | —        |       | —           |       | (6,162           | )          |
| Income from  investment in             |       |       |       |           |       |          |       |             |       |             |       |
| consolidated  subsidiaries             |       | 17,183     |       | —         |       | —        |       | (17,183          | )          | —           |       |
| Other non  operating income (expenses) |       | 1,737      |       | (1,693         | )          | —        |       | —           |       | 44               |       |
| Income tax  benefit (expense)          |       | (124       | )          | 209            |       | —        |       | —           |       | 85               |       |
| Net income (loss)                      |       | $          | 7,557      |           | $          | 17,183        |       | $                | —     |             | $          | (17,183 | ) | $ | 7,557 |   |

 

The followingare summarized balance sheet statements setting forth certain financialinformation concerning the Guarantor Subsidiaries as of December 31, 2006 (inthousands).
| ** **                                         | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|----------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                         | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
|                                               |       |       |       |           |       |          |       |             |       |             |       |
| Cash & cash  equivalents                       |       | $          | 12,609     |           | $          | 2,397         |       | $                | —     |             | $          | — |   | $ | 15,006 |   |
| Accounts  receivable- net                          |       | 436        |       | 131,028        |       | —        |       | (104,265         | )          | 27,199           |       |
| Inventories                                        |       | —     |       | 52,703         |       | —        |       | —           |       | 52,703           |       |
| Other current  assets                              |       | 2,439      |       | 13,759         |       | —        |       | —           |       | 16,198           |       |
| Total current  assets                              |       | 15,484     |       | 199,887        |       | —        |       | (104,265         | )          | 111,106          |       |
|                                               |       |       |       |           |       |          |       |             |       |             |       |
| Property and  equipment, net                       |       | 6,581      |       | 28,184         |       | —        |       | —           |       | 34,765           |       |
| Intangible  assets                                 |       | 5,816      |       | 24,495         |       | —        |       | —           |       | 30,311           |       |
| Goodwill                                           |       | 67,584     |       | 76,845         |       | —        |       | —           |       | 144,429          |       |
| Investment in  subsidiaries                        |       | 530,094    |       | 81,005         |       | —        |       | (611,099         | )          | —           |       |
| Affiliate note  and investments                    |       | 44,688     |       | —         |       | 81,005        |       | (40,000          | )          | 85,693           |       |
| Other assets                                       |       | 915        |       | 789            |       | —        |       | —           |       | 1,704            |       |
| Total assets                                       |       | $          | 671,162    |           | $          | 411,205       |       | $                | 81,005     |             | $          | (755,364 | ) | $ | 408,008 |   |
|                                               |       |       |       |           |       |          |       |             |       |             |       |
| Accounts payable                                   |       | $          | 1,305      |           | $          | 31,272        |       | $                | —     |             | $          | — |   | $ | 32,577 |   |
| Accrued and  other liabilities                     |       | 13,154     |       | 30,181         |       | —        |       | —           |       | 43,335           |       |
| Current portion  of long-term debt                 |       | 108,948    |       | 42,588         |       | —        |       | (144,265         | )          | 7,271            |       |
| Current portion  of deferred revenue               |       | 1,386      |       | 61,520         |       | —        |       | —           |       | 62,906           |       |
| Total current  liabilities                         |       | 124,793    |       | 165,561        |       |          |       | (144,265         | )          | 146,089          |       |
|                                               |       |       |       |           |       |          |       |             |       |             |       |
| Deferred revenue                                   |       | 2,663      |       | 34,520         |       | —        |       | —           |       | 37,183           |       |
| Long-term debt                                     |       | 273,886    |       | 3,998          |       | —        |       | —           |       | 277,884          |       |
| Other long-term  liabilities                       |       | 345,203    |       | (322,968       | )          | —        |       | —           |       | 22,235           |       |
| Total  liabilities                                 |       | 746,545    |       | (118,889       | )          |          |       | (144,265         | )          | 483,391          |       |
| Interdivisional  equity                            |       | —     |       | 530,094        |       | 81,005        |       | (611,099         | )          | —           |       |
| Stockholders’  deficit                        |       | (75,383    | )          | —         |       | —        |       | —           |       | (75,383          | )          |
| Total liabilities &  stockholders’ equity |       | $          | 671,162    |           | $          | 411,205       |       | $                | 81,005     |             | $          | (755,364 | ) | $ | 408,008 |   |

 

11

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

Thefollowing are summarized statements setting forth certain financial informationconcerning the Guarantor Subsidiaries for the six months ended June 30, 2006(in thousands).
| ** **                                           | ** ** | ** ** | ** ** | ** **     | ** ** | **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  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 investing activities             |       | (1,538     | )          | (6,903         | )          | —        |       | —           |       | (8,441           | )          |
| Cash flows used  in 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 |   |

 

Thefollowing are summarized statements setting forth certain financial informationconcerning the Guarantor Subsidiaries for the three months ended June 30, 2006(in thousands).
| ** **                                           | ** ** | ** ** | ** ** | ** **     | ** ** | **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  expense                                  |       | (20,065    | )          | (3,323         | )          |          |       | (23,388          | )          |             |       |
| Net income (loss)                                    |       | $          | (18,781    | )              | $          | 11,558        |       | $                | —     |             | $          | (11,558 | ) | $ | (18,781 | ) |

 

**(7) RECENT EVENTS**

On April 16, 2007, theCompany entered into a stock purchase agreement with FreedomRoads HoldingCompany, LLC (“FreedomRoads”), an entity under common ownership with theCompany’s ultimate parent corporation, pursuant to which the Company will,subject to satisfaction of certain conditions described below, sell all of theoutstanding stock of its wholly-owned subsidiary Camping World, Inc. (“CampingWorld”) to FreedomRoads for $175.8 million subject to certain adjustments (the “PurchasePrice”).

12

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**(7) RECENT EVENTS (continued)**

The transaction isexpected to close upon satisfaction of certain conditions stipulated under theStock Purchase Agreement dated April 16, 2007. The closing date has not been set but is projected to be on or before October31, 2007.  The Purchase Price (includingthe portion paid by the assumption and discharge on the closing date byFreedomRoads of the intercompany indebtedness owed by Camping World to theCompany) will be paid 75% in immediately available funds at closing and 25%under a subordinated promissory note bearing interest at 11.5% per annum.  The Company intends to use the net cashproceeds from the sale of Camping World to repay indebtedness outstanding underthe Company’s term notes issued under the senior secured floating rate note purchaseagreement dated June 24, 2003, as amended, and its revolving credit line underthe credit agreement dated June 24, 2003, as amended, with senior lenders(collectively the “Senior Secured Credit Facility”).  As of June 30, 2007, an aggregate of $129.4million was outstanding under the term loans and $8.8 million was outstanding(including $7.3 million in letters of credit) under the revolving creditfacility of the Senior Secured Credit Facility.

The financial statementsfor Camping World are different from the segment reporting in Footnote 3because the Camping World President’s Club and other related ancillary productsare included as part of the membership services segment in the segmentreporting.

The following unauditedpro forma condensed consolidated balance sheet as of June 30, 2007 and December31, 2006 and the statement of operations for the six months ended June 30, 2007and 2006 reflect the reclassification adjustments associated with the proposeddisposal/sale of Camping World to FreedomRoads. The pro forma adjustments related to the disposal are presented sincethe disposition did not meet the discontinued operations reporting requirementspursuant to SFAS Statement No. 144, “Accounting for the Impairment or Disposalof Long-Lived Assets,” (SFAS 144) as of June 30, 2007, but will meet suchrequirements in 2007 when the transaction is completed.  Since the transaction is a sale to an entityunder common ownership with AGI such long-lived assets are considered disposedof when they are exchanged or distributed in accordance with SFAS 144.  The pro forma adjustments reflect thereclassification of assets and liabilities associated with Camping World tocurrent assets and liabilities to be disposed of in accordance with SFAS 144 asif the reporting requirements had been met at June 30, 2007.  In addition, the historical operating resultshave also been reclassified to reflect discontinued operations.

Corporate Expenses - Theallocation to Camping World of expenses for certain Affinity Group, Inc.corporate functions historically provided to Camping World are done inaccordance with Staff Accounting Bulletin No. 55, “Allocation of Expenses andRelated Disclosures in Subsidiaries’ Financial Statements”, (“SAB 55”).  Such allocations were made on a specificidentification basis to the extent possible and otherwise based on relativepercentages, as compared to the Company’s other businesses, of headcount orother appropriate methods depending on the nature of each item of cost to beallocated.

13

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**(7) RECENT EVENTS (continued)**

Interest Expense - Theinterest expense included in discontinued operations below reflects theinterest allocated to Camping World based upon debt required to be repaid uponconsummation of this transaction.

Unaudited pro forma informationrelating to the operations of AGI excluding Camping World for the six monthsended June 30, 2007 is as follows (in thousands):
| ** **                                                                         | ** ** | **2007**       | ** ** | **Reclassification of** | ** ** | **2007**           | ** ** |
|------------------------------------------------------------------------------------|------------|----------------|------------|------------------------------|------------|--------------------|------------|
| ** **                                                                         | ** ** | **Historical** | ** ** | **Camping World**       | ** ** | **Pro Forma** | ** ** |
|                                                                               |       |           |       |                         |       |               |       |
| REVENUES:                                                                          |       |           |       |                         |       |               |       |
| Membership services                                                                |       | $              | 72,153     |                         | $          | (8,965             | )          | $ | 63,188 |   |
| Publications                                                                       |       | 42,218         |       | —                       |       | 42,218             |       |
| Retail                                                                             |       | 167,300        |       | (167,300                     | )          | —             |       |
|                                                                               |       | 281,671        |       | (176,265                     | )          | 105,406            |       |
|                                                                               |       |           |       |                         |       |               |       |
| COSTS APPLICABLE  TO REVENUES:                                                     |       |           |       |                         |       |               |       |
| Membership services                                                                |       | 45,961         |       | (2,204                       | )          | 43,757             |       |
| Publications                                                                       |       | 28,040         |       | —                       |       | 28,040             |       |
| Retail                                                                             |       | 101,909        |       | (101,909                     | )          | —             |       |
|                                                                               |       | 175,910        |       | (104,113                     | )          | 71,797             |       |
|                                                                               |       |           |       |                         |       |               |       |
| GROSS PROFIT                                                                       |       | 105,761        |       | (72,152                      | )          | 33,609             |       |
|                                                                               |       |           |       |                         |       |               |       |
| OPERATING  EXPENSES:                                                               |       |           |       |                         |       |               |       |
| Selling, general and administrative                                                |       | 73,477         |       | (61,829                      | )          | 11,648             |       |
| Depreciation and amortization                                                      |       | 9,491          |       | (3,815                       | )          | 5,676              |       |
|                                                                               |       | 82,968         |       | (65,644                      | )          | 17,324             |       |
|                                                                               |       |           |       |                         |       |               |       |
| INCOME FROM  OPERATIONS                                                            |       | 22,793         |       | (6,508                       | )          | 16,285             |       |
|                                                                               |       |           |       |                         |       |               |       |
| NON-OPERATING  ITEMS:                                                              |       |           |       |                         |       |               |       |
| Interest income                                                                    |       | 357            |       | (67                          | )          | 290                |       |
| Interest expense                                                                   |       | (12,544        | )          | 5,236                        |       | (7,308             | )          |
| Debt extinguishment expense                                                        |       | (775           | )          | —                       |       | (775               | )          |
| Other non-operating items                                                          |       | 93             |       | —                       |       | 93                 |       |
|                                                                               |       | (12,869        | )          | 5,169                        |       | (7,700             | )          |
|                                                                               |       |           |       |                         |       |               |       |
| INCOME FROM  CONTINUING OPERATIONS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS |       | 9,924          |       | (1,339                       | )          | 8,585              |       |
|                                                                               |       |           |       |                         |       |               |       |
| INCOME TAX  BENEFIT (EXPENSE)                                                      |       | 183            |       | (420                         | )          | (237               | )          |
|                                                                               |       |           |       |                         |       |               |       |
| INCOME FROM  CONTINUING OPERATIONS                                                 |       | 10,107         |       | (1,759                       | )          | 8,348              |       |
|                                                                               |       |           |       |                         |       |               |       |
| DISCONTINUED  OPERATIONS                                                           |       |           |       |                         |       |               |       |
| Income from operations of discontinued Camping World,  Inc.                        |       | —         |       | 1,339                        |       | 1,339              |       |
| Income tax expense                                                                 |       | —         |       | 420                          |       | 420                |       |
| Income on discontinued operations                                                  |       | —         |       | 1,759                        |       | 1,759              |       |
| NET INCOME                                                                         |       | $              | 10,107     |                         | $          | —             |       | $ | 10,107 |   |

 

14

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**(7) RECENT EVENTS (continued)**

Unaudited pro formainformation relating the operations of AGI excluding Camping World for the sixmonths ended June 30, 2006 is as follows (in thousands):
| ** **                                                                         | ** ** | **2006**       | ** ** | **Reclassification of** | ** ** | **2006**           | ** ** |
|------------------------------------------------------------------------------------|------------|----------------|------------|------------------------------|------------|--------------------|------------|
| ** **                                                                         | ** ** | **Historical** | ** ** | **Camping World**       | ** ** | **Pro Forma** | ** ** |
|                                                                               |       |           |       |                         |       |               |       |
| REVENUES:                                                                          |       |           |       |                         |       |               |       |
| Membership services                                                                |       | $              | 70,460     |                         | $          | (7,713             | )          | $ | 62,747 |   |
| Publications                                                                       |       | 39,687         |       | —                       |       | 39,687             |       |
| Retail                                                                             |       | 145,726        |       | (145,726                     | )          | —             |       |
|                                                                               |       | 255,873        |       | (153,439                     | )          | 102,434            |       |
|                                                                               |       |           |       |                         |       |               |       |
| COSTS APPLICABLE  TO REVENUES:                                                     |       |           |       |                         |       |               |       |
| Membership services                                                                |       | 46,123         |       | (2,219                       | )          | 43,904             |       |
| Publications                                                                       |       | 26,213         |       | —                       |       | 26,213             |       |
| Retail                                                                             |       | 87,467         |       | (87,467                      | )          | —             |       |
|                                                                               |       | 159,803        |       | (89,686                      | )          | 70,117             |       |
|                                                                               |       |           |       |                         |       |               |       |
| GROSS PROFIT                                                                       |       | 96,070         |       | (63,753                      | )          | 32,317             |       |
|                                                                               |       |           |       |                         |       |               |       |
| OPERATING  EXPENSES:                                                               |       |           |       |                         |       |               |       |
| Selling, general and administrative                                                |       | 65,342         |       | (56,000                      | )          | 9,342              |       |
| Depreciation and amortization                                                      |       | 9,119          |       | (4,006                       | )          | 5,113              |       |
|                                                                               |       | 74,461         |       | (60,006                      | )          | 14,455             |       |
|                                                                               |       |           |       |                         |       |               |       |
| INCOME FROM  OPERATIONS                                                            |       | 21,609         |       | (3,747                       | )          | 17,862             |       |
|                                                                               |       |           |       |                         |       |               |       |
| NON-OPERATING  ITEMS:                                                              |       |           |       |                         |       |               |       |
| Interest income                                                                    |       | 724            |       | (6                           | )          | 718                |       |
| Interest expense                                                                   |       | (13,340        | )          | 4,891                        |       | (8,449             | )          |
| Debt extinguishment expense                                                        |       | (693           | )          | —                       |       | (693               | )          |
| Other non-operating items                                                          |       | 53             |       | 5                            |       | 58                 |       |
|                                                                               |       | (13,256        | )          | 4,890                        |       | (8,366             | )          |
|                                                                               |       |           |       |                         |       |               |       |
| INCOME FROM  CONTINUING OPERATIONS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS |       | 8,353          |       | 1,143                        |       | 9,496              |       |
|                                                                               |       |           |       |                         |       |               |       |
| INCOME TAX  EXPENSE                                                                |       | (24,870        | )          | (672                         | )          | (25,542            | )          |
| LOSS FROM  CONTINUING OPERATIONS                                                   |       | (16,517        | )          | 471                          |       | (16,046            | )          |
|                                                                               |       |           |       |                         |       |               |       |
| DISCONTINUED  OPERATIONS                                                           |       |           |       |                         |       |               |       |
| Loss from operations of discontinued Camping World,  Inc.                          |       | —         |       | (1,143                       | )          | (1,143             | )          |
| Income tax benefit                                                                 |       | —         |       | 672                          |       | 672                |       |
| Loss on discontinued operations                                                    |       | —         |       | (471                         | )          | (471               | )          |
| NET LOSS                                                                           |       | $              | (16,517    | )                            | $          | —             |       | $ | (16,517 | ) |

 

15

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**(7) RECENT EVENTS (continued)**

The unaudited pro formabalance sheet of AGI excluding Camping World as of June 30, 2007 is as follows(in thousands except shares and par value):
| ** **                                                                                   | ** ** | ** **     | ** ** | **Reclassification of** | ** ** | ** **         | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------|------------|------------------------------|------------|--------------------|------------|
| ** **                                                                                   | ** ** | **Historical** | ** ** | **Camping World**       | ** ** | **Pro Forma** | ** ** |
| **ASSETS**                                                                                   |       |           |       |                         |       |               |       |
| CURRENT ASSETS:                                                                              |       |           |       |                         |       |               |       |
| Cash and cash equivalents                                                                    |       | $              | 2,390      |                         | $          | (2,390             | )          | $ | — |   |
| Accounts receivable, net                                                                     |       | 25,169         |       | (6,715                       | )          | 18,454             |       |
| Inventories                                                                                  |       | 69,064         |       | (68,636                      | )          | 428                |       |
| Prepaid expenses and other assets                                                            |       | 17,784         |       | (2,776                       | )          | 15,008             |       |
| Deferred tax assets, net                                                                     |       | 3,279          |       | (3,279                       | )          | —             |       |
| Assets of discontinued operations                                                            |       | —         |       | 250,252                      |       | 250,252            |       |
| Total current assets                                                                         |       | 117,686        |       | 166,456                      |       | 284,142            |       |
|                                                                                         |       |           |       |                         |       |               |       |
| PROPERTY AND EQUIPMENT, net                                                                  |       | 41,081         |       | (31,978                      | )          | 9,103              |       |
| INVESTMENT IN AFFILIATE                                                                      |       | 81,005         |       | (81,005                      | )          | —             |       |
| NOTE FROM AFFILIATE                                                                          |       | 4,669          |       | —                       |       | 4,669              |       |
| INTANGIBLE ASSETS, net                                                                       |       | 28,153         |       | (5,090                       | )          | 23,063             |       |
| GOODWILL                                                                                     |       | 144,429        |       | (47,601                      | )          | 96,828             |       |
| OTHER ASSETS                                                                                 |       | 1,441          |       | (529                         | )          | 912                |       |
| Total assets                                                                                 |       | $              | 418,464    |                         | $          | 253                |       | $ | 418,717 |   |
|                                                                                         |       |           |       |                         |       |               |       |
| **LIABILITIES  AND STOCKHOLDER’S DEFICIT**                                              |       |           |       |                         |       |               |       |
| CURRENT LIABILITIES:                                                                         |       |           |       |                         |       |               |       |
| Accounts payable                                                                             |       | $              | 27,576     |                         | $          | (24,623            | )          | $ | 2,953 |   |
| Accrued interest                                                                             |       | 5,340          |       | —                       |       | 5,340              |       |
| Accrued income taxes                                                                         |       | 1,418          |       | (29                          | )          | 1,389              |       |
| Accrued liabilities                                                                          |       | 35,705         |       | (18,616                      | )          | 17,089             |       |
| Deferred revenues and gains                                                                  |       | 66,533         |       | (7,558                       | )          | 58,975             |       |
| Current portion of long-term debt                                                            |       | 4,698          |       | —                       |       | 4,698              |       |
| Liabilities of discontinued operations                                                       |       | —         |       | 73,410                       |       | 73,410             |       |
| Total current liabilities                                                                    |       | 141,270        |       | 22,584                       |       | 163,854            |       |
|                                                                                         |       |           |       |                         |       |               |       |
| DEFERRED REVENUES AND GAINS                                                                  |       | 39,570         |       | (9,253                       | )          | 30,317             |       |
| LONG-TERM DEBT, net of current portion                                                       |       | 285,543        |       | —                       |       | 285,543            |       |
| DEFERRED TAX LIABILITY                                                                       |       | 790            |       | (790                         | )          | —             |       |
| OTHER LONG-TERM LIABILITIES                                                                  |       | 20,317         |       | (12,288                      | )          | 8,029              |       |
|                                                                                         |       | 487,490        |       | 253                          |       | 487,743            |       |
|                                                                                         |       |           |       |                         |       |               |       |
| 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                                                                          |       | (150,032       | )          | —                       |       | (150,032           | )          |
| Total stockholder’s deficit                                                             |       | (69,026        | )          | —                       |       | (69,026            | )          |
| Total liabilities and  stockholder’s deficit                                            |       | $              | 418,464    |                         | $          | 253                |       | $ | 418,717 |   |

16

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**(7) RECENT EVENTS (continued)**

The unaudited pro formabalance sheet of AGI excluding Camping World as of December 31, 2006 is asfollows (in thousands except shares and par value):
| ** **                                                                                   | ** ** | ** **     | ** ** | **Reclassification of** | ** ** | ** **         | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------|------------|------------------------------|------------|--------------------|------------|
| ** **                                                                                   | ** ** | **Historical** | ** ** | **Camping World**       | ** ** | **Pro Forma** | ** ** |
| **ASSETS**                                                                                   |       |           |       |                         |       |               |       |
| CURRENT ASSETS:                                                                              |       |           |       |                         |       |               |       |
| Cash and cash equivalents                                                                    |       | $              | 15,006     |                         | $          | (3,288             | )          | $ | 11,718 |   |
| Accounts receivable, less allowance for doubtbul  accounts                                   |       | 27,199         |       | (3,742                       | )          | 23,457             |       |
| Inventories                                                                                  |       | 52,703         |       | (51,736                      | )          | 967                |       |
| Prepaid expenses and other assets                                                            |       | 12,995         |       | (2,451                       | )          | 10,544             |       |
| Deferred tax assets, net                                                                     |       | 3,203          |       | (3,203                       | )          | —             |       |
| Assets of discontinued operations                                                            |       | —         |       | 225,680                      |       | 225,680            |       |
| Total current assets                                                                         |       | 111,106        |       | 161,260                      |       | 272,366            |       |
|                                                                                         |       |           |       |                         |       |               |       |
| PROPERTY AND EQUIPMENT, net                                                                  |       | 34,765         |       | (26,341                      | )          | 8,424              |       |
| INVESTMENT IN AFFILIATE                                                                      |       | 81,005         |       | (81,005                      | )          | —             |       |
| NOTE FROM AFFILIATE                                                                          |       | 4,688          |       | —                       |       | 4,688              |       |
| INTANGIBLE ASSETS, net                                                                       |       | 30,311         |       | (5,695                       | )          | 24,616             |       |
| GOODWILL                                                                                     |       | 144,429        |       | (47,601                      | )          | 96,828             |       |
| OTHER ASSETS                                                                                 |       | 1,704          |       | (618                         | )          | 1,086              |       |
| Total assets                                                                                 |       | $              | 408,008    |                         | $          | —             |       | $ | 408,008 |   |
|                                                                                         |       |           |       |                         |       |               |       |
| **LIABILITIES  AND STOCKHOLDER’S DEFICIT**                                              |       |           |       |                         |       |               |       |
| CURRENT LIABILITIES:                                                                         |       |           |       |                         |       |               |       |
| Accounts payable                                                                             |       | $              | 32,577     |                         | $          | (25,129            | )          | $ | 7,448 |   |
| Accrued interest                                                                             |       | 5,936          |       | —                       |       | 5,936              |       |
| Accrued income taxes                                                                         |       | 1,736          |       | (535                         | )          | 1,201              |       |
| Accrued liabilities                                                                          |       | 35,663         |       | (17,722                      | )          | 17,941             |       |
| Deferred revenues and gains                                                                  |       | 62,906         |       | (7,030                       | )          | 55,876             |       |
| Current portion of long-term debt                                                            |       | 7,271          |       | —                       |       | 7,271              |       |
| Liabilities discontinued operations                                                          |       | —         |       | 72,557                       |       | 72,557             |       |
| Total current liabilities                                                                    |       | 146,089        |       | 22,141                       |       | 168,230            |       |
|                                                                                         |       |           |       |                         |       |               |       |
| DEFERRED REVENUES AND GAINS                                                                  |       | 37,183         |       | (9,071                       | )          | 28,112             |       |
| LONG-TERM DEBT, net of current portion                                                       |       | 277,884        |       | —                       |       | 277,884            |       |
| DEFERRED TAX LIABILITY                                                                       |       | 15,724         |       | (12,916                      | )          | 2,808              |       |
| OTHER LONG-TERM LIABILITIES                                                                  |       | 6,511          |       | (154                         | )          | 6,357              |       |
|                                                                                         |       | 483,391        |       | —                       |       | 483,391            |       |
|                                                                                         |       |           |       |                         |       |               |       |
| 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                                                                          |       | (156,389       | )          | —                       |       | (156,389           | )          |
| Total stockholder’s deficit                                                             |       | (75,383        | )          | —                       |       | (75,383            | )          |
| Total liabilities and stockholder’s  deficit                                            |       | $              | 408,008    |                         | $          | —             |       | $ | 408,008 |   |

 

17

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**ITEM 2:**

AFFINITYGROUP, INC. AND SUBSIDIARIES

MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL

CONDITIONAND RESULTS OF OPERATIONS

 

The following table is derived from the Company’s Consolidated Statementsof Operations and expresses the results from operations as a percentage ofrevenues and reflects the net increase (decrease) between periods:

 
| ** **                                  | ** ** | **THREE MONTHS ENDED** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **6/30/2007**                    | ** ** | **6/30/2006** | ** ** | **Inc/(Dec)** | ** ** |
|                                        |       |                             |       |   |   |   |   |
| REVENUES:                                   |       |                             |       |   |   |   |   |
| Membership services                         |       | 24.8                             | %          | 27.0 | % | 1.5 | % |
| Publications                                |       | 11.4                             | %          | 11.9 | % | 5.7 | % |
| Retail                                      |       | 63.8                             | %          | 61.1 | % | 15.7 | % |
|                                        |       | 100.0                            | %          | 100.0 | % | 10.7 | % |
|                                        |       |                             |       |   |   |   |   |
| COSTS APPLICABLE  TO REVENUES:              |       |                             |       |   |   |   |   |
| Membership services                         |       | 15.8                             | %          | 18.0 | % | (2.9 | )% |
| Publications                                |       | 8.0                              | %          | 8.4 | % | 5.4 | % |
| Retail                                      |       | 39.0                             | %          | 36.7 | % | 17.6 | % |
|                                        |       | 62.8                             | %          | 63.1 | % | 10.2 | % |
| GROSS PROFIT                                |       | 37.2                             | %          | 36.9 | % | 11.6 | % |
|                                        | ** ** | ** **                       |       |   |   |   |   |
| OPERATING  EXPENSES:                        |       |                             |       |   |   |   |   |
| Selling, general and administrative         |       | 25.3                             | %          | 25.3 | % | 10.9 | % |
| Depreciation and amortization               |       | 3.1                              | %          | 3.3 | % | 2.6 | % |
|                                        |       | 28.4                             | %          | 28.6 | % | 9.9 | % |
|                                        | ** ** | ** **                       |       |   |   |   |   |
| INCOME FROM  OPERATIONS                     |       | 8.8                              | %          | 8.3 | % | 17.3 | % |
|                                        | ** ** | ** **                       |       |   |   |   |   |
| NON-OPERATING  ITEMS:                       |       |                             |       |   |   |   |   |
| Interest income                             |       | 0.1                              | %          | 0.3 | % | (53.7 | )% |
| Interest expense                            |       | (4.0                             | )%         | (4.8 | )% | (5.3 | )% |
| Debt extinguishment expense                 |       | —                           |       | (0.5 | )% | 100.0 | % |
| Other non-operating items, net              |       | —                           |       | — |   | 120.0 | % |
|                                        |       | (3.9                             | )%         | (5.0 | )% | (12.3 | )% |
|                                        | ** ** | ** **                       | ** ** | ** ** |   |   |   |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES |       | 4.9                              | %          | 3.3 | % | 62.2 | % |
|                                        | ** ** | ** **                       |       |   |   |   |   |
| INCOME TAX  EXPENSE                         |       | —                           |       | (16.8 | )% | (100.4 | )% |
|                                        |       |                             |       |   |   |   |   |
| NET INCOME (LOSS)                           |       | 4.9                              | %          | (13.5 | )% | (140.2 | )% |

 

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AFFINITYGROUP, INC. AND SUBSIDIARIES

MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL

CONDITIONAND 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** | ** ** |
|---------------------------------------------|------------|--------------------------------|------------|
| ** **                                  | ** ** | **6/30/2007**                  | ** ** | **6/30/2006** | ** ** | **Inc/(Dec)** | ** ** |
|                                        |       |                           |       |   |   |   |   |
| REVENUES:                                   |       |                           |       |   |   |   |   |
| Membership services                         |       | 25.6                           | %          | 27.5 | % | 2.4 | % |
| Publications                                |       | 15.0                           | %          | 15.5 | % | 6.4 | % |
| Retail                                      |       | 59.4                           | %          | 57.0 | % | 14.8 | % |
|                                        |       | 100.0                          | %          | 100.0 | % | 10.1 | % |
|                                        |       |                           |       |   |   |   |   |
| COSTS APPLICABLE  TO REVENUES:              |       |                           |       |   |   |   |   |
| Membership services                         |       | 16.3                           | %          | 18.0 | % | (0.4 | )% |
| Publications                                |       | 10.0                           | %          | 10.2 | % | 7.0 | % |
| Retail                                      |       | 36.2                           | %          | 34.3 | % | 16.5 | % |
|                                        |       | 62.5                           | %          | 62.5 | % | 10.1 | % |
| GROSS PROFIT                                |       | 37.5                           | %          | 37.5 | % | 10.1 | % |
|                                        | ** ** | ** **                     |       |   |   |   |   |
| OPERATING  EXPENSES:                        |       |                           |       |   |   |   |   |
| Selling, general and administrative         |       | 26.0                           | %          | 25.5 | % | 12.4 | % |
| Depreciation and amortization               |       | 3.4                            | %          | 3.6 | % | 4.1 | % |
|                                        |       | 29.4                           | %          | 29.1 | % | 11.4 | % |
|                                        | ** ** | ** **                     |       |   |   |   |   |
| INCOME FROM  OPERATIONS                     |       | 8.1                            | %          | 8.4 | % | 5.5 | % |
|                                        |       |                           |       |   |   |   |   |
| NON-OPERATING  ITEMS:                       |       |                           |       |   |   |   |   |
| Interest income                             |       | 0.1                            | %          | 0.3 | % | (50.7 | )% |
| Interest expense                            |       | (4.4                           | )%         | (5.1 | )% | (6.0 | )% |
| Debt extinguishment expense                 |       | (0.3                           | )%         | (0.3 | )% | (11.8 | )% |
| Other non-operating items, net              |       | —                         |       | — |   | 75.5 | % |
|                                        |       | (4.6                           | )%         | (5.1 | )% | (2.9 | )% |
|                                        | ** ** | ** **                     | ** ** | ** ** |   |   |   |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES |       | 3.5                            | %          | 3.3 | % | 18.8 | % |
|                                        | ** ** | ** **                     |       |   |   |   |   |
| INCOME TAX  BENEFIT (EXPENSE)               |       | 0.1                            | %          | (9.8 | )% | (100.7 | )% |
|                                        |       |                           |       |   |   |   |   |
| NET INCOME (LOSS)                           |       | 3.6                            | %          | (6.5 | )% | (161.2 | )% |

 

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**RESULTS OF OPERATIONS**

**Three Months Ended June 30, 2007**

**ComparedWith Three Months Ended June 30, 2006**

*Revenues*

Revenuesof $153.9 million for the second quarter of 2007 increased by $14.9 million, or10.7%, from the comparable period in 2006.

Membershipservices revenues of $38.1 million for the second quarter of 2007 increased by$0.6 million, or 1.5%, from the comparable period in 2006.  This revenue increase was largelyattributable to a $1.4 million increase in extended vehicle warranty programrevenue due to the continued growth of contracts in force, an $0.8 millionrevenue increase due to increased enrollment in Camping World President’s Cluband Camp Club USA partially offset by enrollment decreases in the Coast toCoast Club and the Golf Club, a $0.3 million revenue increase in emergency roadservice programs due to increased enrollment and a $0.2 million increase indealer program marketing revenue.  Theseincreases were partially offset by a reduction in member events revenue of $1.9million due to timing of the Good Sam Club annual rally, which will occur inthe third quarter of 2007 versus the second quarter of 2006, and a $0.2 millionrevenue reduction due to the elimination of the RV Today television program.

Publicationrevenues of $17.5 million for the second quarter of 2007 increasedapproximately $1.0 million, or 5.7%, from the comparable period in 2006primarily attributable to $1.0 million ofrevenue associated with the acquisition of the publishing assets of AmericanGuide Services, Inc. in August 2006, and $0.5 million of revenue associatedwith consumer shows acquired in the last eighteen months.  These increases were partially offset by a$0.2 million decrease in book revenue and a $0.3 million revenue decrease dueto moving the publication dates of two boating magazine issues and one campingmagazine issue to the third quarter of 2007.

Retail revenues ofapproximately $98.3 million increased $13.3 million, or 15.7%, from thecomparable period in 2006.  Storemerchandise sales increased approximately $10.3 million over the second quarterof 2006 due to a $13.2 million revenue increase from the addition of 32 newstores over the past eighteen months, partially offset by a same store salesdecrease of $2.9 million, or 5.0%, compared to a 7.5% decrease in same storesales for the second quarter of 2006. Same store sale calculations for a given period include only thosestores that were open both at the end of that period and at the beginning ofthe preceding fiscal year.  In addition,supplies and other sales increased $1.5 million, installation and service workincreased $0.6 million, product extended warranty sales increased $0.5 millionand mail order sales increased $0.4 million.

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*CostsApplicable to Revenues*

Costsapplicable to revenues totaled $96.6 million for the second quarter of 2007, anincrease of $8.9 million, or 10.2%, from the comparable period in 2006.

Membership servicescosts and expenses of $24.3 million decreased $0.7 million, or 2.9%, from thecomparable period in 2006.  This decreaseconsisted of a $2.1 million reduction in member events costs primarily due totiming of the Good Sam Club annual rally, which will occur in the third quarterof 2007 versus the second quarter of 2006, and a $0.3 million reduction ofcosts due to the elimination of the RV Today television program, partiallyoffset by $0.9 million of incremental costs associated with increased extendedvehicle warranty program revenue and emergency roads service revenue and $0.8million of additional membership services costs associated with increasedenrollment in the Camping World President’s Club and Camp Club USA, in additionto reduced production costs for the Good Sam member publication, *Highways Magazine*, due to reduced paper costs and reducedbook sizes.

Publication costs andexpenses of approximately $12.2 million for the second quarter of 2007increased $0.6 million, or 5.4%, from the comparable period in 2006.  This increase was attributable to $0.9million of additional costs from the recently acquired American Guide Servicesgroup, and $0.2 million of costs associated with the recently acquired consumershows, partially offset by reduced book costs of $0.3 million associated lowerbook sales, and a $0.2 million reduction resulting from fewer issues of campingand boating group magazines.

Retail costs applicableto revenues increased approximately $9.0 million, or 17.6%, to $60.1 millionprimarily as a result of 32 new stores opened over the past eighteenmonths.  The retail gross profit marginof 38.9% for the second quarter of 2007 decreased from 39.9% for the comparableperiod in 2006 primarily due to a shift in product mix to slightly lower marginproducts, and margin compression caused by a combination of competitive pricingand higher unit costs.

*OperatingExpenses*

Selling, general andadministrative expenses of approximately $38.9 million for the second quarterof 2007 increased $3.8 million compared to the second quarter of 2006.  This increase was due to an increase in retailselling and general and administrative expenses of approximately $3.5 millionconsisting of increases in selling, real property and labor expenses primarilydue to new store openings, and $0.3 million of costs associated with therecently acquired consumer shows.

Depreciation andamortization expense of $4.7 million increased approximately $0.1 million overthe prior year primarily due to increased amortization of intangible assetsassociated with the recent acquisitions.

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*Incomefrom Operations*

Incomefrom operations for the second quarter of 2007 totaling $13.6 million increased$2.0 million compared to the second quarter of 2006.  This increase was primarily due to increasedgross profit for retail, membership services and publications operations of$4.3 million, $1.3 million and $0.3 million, respectively, partially offset byincreased operating expenses of $3.9 million.

*Non-OperatingItems*

Non-operatingitems of approximately $6.1 million for the second quarter of 2007 decreased$0.9 million compared to the same period in 2006.  This decrease was primarily due to a $0.7million decrease in debt extinguishment expense associated with the retirementof Senior Subordinated Notes in 2006, and a $0.4 million decrease in interestexpense in 2007, primarily due to a reduction in outstanding debt, partiallyoffset by a $0.2 million decrease in interest income.

*Incomebefore Income Taxes*

Income before incometaxes for the second quarter of 2007 was $7.5 million, or $2.9 million higherthan the second quarter of 2006.  Thisincrease was attributable to the $2.0 million increase in income fromoperations for the current period and $0.9 million of reduced non-operatingitems.

*IncomeTax Benefit (Expense)*

The Company recorded a$0.1 million income tax benefit for the second quarter of 2007, compared to a$23.4 million income tax expense for the second quarter of 2006.  This expense decrease was primarily due toAGHC’s S corporation change of tax status election effective for the secondquarter of 2006, which included AGI and all its subsidiaries, with theexception of Camping World, Inc. and its wholly-owned subsidiaries which willremain Subchapter C corporations.  As aresult, all deferred tax assets and liabilities were revalued with theexception of those related to Camping World, Inc. and its wholly-ownedsubsidiaries and other potential built-in gains.

# *NetIncome (Loss)*

Net income in the secondquarter of 2007 was $7.6 million compared to a net loss of $18.8 million forthe same period in 2006 mainly due to the reasons discussed above.

*SegmentProfit (Loss)*

Segment profit of$16.9 million for the second quarter of 2007 (before unallocated depreciationand amortization, general and administrative, interest, and income tax expense)increased $2.5 million, or 17.2%, from the comparable period in 2006.

Membershipservices segment profit of approximately $12.8 million for the second quarterof 2007 increased $1.6 million, or 14.1%, from the comparable period in 2006.

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This increase waslargely attributable to a $1.0 million increase in profit from emergency roadservice products, a $0.4 million increase in profit from the extended vehiclewarranty programs, a $0.3 million increase in profit from reduced book sizesfor *Highways Magazine* and $0.2 millionincrease in profit for Camp Club USA, partially offset by a $0.3 milliondecrease in profit in the Coast to Coast Club.

Publicationsegment profit of $2.4 million for the second quarter of 2007 decreased $0.3million, or 12.6%, from the comparable period in 2006.  This decrease was largely attributed to adecrease in profit related to the consumer shows acquired over the last 18months due to increased amortization of intangible assets.

Retail segmentprofit increased $1.2 million, or 242.8% from the second quarter of 2006 toapproximately $1.7 million in the second quarter of 2007.  This increase in segment profit resulted primarily from a $5.0 millionincrease in gross profit margin, partially offset by a $3.5 million increase in selling, general andadministrative expenses primarily related to the increase in new stores, and a$0.3 million increase in interest expense.

**Six Months Ended June 30, 2007**

**ComparedWith Six Months Ended June 30, 2006**

*Revenues*

Revenuesof $281.7 million for the first six months of 2007 increased by $25.8 million,or 10.1%, from the comparable period in 2006.

Membershipservices revenues of $72.2 million for the first six months of 2007 increasedby $1.7 million, or 2.4%, from the comparable period in 2006.  This revenue increase was largelyattributable to a $1.9 million increase in extended vehicle warranty programrevenue due to the continued growth of contracts in force, a $1.2 millionrevenue increase in membership services primarily due to increased enrollmentin the Camping World President’s Club, and increased enrollment in Camp ClubUSA, partially offset by reduced enrollment in the Golf Club and Coast to CoastClub, a $0.6 million revenue increase in emergency road service programs due toincreased enrollment, and a $0.3 million increase in dealer program marketing revenue.  These increases were partially offset by areduction in member events revenue of $1.8 million primarily due to timing ofthe Good Sam Club annual rally, which will occur in the third quarter of 2007versus the second quarter of 2006, and a $0.5 million revenue reduction due tothe elimination of the RV Today television program.

Publicationrevenues of $42.2 million for the first six months of 2007 increased $2.5million, or 6.4%, from the comparable period in 2006 primarily attributable to $2.2million of revenue associated with consumer shows acquired in the last eighteenmonths, and $1.6 million from revenue associated with the acquisition of thepublishing assets of American Guide Services, Inc. in August 2006.  These increases were partially offset by a$0.5 million decrease in campground atlas revenue, which is scheduled for itsbi-annual update and reprint in 2008, a $0.6 million revenue decrease due tomoving the publication dates of two boating magazine issues and one campingmagazine issue to

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the third quarter, and a $0.2 millionrevenue decrease due to five fewer issues of *Snow Week*magazines in 2007.

Retail revenues of$167.3 million increased approximately $21.6 million, or 14.8%, from thecomparable period in 2006.  Storemerchandise sales for the first six months of 2007 increased approximately$17.2 million over the comparable period in 2006 due to a $20.7 million revenueincrease from the addition of 32 new stores over the past eighteen months,partially offset by a same store sales decrease of $3.5 million, or 3.3%,compared to a 5.1% decrease in same store sales for the first six months of2006.  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.  In addition, installation and service workincreased $1.1 million, supplies and other sales increased $2.2 million,product extended warranty sales increased $0.8 million and mail order salesincreased $0.3 million.

*CostsApplicable to Revenues*

Costsapplicable to revenues totaled $175.9 million for the first six months of 2007,an increase of $16.1 million, or 10.1%, from the comparable period in 2006.

Membership servicescosts and expenses of $46.0 million decreased $0.2 million, or 0.4%, from thecomparable period in 2006.  This decreasewas attributable to a $1.9 million reduction in member events costs primarilydue to timing of the Good Sam Club annual rally, which will occur in the thirdquarter of 2007 versus the second quarter of 2006, and $0.5 million of reducedcosts due to the elimination of the RV Today television program.  These decreases were partially offset by $1.7million of additional costs associated with increased extended vehicle warrantyprogram revenue and emergency roads service revenue, $0.3 million of additionaldealer program marketing costs, and $0.2 million of additional membershipservices costs associated with increased membership in the Camping WorldPresident’s Club and Camp Club USA, partially offset by reduced productioncosts for *Highways Magazine* due to reduced papercosts and reduced book sizes.

Publication costs andexpenses of $28.0 million for the first six months of 2007 increased $1.8million, or 7.0%, from the comparable period in 2006.  This increase was attributable to $1.7 millionfrom the recently acquired American Guide Services group, and $1.4 million ofcosts associated with the recently acquired consumer shows, partially offset byreduced campground atlas costs of $0.4 million resulting from reduced sales,reduced operating costs of $0.3 million for the motorcycle magazine group,reduced costs of $0.3 million associated with fewer issues of *Snow Week* magazine, and reduced costs of $0.3 million due tomoving the publication date of two boating issues and one camping issue to thethird quarter.

Retail costs applicableto revenues increased approximately $14.5 million, or 16.5%, to $101.9 millionprimarily as a result of 32 new stores opened over the past eighteenmonths.  The retail gross profit marginof 39.1% for the first six months of 2007 decreased from 40.0% for thecomparable period in 2006 primarily due to a shift in

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product mix to slightlylower margin products and margin compression caused by a combination ofcompetitive pricing and higher unit costs.

*OperatingExpenses*

Selling, general andadministrative expenses of approximately $73.5 million for the first six monthsof 2007 increased $8.1 million compared to the first six months of 2006.  This increase was due to an increase inretail selling and general and administrative expenses of approximately $6.6million consisting of increases in selling, labor and real property expensesprimarily due to new store openings and other marketing programs, $0.9 millionof arbitration expenses in connection with our asserted claim to a right offirst refusal in connection with the sale of General Motors AcceptanceCorporation, the insurance provider for the RV vehicle insurance offered by ourMembership Services segment, which claim was rejected by the arbitration panel,and $0.6 million of costs associated with the recently acquired consumer shows.

Depreciation andamortization expense of $9.5 million increased approximately $0.4 million overthe prior year primarily due to increased amortization of intangible assetsassociated with the recent acquisitions.

*Incomefrom Operations*

Incomefrom operations for the first six months of 2007 totaling $22.8 millionincreased $1.2 million compared to the first six months of 2006.  This increase was primarily due to increasedgross profit for retail, membership services and publications operations of$7.1 million, $1.9 million and $0.7 million, respectively, partially offset byincreased operating expenses of $8.5 million.

*Non-OperatingItems*

Non-operatingitems of approximately $12.9 million for the first six months of 2007 decreased$0.4 million compared to the same period in 2006.  This decrease was primarily due to a $0.8million decrease in interest expense in 2007 resulting from a reduction in outstandingdebt, partially offset by a $0.3 million decrease in interest income and a $0.1million increase in debt extinguishment expense.

*Incomebefore Income Taxes*

Income before incometaxes for the first six months of 2007 was $9.9 million, or $1.6 million higherthan the first six months of 2006.  Thisincrease was attributable to the $1.2 million increase in income fromoperations for the current period and $0.4 million of reduced non-operatingitems.

*IncomeTax Benefit (Expense)*

The Company recorded a$0.2 million income tax benefit for the first six months of 2007, compared to a$24.9 million income tax expense for the first six months of 2006.  This expense decrease was primarily due toAGHC’s S corporation change of tax status

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election effective forthe second quarter of 2006, which included AGI and all its subsidiaries, withthe exception of Camping World, Inc. and its wholly-owned subsidiaries whichwill remain Subchapter C corporations. As a result, all deferred tax assets and liabilities were revalued withthe exception of those related to Camping World, Inc. and its wholly-ownedsubsidiaries and other potential built-in gains.

# *NetIncome (Loss)*

Net income in the firstsix months of 2007 was $10.1 million compared to a net loss of $16.5 millionfor the same period in 2006 mainly due to the reasons discussed above.

*SegmentProfit (Loss)*

Segment profit of$30.8 million for the first six months of 2007 (before unallocated depreciationand amortization, general and administrative, interest, and income tax expense)increased $3.7 million, or 13.6%, from the comparable period in 2006.

Membershipservices segment profit of $23.9 million for the first six months of 2007increased $2.3 million, or 10.4%, from the comparable period in 2006.  This increase was largely attributable to a$1.8 million increase in profit from emergency road service products, a $0.3million increase in profit from the extended vehicle warranty programs, and$0.5 million of reduced production costs for *HighwaysMagazine* due to reduced paper costs and reduced book sizes,partially offset by a $0.3 million loss for the Coast to Coast Club.

Publicationsegment profit of $8.8 million for the first six months of 2007 decreasedapproximately $0.4 million, or 4.4%, from the comparable period in 2006.  This decrease was largely attributed to anincrease in amortization of intangible assets associated with the consumershows acquired over the last 18 months, and a reduction in boating magazineissues published due to timing.

Retail segment lossdecreased $1.8 million, or 47.9% from the first six months of 2006 to a loss ofapproximately $1.9 million in the first six months of 2007.  This decrease in segment loss resulted primarily from an $8.6 millionincrease in gross profit margin, anda $0.2 million decrease in depreciation expenses, partially offset by a $6.6 million increase in selling, general andadministrative expenses primarily related to the increase in new stores and a$0.4 million increase in interest expense.

**LIQUIDITYAND CAPITAL RESOURCES**

The Company has historicallyoperated with a working capital deficit. The working capital deficit as of June 30, 2007 and December 31, 2006was $23.6 million and $35.0 million, respectively.  The primary reason for the working capitaldeficit is the deferred revenue and gains reported under current liabilities inthe amount of $66.5 million and $62.9 million as of June 30, 2007 and December31, 2006, respectively.  Deferred revenueis primarily comprised of cash collected for club memberships in advance, whichis amortized over the life of the membership. The Company uses net proceeds from this

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deferred membership revenueto lower its long-term borrowings. Management believes that funds generated by operations together withavailable borrowings under the Company’s revolving credit line will besufficient to meet all of the Company’s debt service requirements, capitalrequirements and working capital needs over the next twelve months.  Further, management believes that the changein the tax status to a Subchapter S corporation in 2006 for the Company and allits subsidiaries, with the exception of Camping World, Inc. and itswholly-owned subsidiaries, has not limited the Company’s ability to issue debtthrough the capital markets but may limit the ability of the Company to raisefunds in the equity market.

*Contractual Obligations and Commercial Commitments*

The following table reflects our contractual obligations and commercialcommitments at June 30, 2007.  This tableincludes principal and future interest due under our debt agreements based oninterest rates as of June 30, 2007 and assumes debt obligations will be held tomaturity.
| ** **                          | ** ** | **Payments Due by Period** | ** ** |
|-------------------------------------|------------|-------------------------------------------|------------|
| **(in thousands)**             | ** ** | **Total**                                 | ** ** | **Balance of   2007** | ** ** | **2008 and   2009** | ** ** | **2010 and  2011** | ** ** | **Thereafter** | ** ** |
|                                |       |                                      |       |   |   |   |   |   |   |   |   |
| Long-term debt  and future interest |       | $                                         | 379,713    |   | $ | 14,557 |   | $ | 177,464 |   | $ | 28,435 |   | $ | 159,257 |   |
| Operating lease  obligations        |       | 171,434                                   |       | 8,452 |   | 30,610 |   | 27,644 |   | 104,728 |   |
| Deferred  compensation              |       | 4,255                                     |       | 878 |   | 3,137 |   | 160 |   | 80 |   |
| Standby letters  of credit          |       | 7,254                                     |       | 6,754 |   | 500 |   | — |   | — |   |
| Grand total                         |       | $                                         | 562,656    |   | $ | 30,641 |   | $ | 211,711 |   | $ | 56,239 |   | $ | 264,065 |   |

 

On June 24, 2003,the Company 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 2007, $129.4 million was outstanding under the term loans and $1.5 millionwas outstanding under the revolving credit facility.  Reborrowings under the term loans are notpermitted.  The interest on borrowingsunder the Senior Credit Facility was at variable rates based on the ratio oftotal cash flow to outstanding indebtedness (as defined).  Interest rates float with prime and theLondon Interbank Offered Rates, or LIBOR, plus an applicable margin rangingfrom 1.50% to 2.50% over the stated rates. As of June 30, 2007, the average interest rates on the term loans andthe revolving credit facility were 7.84% and 10.00%, respectively, andpermitted borrowings under the undrawn revolving facility were $26.2million.  The Company also pays acommitment fee of 0.5% per annum on the unused amount of the revolving creditfacility.  The aggregate quarterlyscheduled payments on the term loans are $0.4 million.  Both the revolving credit facility and theterm loans mature on June 24, 2009.  Thefunds available under the Senior Credit Facility may be utilized for borrowingsor letters of credit; however, a maximum of $12.5 million may be allocated tosuch letters of credit.  As of June 30,2007, the Company had letters of credit in the aggregate amount of $7.3 millionoutstanding.  The Senior Credit Facilityis secured by virtually all of the Company’s assets and a pledge of the Company’sstock and the stock of the Company’s subsidiaries.

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In February 2004,the Company issued $200.0 million aggregate principal amount of 9% SeniorSubordinated Notes due 2012 (“Senior Subordinated Notes”).  The Company completed a registered exchangeof the Senior Subordinated Notes under the Securities Act of 1933 in August2004.

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

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

On March 8, 2007,the Company purchased $17.7 million of the Senior Subordinated Notes.  The Company funded the purchase through theissuance of the $25.0 million in additional incremental term loans as permittedunder the February 27, 2007 amendment to the Senior Credit Facility.  The balance of the $25.0 million issued wasused to pay down the Company’s revolving credit facility by $6.5 million and topay associated loan fees and transaction expenses.  The terms on the additional incremental loansare consistent with the remaining term loan outstanding under the Senior CreditFacility.  As of June 30, 2007, $152.4million of Senior Subordinated Notes remain outstanding.

The AGI Indenturepursuant to which the AGI Senior Subordinated Notes were issued and the SeniorCredit Facility contain certain restrictive covenants relating to, but notlimited to, mergers, changes in the nature of the business, acquisitions,additional indebtedness, sale of assets, investments, and the payment ofdividends subject to certain limitations and minimum operating covenants.  The Company was in compliance with all debtcovenants at June 30, 2007.

On March 24, 2005,AGHI, the Company’s parent, issued $88.2 million principal amount of the10-7/8% senior notes due February 15, 2012 (the “AGHI Notes”).  Interest on the AGHI notes is payablesemi-annually on February 15 and August 15. For interest payments on and prior to February 15, 2008, AGHI may electto pay interest on the AGHI Notes in cash or by issuance of additional notes ofthe same tenor as the AGHI Notes, except the maturity date is March 15,2010.  AGI has not paid any dividends toAGHI to fund payment of interest on the AGHI Notes and AGHI made the interestpayments due on August 15, 2005, February 15, 2006, August 15, 2006 and February15, 2007 through

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issuance of additionalnotes.  AGHI plans to pay the interest onthe notes due August 15, 2008 from the proceeds of a contribution to be made byAGHI’s parent, AGHC.

In February 2006,AGI Productions, Inc., a subsidiary of Ehlert Publishing, Inc., acquired theconsumer shows and related assets of H & S Productions, LLC for $2.5million.  As part of the purchase, theCompany issued $0.4 million of debt and assumed $1.0 million ofliabilities.  In August 2006, TLEnterprises, Inc. acquired the consumer park guides and related assets ofAmerican Guide Services, Inc. for $1.0 million. As part of the purchase, the Company issued $0.1 million of debt andassumed $0.3 million of liabilities.  InSeptember 2006, AGI Productions, Inc. acquired the consumer shows and relatedassets of Apple Rock Advertising and Promotions, Inc. for $1.5 million.  As part of the purchase, the Company issued$0.5 million of debt and assumed $0.4 million of liabilities.

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

For the six monthsended June 30, 2007, the Company incurred $0.2 million of deferred executivecompensation expense under the phantom stock agreements and made payments of$2.4 million on the pay-out provisions of mature phantom stock agreements.  The earned incentives under these agreementsare scheduled to be paid at various times over the next five years.  Phantom stock payments of $0.9 millionare scheduled to**be made for the remainder of2007.

Capitalexpenditures for the first six months of 2007 totaling $11.2 million increased$3.9 million from the first six months of 2006 primarily due to the addition ofthirteen new retail stores.  Additionalcapital expenditures of $5.2 million are anticipated for the balance of 2007primarily for two new retail stores, relocation of one retail store, existingretail store upgrades, information technology, inventory system replacement,and computer hardware and software upgrades and enhancements.

**CRITICALACCOUNTING POLICIES**

*General*

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

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that are believedto be reasonable under the circumstances, the results of which form the basisfor making judgments about the carrying values of assets and liabilities thatare not readily apparent from other sources. Actual results may differ from these estimates under differentassumptions or conditions.

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

*Revenue Recognition*

Merchandiserevenue is recognized when products are sold in the retail stores, shipped formail and internet orders, or when services are provided to customers.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 Companyestimates the collectability of its trade receivables.  A considerable amount of judgment is requiredin assessing the ultimate realization of these receivables including thecurrent credit-worthiness of each customer. Changes in required reserves have been recorded in recent periods andmay occur in the future due to the market environment.

*Inventory*

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

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*Long-LivedAssets*

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

Long-lived assets,such as property, plant and equipment and purchased intangible assets withfinite lives are evaluated for impairment whenever events or changes incircumstances indicate the carrying value of an asset may not be recoverable inaccordance with SFAS No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets.”  The Company assessesthe fair value of the assets based on the future cash flow the assets areexpected to generate and recognize an impairment loss when estimatedundiscounted future cash flow expected to result from the use of the asset plusnet proceeds expected from disposition of the asset (if any) are less than thecarrying value of the asset.  When animpairment is identified, the Company reduces the carrying amount of the assetto its estimated fair value based on a discounted cash flow approach or, whenavailable and appropriate, comparable market values.  The Company determined there were noindicators of impairment of long-lived assets as of December 31, 2006 or June30, 2007.

The Company hasevaluated the remaining useful lives of its finite-lived purchased intangibleassets to determine if any adjustments to the useful lives were necessary or ifany of these assets had indefinite lives and were therefore not subject to amortization.  The Company determined that no adjustments tothe useful lives of its finite-lived purchased intangible assets werenecessary.  The finite-lived purchasedintangible assets consist of membership customer lists, resort and golf courseagreements, non-compete and deferred consulting agreements and deferredfinancing costs which have weighted average useful lives of approximately 6years, 23 years, 15 years and 7 years, respectively.

*Indefinite-LivedIntangible Assets*

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

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

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

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

*IncomeTaxes*

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 and penalties, as considered appropriate by management.

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

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

The following informationdiscusses the sensitivity to our earnings. The range of changes chosen for this analysis reflects our view ofchanges which are reasonably possible over a one-year period.  These forward-looking disclosures areselective in nature and only address the potential impacts from financial instruments.  They do not include other potential effectswhich could impact our business as a result of these interest ratefluctuations.

*Interest Rate SensitivityAnalysis*

At June 30, 2007, we haddebt totaling $290.2 million, comprised of $130.9 million of variable rate debtand $159.3 million of fixed rate debt. Holding other variables constant (such as debt levels), the earnings andcash flow impact of a one-percentage point increase/ decrease in interest rateswould have an unfavorable/ favorable impact of approximately $1.3 million.

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*Credit Risk*

We are exposed to creditrisk on accounts receivable.  We providecredit to customers in the ordinary course of business and perform ongoingcredit evaluations.  Concentrations ofcredit risk with respect to trade receivables are limited due to the number ofcustomers comprising our customer base. We currently believe our allowance for doubtful accounts is sufficientto cover customer credit risks.

**ITEM 4:CONTROLS AND PROCEDURES**

Within 90days prior to the filing of this Quarterly Report on Form 10-Q, the Companycarried out an evaluation, under the supervision and with the participation ofthe Company’s management, including the President and Chief Executive Officerand the Senior Vice President and Chief Financial Officer, of the effectivenessof the design and operation of the Company’s disclosure controls and procedurespursuant to Regulation 13a-14 under the Securities Exchange Act of 1934.  Based upon that evaluation, the President andChief Executive Officer along with the Senior Vice President and ChiefFinancial Officer concluded that the disclosure controls and procedures areeffective in timely alerting them to material information relating to theCompany (including its consolidated subsidiaries) required to be included inthe periodic SEC filings.  There havebeen no significant changes in the Company’s internal controls or in otherfactors that could significantly affect these controls subsequent to the datethe Company carried out its evaluation.

**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  13, 2007 | Thomas F. Wolfe            |
|                              | Senior Vice  President and |
|                              | Chief Financial  Officer   |

 

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