**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

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

**FORM 10-Q**

**QuarterlyReport Under Section 13 or 15 (d) ofThe Securities Exchange Act of 1934**
| **For Quarter Ended:** | ** ** | **Commission  File Number** |
|------------------------|------------|-----------------------------|
| **March 31, 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)         |

 

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

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

**9% SeniorSubordinated Notes Due 2012**

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements 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.

| **Class**                     |   | **Outstanding  as of  May 9, 2007** |
|-------------------------------|--------|-------------------------------------|
| Common  Stock,$.001 par value |   | 2,000                               |

 

**DOCUMENTS INCORPORATED BYREFERENCE:  None**

 

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**AFFINITY GROUP, INC. AND SUBSIDIARIES**

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

 

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AFFINITYGROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March31, 2007 and December 31, 2006

(Inthousands except shares and par value)

 

 
| ** **                                                                                       | ** ** | **3/31/2007**   | ** ** | **12/31/2006** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------|------------|
| ** **                                                                                       | ** ** | **(Unaudited)** | ** ** | ** **     | ** ** |
| **ASSETS**                                                                                       | ** ** | ** **      | ** ** | ** **     | ** ** |
| CURRENT ASSETS:                                                                                  |       |            |       |           |       |
| Cash and cash  equivalents                                                                       |       | $               | 2,307      |           | $          | 15,006 |   |
| Accounts  receivable, less allowance for doubtful accounts of $1,392 in 2007 and $1,193  in 2006 |       | 26,101          |       | 27,199         |       |
| Inventories                                                                                      |       | 64,108          |       | 52,703         |       |
| Prepaid expenses  and other assets                                                               |       | 16,002          |       | 12,995         |       |
| Deferred tax  assets                                                                             |       | 3,241           |       | 3,203          |       |
| Total current  assets                                                                            |       | 111,759         |       | 111,106        |       |
|                                                                                             |       |            |       |           |       |
| PROPERTY AND  EQUIPMENT, net                                                                     |       | 37,916          |       | 34,765         |       |
| INVESTMENT IN  AFFILIATE                                                                         |       | 81,005          |       | 81,005         |       |
| AFFILIATE NOTES  AND INVESTMENTS                                                                 |       | 4,679           |       | 4,688          |       |
| INTANGIBLE  ASSETS, net                                                                          |       | 30,144          |       | 30,311         |       |
| GOODWILL                                                                                         |       | 144,429         |       | 144,429        |       |
| OTHER ASSETS                                                                                     |       | 2,020           |       | 1,704          |       |
| Total assets                                                                                     |       | $               | 411,952    |           | $          | 408,008 |   |
|                                                                                             |       |            |       |           |       |
| **LIABILITIES AND STOCKHOLDER’S  DEFICIT**                                                  | ** ** | ** **      | ** ** | ** **     | ** ** |
| CURRENT  LIABILITIES:                                                                            |       |            |       |           |       |
| Accounts payable                                                                                 |       | $               | 27,812     |           | $          | 32,577 |   |
| Accrued interest                                                                                 |       | 1,889           |       | 5,936          |       |
| Accrued income  taxes                                                                            |       | 1,312           |       | 1,736          |       |
| Accrued  liabilities                                                                             |       | 37,934          |       | 35,663         |       |
| Deferred  revenues and gains                                                                     |       | 61,882          |       | 62,906         |       |
| Current portion  of long-term debt                                                               |       | 4,580           |       | 7,271          |       |
| Total current  liabilities                                                                       |       | 135,409         |       | 146,089        |       |
|                                                                                             |       |            |       |           |       |
| DEFERRED  REVENUES AND GAINS                                                                     |       | 39,247          |       | 37,183         |       |
| LONG-TERM DEBT,  net of current portion                                                          |       | 288,989         |       | 277,884        |       |
| DEFERRED TAX  LIABILITY                                                                          |       | 1,165           |       | 15,724         |       |
| OTHER LONG-TERM  LIABILITIES                                                                     |       | 19,975          |       | 6,511          |       |
|                                                                                             |       | 484,785         |       | 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                                                                             |       | (153,839        | )          | (156,389       | )          |
| Total  stockholder’s deficit                                                                |       | (72,833         | )          | (75,383        | )          |
| Total liabilities and stockholder’s deficit                                                 |       | $               | 411,952    |           | $          | 408,008 |   |

 

Seenotes to consolidated financial statements.

1

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AFFINITYGROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(InThousands)

(Unaudited)

 
| ** **                                  | ** ** | **THREE MONTHS ENDED** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **3/31/2007**                    | ** ** | **3/31/2006** | ** ** |
|                                        |       |                             |       |   |   |
| REVENUES:                                   |       |                             |       |   |   |
| Membership services                         |       | $                                | 34,061     |   | $ | 32,948 |   |
| Publications                                |       | 24,689                           |       | 23,103 |   |
| Retail                                      |       | 69,057                           |       | 60,819 |   |
|                                        |       | 127,807                          |       | 116,870 |   |
|                                        |       |                             |       |   |   |
| COSTS APPLICABLE  TO REVENUES:              |       |                             |       |   |   |
| Membership  services                        |       | 21,667                           |       | 21,116 |   |
| Publications                                |       | 15,777                           |       | 14,575 |   |
| Retail                                      |       | 41,836                           |       | 36,403 |   |
|                                        |       | 79,280                           |       | 72,094 |   |
|                                        |       |                             |       |   |   |
| GROSS PROFIT                                |       | 48,527                           |       | 44,776 |   |
|                                        |       |                             |       |   |   |
| OPERATING  EXPENSES:                        |       |                             |       |   |   |
| Selling, general  and administrative        |       | 34,547                           |       | 30,228 |   |
| Depreciation and  amortization              |       | 4,777                            |       | 4,524 |   |
|                                        |       | 39,324                           |       | 34,752 |   |
|                                        |       |                             |       |   |   |
| INCOME FROM  OPERATIONS                     |       | 9,203                            |       | 10,024 |   |
|                                        |       |                             |       |   |   |
| NON-OPERATING  ITEMS:                       |       |                             |       |   |   |
| Interest income                             |       | 174                              |       | 329 |   |
| Interest expense                            |       | (6,199                           | )          | (6,640 | ) |
| Debt  extinguishment expense                |       | (775                             | )          | — |   |
| Other  non-operating items, net             |       | 49                               |       | 33 |   |
|                                        |       | (6,751                           | )          | (6,278 | ) |
| INCOME FROM  OPERATIONS BEFORE INCOME TAXES |       | 2,452                            |       | 3,746 |   |
|                                        |       |                             |       |   |   |
| INCOME TAX  BENEFIT (EXPENSE)               |       | 98                               |       | (1,482 | ) |
|                                        |       |                             |       |   |   |
| NET INCOME                                  |       | $                                | 2,550      |   | $ | 2,264 |   |

 

Seenotes to consolidated financial statements.

2

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AFFINITYGROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(InThousands)

(Unaudited)

 
| ** **                                                                                   | ** ** | **THREE MONTHS ENDED** | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                   | ** ** | **3/31/2007**                    | ** ** | **3/31/2006** | ** ** |
|                                                                                         |       |                             |       |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                       |       |                             |       |   |   |
| Net income                                                                                   |       | $                                | 2,550      |   | $ | 2,264 |   |
| Adjustments to reconcile net income to net cash  (used in) provided by operating activities: |       |                             |       |   |   |
| Depreciation                                                                                 |       | 2,398                            |       | 2,494 |   |
| Amortization                                                                                 |       | 2,379                            |       | 2,030 |   |
| Provision for losses on accounts receivable                                                  |       | 283                              |       | 276 |   |
| Deferred compensation                                                                        |       | 120                              |       | — |   |
| Deferred tax benefit                                                                         |       | (413                             | )          | (426 | ) |
| Gain on sale of property and equipment                                                       |       | —                           |       | (11 | ) |
| Loss on early extinguishment of debt                                                         |       | 775                              |       | — |   |
| Changes in operating assets and liabilities                                                  |       |                             |       |   |   |
| Accounts receivable                                                                          |       | 815                              |       | 1,607 |   |
| Inventories                                                                                  |       | (11,405                          | )          | (1,401 | ) |
| Prepaid expenses and other assets                                                            |       | (3,041                           | )          | (2,631 | ) |
| Accounts payable                                                                             |       | (4,765                           | )          | 5,894 |   |
| Accrued and other liabilities                                                                |       | (3,040                           | )          | (6,203 | ) |
| Deferred revenues and gains                                                                  |       | 234                              |       | (640 | ) |
| Net cash (used in) provided by operating activities                                          |       | (13,110                          | )          | 3,253 |   |
|                                                                                         |       |                             |       |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                       |       |                             |       |   |   |
| Capital expenditures                                                                         |       | (5,549                           | )          | (3,780 | ) |
| Net proceeds from sale of property and equipment                                             |       | —                           |       | 52 |   |
| Change in intangible assets                                                                  |       | (2                               | )          | (3 | ) |
| Investment in affiliate                                                                      |       | 9                                |       | — |   |
| Acquisitions, net of cash received                                                           |       | (304                             | )          | (1,334 | ) |
| Repayment of loans receivable                                                                |       | —                           |       | 9 |   |
| Net cash used in investing activities                                                        |       | (5,846                           | )          | (5,056 | ) |
|                                                                                         |       |                             |       |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                       |       |                             |       |   |   |
| Borrowings on long-term debt                                                                 |       | 39,000                           |       | — |   |
| Payment of debt issue costs                                                                  |       | (291                             | )          | — |   |
| Principal payments of long-term debt                                                         |       | (32,452                          | )          | (3,146 | ) |
| Net cash provided by (used in) financing activities                                          |       | 6,257                            |       | (3,146 | ) |
|                                                                                         |       |                             |       |   |   |
| NET CHANGE IN  CASH AND CASH EQUIVALENTS                                                     |       | (12,699                          | )          | (4,949 | ) |
|                                                                                         |       |                             |       |   |   |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF PERIOD                                            |       | 15,006                           |       | 24,778 |   |
|                                                                                         |       |                             |       |   |   |
| CASH AND CASH  EQUIVALENTS AT END OF PERIOD                                                  |       | $                                | 2,307      |   | $ | 19,829 |   |

 

See notes to consolidatedfinancial statements.

3

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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 toFAS 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.

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 FASB Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes – An Interpretation of FASB Statement No. 109” on January 1, 2007.  FIN No. 48 clarifies the accounting foruncertainty in income taxes recognized in an enterprise’s financial statementsin accordance with SFAS No. 109.  FIN No.48 also prescribes a recognition threshold and measurement attribute for thefinancial statement recognition and measurement of tax position taken orexpected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition, classification,interest and penalties, accounting in interim periods, disclosure, andtransition.

At the date of adoptionof FASB Interpretation No. 48, the Company had $14.2 million of unrecognizedtax benefits.  Accounting for theunrecognized tax benefits had no affect on

4

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

current period earningsor retained earnings as the liability was reclassed from its existing long termdeferred tax liabilities.  As such, therewould be no affect on the effective tax rate if the unrecognized tax benefitswere recognized.  The Company did nothave any material increases in unrecognized tax benefits in the current periodand does not anticipate any material increases over the next twelvemonths.  At the date of adoption, theCompany had recorded $0.7 million of accrued interest and penalties related tounrecognized tax benefits.  During thecurrent period, the Company recorded an additional $0.2 million of accruedinterest and penalties related to the unrecognized tax benefits.  The Company’s policy is to classify interestand penalties as income taxes 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 issuedstatements dealing 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.

5

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

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

TheCompany does not allocate income taxes or unusual items to segments.  Financial information by reportable businesssegment is summarized as follows (in thousands):
| ** **                        | ** ** | **Membership** | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
|-----------------------------------|------------|----------------|------------|------------------|------------|------------|------------|------------------|------------|
| ** **                        | ** ** | **Services**   | ** ** | **Publications** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **QUARTER  ENDED MARCH 31, 2007** |       |           |       |             |       |       |       |             |       |
| Revenues from external customers  |       | $              | 34,061     |             | $          | 24,689     |       | $                | 69,057     |   | $ | 127,807 |   |
| Depreciation and amortization     |       | 894            |       | 1,240            |       | 1,885      |       | 4,019            |       |
| Interest income                   |       | 2,176          |       | —           |       | 32         |       | 2,208            |       |
| Interest expense                  |       | —         |       | 70               |       | 3,571      |       | 3,641            |       |
| Segment profit  (loss)            |       | 11,151         |       | 6,410            |       | (3,739     | )          | 13,822           |       |
|                                   |            |                |            |                  |            |            |            |                  |            |  |  |  |  |

 
| ** **                             | ** ** | **Membership** | ** ** | ** **       | ** ** | ** ** | ** ** | ** **       | ** ** |
|----------------------------------------|------------|----------------|------------|------------------|------------|------------|------------|------------------|------------|
| ** **                             | ** ** | **Services**   | ** ** | **Publications** | ** ** | **Retail** | ** ** | **Consolidated** | ** ** |
| **QUARTER  ENDED MARCH 31, 2006**      |       |           |       |             |       |       |       |             |       |
| Revenues from external customers       |       | $              | 32,948     |             | $          | 23,103     |       | $                | 60,819     |   | $ | 116,870 |   |
| Depreciation and amortization          |       | 910            |       | 1,020            |       | 1,977      |       | 3,907            |       |
| Gain on sale of property and equipment |       | —         |       | 5                |       | 6          |       | 11               |       |
| Interest income                        |       | 1,376          |       | —           |       | 5          |       | 1,381            |       |
| Interest expense                       |       | —         |       | 94               |       | 3,496      |       | 3,590            |       |
| Segment profit  (loss)                 |       | 10,472         |       | 6,462            |       | (4,319     | )          | 12,615           |       |
|                                        |            |                |            |                  |            |            |            |                  |            |  |  |  |  |

 

The following is a reconciliationof income from operations to the Company’s consolidated financial statementsfor the three months ended March 31, 2007 and 2006 (in thousands):
|                                                                | ** ** | **THREE MONTHS ENDED** | ** ** |
|----------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                     | ** ** | **3/31/2007**                    | ** ** | **3/31/2006** | ** ** |
| **Income  From Operations Before Taxes**                       |       |                             |       |   |   |
| Total profit for  reportable segments                          |       | $                                | 13,822     |   | $ | 12,615 |   |
| Unallocated G  & A expense                                 |       | (5,245                           | )          | (4,150 | ) |
| Unallocated  depreciation and amortization expense             |       | (758                             | )          | (617 | ) |
| Unallocated  interest income, net of intercompany elimination  |       | (2,034                           | )          | (1,052 | ) |
| Unallocated  interest expense, net of intercompany elimination |       | (2,558                           | )          | (3,050 | ) |
| Unallocated debt  restructure expense                          |       | (775                             | )          | — |   |
| Income from  operations before taxes                           |       | $                                | 2,452      |   | $ | 3,746 |   |

 

6

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

The following is areconciliation of assets of reportable segments to the Company’s consolidatedfinancial statements as of March 31, 2007 and December 31, 2006 (in thousands):
|                                                      | ** ** | **3/31/2007** | ** ** | **12/31/2006** | ** ** |
|------------------------------------------------------|------------|---------------|------------|----------------|------------|
| Membership  services segment                         |       | $             | 172,483    |           | $          | 167,837 |   |
| Publications  segment                                |       | 87,488        |       | 87,122         |       |
| Retail segment                                       |       | 241,608       |       | 225,680        |       |
| Total assets for  reportable segments                |       | 501,579       |       | 480,639        |       |
| Capitalized  finance costs not allocated to segments |       | 7,460         |       | 8,190          |       |
| Corporate  unallocated assets                        |       | 8,254         |       | 6,353          |       |
| Elimination of  intersegment receivable              |       | (105,341      | )          | (87,174        | )          |
| Total assets                                         |       | $             | 411,952    |           | $          | 408,008 |   |

 

**(4)STATEMENTS OF CASH FLOWS**

Supplemental disclosuresof cash flow information for the three months ended March 31 (in thousands):
|                                              | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------------------|------------|----------|------------|----------|------------|
| Cash paid  (received) during the period for: |       |     |       |     |       |
| Interest                                     |       | $        | 10,246     |     | $          | 10,747 |   |
| Income taxes                                 |       | (186     | )          | 2,622    |       |
|                                              |            |          |            |          |            |  |  |

 

Income taxes paiddecreased in 2007 primarily due to the Company’s change to S corporation taxstatus election in the second quarter of 2006.

In January 2007, theCompany assumed $0.3 million of liabilities in the acquisition of the MadisonBoat Show from MAC Events, LLC.

In February 2007, theCompany assumed $0.6 million of liabilities and issued $1.5 million of debt inthe acquisition of five RV and Sportsman Shows from Industrial Expositions,Inc.

**(5)GOODWILL AND INTANGIBLE ASSETS**

The Company reviewsgoodwill and indefinite-lived intangible assets for impairment at leastannually.  The Company performs itsannual impairment test during the fourth quarter.  There were no changes in the Company’sgoodwill by business segment for the three months ended March 31, 2007 and2006.

The Company completed twoacquisitions in the first quarter of 2007. These acquisitions have been accounted for as a purchase in accordancewith FASB No. 141, “Business

7

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

Combinations,” andaccordingly, the acquired assets and liabilities have been recorded at fair value.  The allocations of purchase price to assetsand liabilities include various finite-lived assets and no additionalgoodwill.  The operations of each entityare included in the operations of the Company from the respective acquisitiondates.

Finite-lived intangibleassets, related accumulated amortization and weighted average useful lifeconsisted of the following at March 31, 2007 (in thousands, except as noted):
| ** **                                       | ** ** | **Weighted**                  | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|-------------------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                                       | ** ** | **Average Useful**       | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | **Life (in years)** | ** ** | **Gross**  | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
|                                             |       |                          |       |       |       |             |       |       |       |
| Membership and  customer lists                   |       | 6                             |       | $          | 31,279     |             | $          | (12,835    | )          | $ | 18,444 |   |
| Resort and golf  course participation agreements |       | 23                            |       | 13,462     |       | (12,734          | )          | 728        |       |
| Non-compete and  deferred consulting agreements  |       | 15                            |       | 18,830     |       | (12,971          | )          | 5,859      |       |
| Deferred financing  costs                        |       | 7                             |       | 10,414     |       | (5,301           | )          | 5,113      |       |
|                                             |       |                          |       | $          | 73,985     |             | $          | (43,841    | )          | $ | 30,144 |   |

 

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

InFebruary 2004, the Company issued $200.0 million of 9% Senior SubordinatedNotes (“Senior Subordinated Notes”) due 2012 pursuant to the AGIIndenture.  The Company purchased andretired $29.9 million of the Senior Subordinated Notes in 2006 and $17.7million in March 2007.  Interest is payableon the remaining $152.4 million Senior Subordinated Notes twice a year onFebruary 15 and August 15.  The Company’spresent and future restricted subsidiaries guarantee the Senior SubordinatedNotes with unconditional guarantees of payment that rank junior in right ofpayment to their existing and future senior debt, but rank equal in right ofpayment to their existing and future senior subordinated debt.  All of the Company’s subsidiaries havejointly and severally guaranteed the indebtedness under the Senior SubordinatedNotes except for CWFR Capital Corp.  Fullfinancial statements of the Guarantors have not been included because, pursuantto their respective guarantees, the Guarantors are jointly and severally liablewith respect to the Senior Subordinated Notes.

8

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

Thefollowing are summarized statements setting forth certain financial informationconcerning the Guarantor Subsidiaries as of and for the three months endedMarch 31, 2007 (in thousands).
| ** **                                             | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|--------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                             | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
|                                                   |       |       |       |           |       |          |       |             |       |             |       |
| Cash & cash  equivalents                           |       | $          | 3,527      |           | $          | (1,220        | )          | $                | —     |             | $          | — |   | $ | 2,307 |   |
| Accounts  receivable, net                              |       | 396        |       | 131,046        |       | —        |       | (105,341         | )          | 26,101           |       |
| Inventories                                            |       | —     |       | 64,108         |       | —        |       | —           |       | 64,108           |       |
| Other current  assets                                  |       | 2,204      |       | 17,039         |       | —        |       | —           |       | 19,243           |       |
| Total current  assets                                  |       | 6,127      |       | 210,973        |       | —        |       | (105,341         | )          | 111,759          |       |
|                                                   |       |       |       |           |       |          |       |             |       |             |       |
| Property and  equipment, net                           |       | 7,155      |       | 30,761         |       | —        |       | —           |       | 37,916           |       |
| Intangible  assets                                     |       | 5,134      |       | 25,010         |       | —        |       | —           |       | 30,144           |       |
| Goodwill                                               |       | 67,584     |       | 76,845         |       | —        |       | —           |       | 144,429          |       |
| Investment in  subsidiaries                            |       | 551,663    |       | 81,005         |       | —        |       | (632,668         | )          | —           |       |
| Affiliate note  and investments                        |       | 44,679     |       | —         |       | 81,005        |       | (40,000          | )          | 85,684           |       |
| Other assets                                           |       | 916        |       | 1,104          |       | —        |       | —           |       | 2,020            |       |
| Total assets                                           |       | $          | 683,258    |           | $          | 425,698       |       | $                | 81,005     |             | $          | (778,009 | ) | $ | 411,952 |   |
|                                                   |       |       |       |           |       |          |       |             |       |             |       |
| Accounts payable                                       |       | $          | 355        |           | $          | 27,457        |       | $                | —     |             | $          | — |   | $ | 27,812 |   |
| Accrued and  other liabilities                         |       | 9,903      |       | 31,232         |       | —        |       | —           |       | 41,135           |       |
| Current portion  of long-term debt                     |       | 106,991    |       | 42,930         |       | —        |       | (145,341         | )          | 4,580            |       |
| Deferred revenue  and gains                            |       | 1,995      |       | 59,887         |       | —        |       | —           |       | 61,882           |       |
| Total current  liabilities                             |       | 119,244    |       | 161,506        |       |          |       | (145,341         | )          | 135,409          |       |
|                                                   |       |       |       |           |       |          |       |             |       |             |       |
| Deferred revenue  and gains                            |       | 2,631      |       | 36,616         |       | —        |       | —           |       | 39,247           |       |
| Long-term debt                                         |       | 284,591    |       | 4,398          |       | —        |       | —           |       | 288,989          |       |
| Other long-term  liabilities                           |       | 349,625    |       | (328,485       | )          | —        |       | —           |       | 21,140           |       |
| Total  liabilities                                     |       | 756,091    |       | (125,965       | )          |          |       | (145,341         | )          | 484,785          |       |
|                                                   |       |       |       |           |       |          |       |             |       |             |       |
| Interdivisional  equity                                |       | —     |       | 551,663        |       | 81,005        |       | (632,668         | )          | —           |       |
| Stockholders’  deficit                            |       | (72,833    | )          | —         |       | —        |       | —           |       | (72,833          | )          |
| Total  liabilities & stockholders’ deficit    |       | $          | 683,258    |           | $          | 425,698       |       | $                | 81,005     |             | $          | (778,009 | ) | $ | 411,952 |   |
|                                                   |       |       |       |           |       |          |       |             |       |             |       |
| Revenue                                                |       | $          | 830        |           | $          | 126,977       |       | $                | —     |             | $          | — |   | $ | 127,807 |   |
| Costs applicable  to revenues                          |       | (2,827     | )          | (76,453        | )          | —        |       | —           |       | (79,280          | )          |
| Operating  expenses                                    |       | (5,911     | )          | (33,413        | )          | —        |       | —           |       | (39,324          | )          |
| Interest  expense, net                                 |       | (4,592     | )          | (1,433         | )          | —        |       | —           |       | (6,025           | )          |
| Income from  investment in consolidated subsidiaries   |       | 14,252     |       | —         |       | —        |       | (14,252          | )          | —           |       |
| Other non  operating income (expenses)                 |       | 911        |       | (1,637         | )          | —        |       | —           |       | (726             | )          |
| Income tax  benefit (expense)                          |       | (113       | )          | 211            |       | —        |       | —           |       | 98               |       |
| Net income                                             |       | $          | 2,550      |           | $          | 14,252        |       | $                | —     |             | $          | (14,252 | ) | $ | 2,550 |   |
|                                                   |       |       |       |           |       |          |       |             |       |             |       |
| Cash flows from  (used by) operations                  |       | $          | (14,426    | )              | $          | 1,316         |       | $                | —     |             | $          | — |   | $ | (13,110 | ) |
| Cash flows (used  in) provided by investing activities |       | (1,141     | )          | (4,705         | )          | —        |       | —           |       | (5,846           | )          |
| Cash flows (used  in) provided by financing activities |       | 6,485      |       | (228           | )          | —        |       | —           |       | 6,257            |       |
| Cash at  beginning of year                             |       | 12,609     |       | 2,397          |       | —        |       | —           |       | 15,006           |       |
| Cash at end of  period                                 |       | $          | 3,527      |           | $          | (1,220        | )          | $                | —     |             | $          | — |   | $ | 2,307 |   |

 

9

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

The following are summarizedbalance sheet statements setting forth certain financial information concerningthe Guarantor Subsidiaries as of December 31, 2006 (in thousands).
| ** **                                                    | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|---------------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                                    | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
|                                                          |       |       |       |           |       |          |       |             |       |             |       |
| Cash & cash  equivalents                                  |       | $          | 12,609     |           | $          | 2,397         |       | $                | —     |             | $          | — |   | $ | 15,006 |   |
| Accounts  receivable (net of allowance for doubtful accounts) |       | 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 |   |

 

10

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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 three months ended March 31, 2006(in thousands).
| ** **                                             | ** ** | ** ** | ** ** | ** **     | ** ** | **NON-**      | ** ** | ** **       | ** ** | **AGI**          | ** ** |
|--------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                             | ** ** | **AGI**    | ** ** | **GUARANTORS** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
|                                                   |       |       |       |           |       |          |       |             |       |             |       |
| Revenue                                                |       | $          | 935        |           | $          | 115,935       |       | $                | —     |             | $          | — |   | $ | 116,870 |   |
| Costs applicable to  revenues                          |       | (2,841     | )          | (69,253        | )          | —        |       | —           |       | (72,094          | )          |
| Operating expenses                                     |       | (4,572     | )          | (30,180        | )          | —        |       | —           |       | (34,752          | )          |
| Interest expense, net                                  |       | (4,102     | )          | (2,209         | )          | —        |       | —           |       | (6,311           | )          |
| Income from investment  in consolidated subsidiaries   |       | 7,746      |       | —         |       | —        |       | (7,746           | )          | —           |       |
| Other non operating  income (expenses)                 |       | 1,510      |       | (1,477         | )          | —        |       | —           |       | 33               |       |
| Income tax benefit (expense)                           |       | 3,588      |       | (5,070         | )          | —        |       | —           |       | (1,482           | )          |
| Net income                                             |       | $          | 2,264      |           | $          | 7,746         |       | $                | —     |             | $          | (7,746 | ) | $ | 2,264 |   |
|                                                   |       |       |       |           |       |          |       |             |       |             |       |
| Cash flows from (used  by) operations                  |       | $          | (11,943    | )              | $          | 15,196        |       | $                | —     |             | $          | — |   | $ | 3,253 |   |
| Cash flows (used in)  provided by investing activities |       | (1,646     | )          | (3,410         | )          | —        |       | —           |       | (5,056           | )          |
| Cash flows (used in)  provided by financing activities |       | 6,273      |       | (9,419         | )          | —        |       | —           |       | (3,146           | )          |
| Cash at beginning of  year                             |       | 26,421     |       | (1,643         | )          | —        |       | —           |       | 24,778           |       |
| Cash at end of period                                  |       | $          | 19,105     |           | $          | 724           |       | $                | —     |             | $          | — |   | $ | 19,829 |   |

 

**(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”).  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 notepurchase agreement dated June 24, 2003, as amended, and its revolving creditline under the credit agreement dated June 24, 2003, as amended, with seniorlenders (collectively the “Senior Secured Credit Facility”).  As of March 31, 2007, an aggregate of $129.8 millionwas outstanding under the term loans and $11.3 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 treated as part of the membership services segment in the segmentreporting.

11

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

The following unauditedpro forma condensed consolidated balance sheet as of March 31, 2007 and thestatement of operations for the three months ended March 31, 2007 and 2006reflects 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 FASB Statement No. 144, “Accounting for the Impairment or Disposalof Long-Lived Assets,” (SFAS 144) as of March 31, 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 March 31, 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.

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.

12

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

Unaudited pro formainformation relating to the operations of AGI excluding Camping World for thethree months ended March 31, 2007 is as follows (in thousands):
| ** **                                                | ** ** | ** **     | ** ** | **Reclassification of** | ** ** | ** **         | ** ** |
|-----------------------------------------------------------|------------|----------------|------------|------------------------------|------------|--------------------|------------|
| ** **                                                | ** ** | ** **     | ** ** | **Discontinued**             | ** ** | ** **         | ** ** |
| ** **                                                | ** ** | **Historical** | ** ** | **Operations**               | ** ** | **Pro Forma** | ** ** |
|                                                      |       |           |       |                         |       |               |       |
| REVENUES:                                                 |       |           |       |                         |       |               |       |
| Membership services                                       |       | $              | 34,061     |                         | $          | (3,950             | )          | $ | 30,111 |   |
| Publications                                              |       | 24,689         |       | —                       |       | 24,689             |       |
| Retail                                                    |       | 69,057         |       | (69,057                      | )          | —             |       |
|                                                      |       | 127,807        |       | (73,007                      | )          | 54,800             |       |
|                                                      |       |           |       |                         |       |               |       |
| COSTS APPLICABLE  TO REVENUES:                            |       |           |       |                         |       |               |       |
| Membership services                                       |       | 21,667         |       | (642                         | )          | 21,025             |       |
| Publications                                              |       | 15,777         |       | —                       |       | 15,777             |       |
| Retail                                                    |       | 41,836         |       | (41,836                      | )          | —             |       |
|                                                      |       | 79,280         |       | (42,478                      | )          | 36,802             |       |
|                                                      |       |           |       |                         |       |               |       |
| GROSS PROFIT                                              |       | 48,527         |       | (30,529                      | )          | 17,998             |       |
|                                                      |       |           |       |                         |       |               |       |
| OPERATING  EXPENSES:                                      |       |           |       |                         |       |               |       |
| Selling, general and administrative                       |       | 34,547         |       | (28,357                      | )          | 6,190              |       |
| Depreciation and amortization                             |       | 4,777          |       | (1,885                       | )          | 2,892              |       |
|                                                      |       | 39,324         |       | (30,242                      | )          | 9,082              |       |
|                                                      |       |           |       |                         |       |               |       |
| INCOME FROM  OPERATIONS                                   |       | 9,203          |       | (287                         | )          | 8,916              |       |
|                                                      |       |           |       |                         |       |               |       |
| NON-OPERATING  ITEMS:                                     |       |           |       |                         |       |               |       |
| Interest income                                           |       | 174            |       | (32                          | )          | 142                |       |
| Interest expense                                          |       | (6,199         | )          | 2,668                        |       | (3,531             | )          |
| Debt extinguishment expense                               |       | (775           | )          | —                       |       | (775               | )          |
| Other non-operating income (expense), net                 |       | 49             |       | —                       |       | 49                 |       |
|                                                      |       | (6,751         | )          | 2,636                        |       | (4,115             | )          |
|                                                      |       |           |       |                         |       |               |       |
| INCOME FROM  CONTINUING OPERATIONS BEFORE INCOME TAXES    |       | 2,452          |       | 2,349                        |       | 4,801              |       |
|                                                      |       |           |       |                         |       |               |       |
| INCOME TAX  EXPENSE                                       |       | 98             |       | (211                         | )          | (113               | )          |
|                                                      |       |           |       |                         |       |               |       |
| INCOME FROM  CONTINUING OPERATIONS                        |       | 2,550          |       | 2,138                        |       | 4,688              |       |
|                                                      |       |           |       |                         |       |               |       |
| DISCONTINUED  OPERATIONS                                  |       |           |       |                         |       |               |       |
| Loss from operations of discontinued Camping World,  Inc. |       | —         |       | (2,349                       | )          | (2,349             | )          |
| Income tax benefit                                        |       | —         |       | 211                          |       | 211                |       |
| Loss on discontinued operations                           |       | —         |       | (2,138                       | )          | (2,138             | )          |
| NET INCOME                                                |       | $              | 2,550      |                         | $          | —             |       | $ | 2,550 |   |

 

13

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

Unaudited pro formainformation relating the operations of AGI excluding Camping World for thethree months ended March 31, 2006 is as follows (in thousands):
| ** **                                               | ** ** | ** **     | ** ** | **Reclassification of** | ** ** | ** **         | ** ** |
|----------------------------------------------------------|------------|----------------|------------|------------------------------|------------|--------------------|------------|
| ** **                                               | ** ** | ** **     | ** ** | **Discontinued**             | ** ** | ** **         | ** ** |
| ** **                                               | ** ** | **Historical** | ** ** | **Operations**               | ** ** | **Pro Forma** | ** ** |
|                                                     |       |           |       |                         |       |               |       |
| REVENUES:                                                |       |           |       |                         |       |               |       |
| Membership services                                      |       | $              | 32,948     |                         | $          | (3,794             | )          | $ | 29,154 |   |
| Publications                                             |       | 23,103         |       | —                       |       | 23,103             |       |
| Retail                                                   |       | 60,819         |       | (60,819                      | )          | —             |       |
|                                                     |       | 116,870        |       | (64,613                      | )          | 52,257             |       |
|                                                     |       |           |       |                         |       |               |       |
| COSTS APPLICABLE  TO REVENUES:                           |       |           |       |                         |       |               |       |
| Membership services                                      |       | 21,116         |       | (1,050                       | )          | 20,066             |       |
| Publications                                             |       | 14,575         |       | —                       |       | 14,575             |       |
| Retail                                                   |       | 36,403         |       | (36,403                      | )          | —             |       |
|                                                     |       | 72,094         |       | (37,453                      | )          | 34,641             |       |
|                                                     |       |           |       |                         |       |               |       |
| GROSS PROFIT                                             |       | 44,776         |       | (27,160                      | )          | 17,616             |       |
|                                                     |       |           |       |                         |       |               |       |
| OPERATING  EXPENSES:                                     |       |           |       |                         |       |               |       |
| Selling, general and administrative                      |       | 30,228         |       | (25,530                      | )          | 4,698              |       |
| Depreciation and amortization                            |       | 4,524          |       | (1,977                       | )          | 2,547              |       |
|                                                     |       | 34,752         |       | (27,507                      | )          | 7,245              |       |
|                                                     |       |           |       |                         |       |               |       |
| INCOME FROM  OPERATIONS                                  |       | 10,024         |       | 347                          |       | 10,371             |       |
|                                                     |       |           |       |                         |       |               |       |
| NON-OPERATING  ITEMS:                                    |       |           |       |                         |       |               |       |
| Interest income                                          |       | 329            |       | (5                           | )          | 324                |       |
| Interest expense                                         |       | (6,640         | )          | 2,453                        |       | (4,187             | )          |
| Other non-operating income (expense), net                |       | 33             |       | (6                           | )          | 27                 |       |
|                                                     |       | (6,278         | )          | 2,442                        |       | (3,836             | )          |
|                                                     |       |           |       |                         |       |               |       |
| INCOME FROM  CONTINUING OPERATIONS BEFORE INCOME TAXES   |       | 3,746          |       | 2,789                        |       | 6,535              |       |
|                                                     |       |           |       |                         |       |               |       |
| INCOME TAX  EXPENSE                                      |       | (1,482         | )          | (1,006                       | )          | (2,488             | )          |
|                                                     |       |           |       |                         |       |               |       |
| INCOME FROM  CONTINUING OPERATIONS                       |       | 2,264          |       | 1,783                        |       | 4,047              |       |
|                                                     |       |           |       |                         |       |               |       |
| DISCONTINUED  OPERATIONS                                 |       |           |       |                         |       |               |       |
| Loss from operations of discontinued Camping World, Inc. |       | —         |       | (2,789                       | )          | (2,789             | )          |
| Income tax benefit                                       |       | —         |       | 1,006                        |       | 1,006              |       |
| Loss on discontinued operations                          |       | —         |       | (1,783                       | )          | (1,783             | )          |
| NET INCOME                                               |       | $              | 2,264      |                         | $          | —             |       | $ | 2,264 |   |

 

14

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

The unaudited pro formabalance sheet of AGI excluding Camping World as of March 31, 2007 is as follows(in thousands except shares and par value):
| ** **                                                                                   | ** ** | ** **     | ** ** | **Reclassification of** | ** ** | ** **         | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------|------------|------------------------------|------------|--------------------|------------|
| ** **                                                                                   | ** ** | ** **     | ** ** | **Discontinued**             | ** ** | ** **         | ** ** |
| ** **                                                                                   | ** ** | **Historical** | ** ** | **Operations**               | ** ** | **Pro Forma** | ** ** |
| **ASSETS**                                                                                   |       |           |       |                         |       |               |       |
| CURRENT ASSETS:                                                                              |       |           |       |                         |       |               |       |
| Cash and cash equivalents                                                                    |       | $              | 2,307      |                         | $          | (1,766             | )          | $ | 541 |   |
| Accounts receivable, net                                                                     |       | 26,101         |       | (4,910                       | )          | 21,191             |       |
| Inventories                                                                                  |       | 64,108         |       | (63,406                      | )          | 702                |       |
| Prepaid expenses and other assets                                                            |       | 16,002         |       | (4,229                       | )          | 11,773             |       |
| Deferred tax assets, net                                                                     |       | 3,241          |       | (3,241                       | )          | —             |       |
| Assets held for sale                                                                         |       | —         |       | 241,608                      |       | 241,608            |       |
| Total current assets                                                                         |       | 111,759        |       | 164,056                      |       | 275,815            |       |
|                                                                                         |       |           |       |                         |       |               |       |
| PROPERTY AND EQUIPMENT, net                                                                  |       | 37,916         |       | (29,110                      | )          | 8,806              |       |
| INVESTMENT IN AFFILIATE                                                                      |       | 81,005         |       | (81,005                      | )          | —             |       |
| NOTE FROM AFFILIATE                                                                          |       | 4,679          |       | —                       |       | 4,679              |       |
| INTANGIBLE ASSETS, net                                                                       |       | 30,144         |       | (5,392                       | )          | 24,752             |       |
| GOODWILL                                                                                     |       | 144,429        |       | (47,601                      | )          | 96,828             |       |
| OTHER ASSETS                                                                                 |       | 2,020          |       | (948                         | )          | 1,072              |       |
| Total assets                                                                                 |       | $              | 411,952    |                         | $          | —             |       | $ | 411,952 |   |
|                                                                                         |       |           |       |                         |       |               |       |
| **LIABILITIES  AND STOCKHOLDER’S DEFICIT**                                              |       |           |       |                         |       |               |       |
| CURRENT LIABILITIES:                                                                         |       |           |       |                         |       |               |       |
| Accounts payable                                                                             |       | $              | 27,812     |                         | $          | (26,208            | )          | $ | 1,604 |   |
| Accrued interest                                                                             |       | 1,889          |       | —                       |       | 1,889              |       |
| Accrued income taxes                                                                         |       | 1,312          |       | (3                           | )          | 1,309              |       |
| Accrued liabilities                                                                          |       | 37,934         |       | (19,181                      | )          | 18,753             |       |
| Deferred revenues and gains                                                                  |       | 61,882         |       | (8,165                       | )          | 53,717             |       |
| Current portion of long-term debt                                                            |       | 4,580          |       | —                       |       | 4,580              |       |
| Liabilities held for sale                                                                    |       | —         |       | 75,980                       |       | 75,980             |       |
| Total current liabilities                                                                    |       | 135,409        |       | 22,423                       |       | 157,832            |       |
|                                                                                         |       |           |       |                         |       |               |       |
| DEFERRED REVENUES AND GAINS                                                                  |       | 39,247         |       | (9,148                       | )          | 30,099             |       |
| LONG-TERM DEBT, net of current portion                                                       |       | 288,989        |       | —                       |       | 288,989            |       |
| DEFERRED TAX LIABILITY                                                                       |       | 1,165          |       | (1,165                       | )          | —             |       |
| OTHER LONG-TERM LIABILITIES                                                                  |       | 19,975         |       | (12,110                      | )          | 7,865              |       |
|                                                                                         |       | 484,785        |       | —                       |       | 484,785            |       |
|                                                                                         |       |           |       |                         |       |               |       |
| 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                                                                          |       | (153,839       | )          | —                       |       | (153,839           | )          |
| Total stockholder’s deficit                                                             |       | (72,833        | )          | —                       |       | (72,833            | )          |
| Total liabilities and  stockholder’s deficit                                            |       | $              | 411,952    |                         | $          | —             |       | $ | 411,952 |   |

 

15

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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** | ** ** | ** **         | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------|------------|------------------------------|------------|--------------------|------------|
| ** **                                                                                   | ** ** | ** **     | ** ** | **Discontinue**              | ** ** | ** **         | ** ** |
| ** **                                                                                   | ** ** | **Historical** | ** ** | **Operations**               | ** ** | **Pro Forma** | ** ** |
| **ASSETS**                                                                                   |       |           |       |                         |       |               |       |
| CURRENT ASSETS:                                                                              |       |           |       |                         |       |               |       |
| Cash and cash equivalents                                                                    |       | $              | 15,006     |                         | $          | (3,288             | )          | $ | 11,718 |   |
| Accounts receivable, net                                                                     |       | 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 to be disposed of                                                                     |       | —         |       | 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 to be disposed of                                                                |       | —         |       | 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 |   |

 

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**ITEM 2:**

AFFINITY GROUP, INC. ANDSUBSIDIARIES

MANAGEMENT'S DISCUSSIONAND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OFOPERATIONS

 

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

 
| ** **                                  | ** ** | **THREE MONTHS ENDED** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **3/31/2007**                    | ** ** | **3/31/2006** | ** ** | **Inc/(Dec)** | ** ** |
|                                        |       |                             |       |   |   |   |   |
| REVENUES:                                   |       |                             |       |   |   |   |   |
| Membership  services                        |       | 26.7                             | %          | 28.2 | % | 3.4 | % |
| Publications                                |       | 19.3                             | %          | 19.8 | % | 6.9 | % |
| Retail                                      |       | 54.0                             | %          | 52.0 | % | 13.5 | % |
|                                        |       | 100.0                            | %          | 100.0 | % | 9.4 | % |
|                                        |       |                             |       |   |   |   |   |
| COSTS APPLICABLE TO  REVENUES:              |       |                             |       |   |   |   |   |
| Membership  services                        |       | 17.0                             | %          | 18.1 | % | 2.6 | % |
| Publications                                |       | 12.3                             | %          | 12.5 | % | 8.2 | % |
| Retail                                      |       | 32.7                             | %          | 31.1 | % | 14.9 | % |
|                                        |       | 62.0                             | %          | 61.7 | % | 10.0 | % |
| GROSS PROFIT                                |       | 38.0                             | %          | 38.3 | % | 8.4 | % |
|                                        | ** ** | ** **                       |       |   |   |   |   |
| OPERATING EXPENSES:                         |       |                             |       |   |   |   |   |
| Selling, general  and administrative        |       | 27.1                             | %          | 25.8 | % | 14.3 | % |
| Depreciation and  amortization              |       | 3.7                              | %          | 3.9 | % | 5.6 | % |
|                                        |       | 30.8                             | %          | 29.7 | % | 13.2 | % |
|                                        | ** ** | ** **                       |       |   |   |   |   |
| INCOME FROM OPERATIONS                      |       | 7.2                              | %          | 8.6 | % | (8.2 | )% |
|                                        | ** ** | ** **                       |       |   |   |   |   |
| NON-OPERATING ITEMS:                        |       |                             |       |   |   |   |   |
| Interest income                             |       | 0.1                              | %          | 0.3 | % | (47.1 | )% |
| Interest expense                            |       | (4.9                             | )%         | (5.7 | )% | (6.6 | )% |
| Debt  extinguishment expense                |       | (0.6                             | )%         | — |   | 100.0 | % |
| Other  non-operating items, net             |       | 0.1                              | %          | — |   | 48.5 | % |
|                                        |       | (5.3                             | )%         | (5.4 | )% | 7.5 | % |
|                                        | ** ** | ** **                       | ** ** | ** ** |   |   |   |
| INCOME FROM OPERATIONS BEFORE  INCOME TAXES |       | 1.9                              | %          | 3.2 | % | (34.5 | )% |
|                                        | ** ** | ** **                       |       |   |   |   |   |
| INCOME TAX (EXPENSE)  BENEFIT               |       | 0.1                              | %          | (1.3 | )% | (106.6 | )% |
|                                        |       |                             |       |   |   |   |   |
| NET INCOME                                  |       | 2.0                              | %          | 1.9 | % | 12.6 | % |

 

17

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**RESULTSOF OPERATIONS**

**Three Months Ended March 31, 2007**

**Compared With Three Months EndedMarch 31, 2006**

*Revenues*

Revenuesof $127.8 million for the first quarter of 2007 increased by $10.9 million, or9.4%, from the comparable period in 2006.

Membershipservices revenues of $34.1 million for the first quarter of 2007 increased by$1.1 million, or 3.4%, from the comparable period in 2006.  This revenue increase was largelyattributable to a $0.6 million increase in extended vehicle warranty programrevenue due to the continued growth of contracts in force, a $0.3 million revenueincrease in emergency road service programs due to increased enrollment, a $0.2million revenue increase due to increased enrollment in Camp Club USA, and a$0.2 million increase in Camping World President’s Club revenue, partiallyoffset by a $0.2 million revenue reduction due to the elimination of the RVToday television program.

Publicationrevenues of $24.7 million for the first quarter of 2007 increased $1.6 million,or 6.9%, from the comparable period in 2006 primarily attributable to $1.8million of revenue associated with consumer shows acquired in the last fifteenmonths, and $0.6 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, and a $0.3 million revenue decrease dueto three fewer issues of *Snow Week*magazines in 2007.

Retail revenues of $69.0 millionincreased approximately $8.2 million, or 13.5%, from the comparable period in2006.  Store merchandise sales increasedapproximately $6.8 million over the first quarter of 2006 due to a $7.4 millionrevenue increase from the addition of 27 new stores over the past fifteenmonths, partially offset by a same store sales decrease of $0.6 million, or1.2%, compared to a 1.8% decrease in same store sales for the first quarter 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 $0.4 million, supplies and other sales increased $0.7 million, andproduct extended warranty sales increased $0.3 million.

*Costs Applicable to Revenues*

Costsapplicable to revenues totaled $79.3 million for the first quarter of 2007, anincrease of $7.2 million, or 10.0%, from the comparable period in 2006.

Membership services costs and expenses of$21.7 million increased $0.6 million, or 2.6%, from the comparable period in2006.  This increase consisted of $0.8million of additional costs associated increased extended vehicle warrantyprogram revenue and

18

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emergency roads service revenue,partially offset by $0.2 million of reduced costs due to the elimination of theRV Today television program.

Publication costs and expenses of $15.8million for the first quarter of 2007 increased $1.2 million, or 8.2%, from thecomparable period in 2006.  This increasewas attributable to $1.0 million of costs associated with the recently acquiredconsumer shows, and $0.7 million from the recently acquired American GuideServices group, partially offset by reduced campground atlas costs of $0.3million resulting from reduced sales, and reduced costs of $0.2 million associatedwith fewer issues of *Snow Week*magazine.

Retail costs applicable to revenuesincreased approximately $5.4 million, or 14.9%, to $41.8 million primarily as aresult of 27 new stores opened over the past fifteen months.  The retail gross profit margin of 39.4% forthe first quarter of 2007 decreased from 40.1% for the comparable period in2006 primarily due to an increase in wholesale sales which carry a lowermargin, and increased international freight charges as our import programcontinues to grow.

*Operating Expenses*

Selling, general and administrativeexpenses of approximately $34.5 million for the first quarter of 2007 increased$4.3 million compared to the first quarter of 2006.  This increase was due to an increase inretail selling and general and administrative expenses of approximately $3.1million consisting of increases in wages, selling 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 $0.3 million of costs associated with the recently acquired consumer shows.

Depreciation and amortization expense of$4.8 million increased approximately $0.3 million over the prior year primarilydue to increased amortization of intangible assets associated with the recentacquisitions.

*Income from Operations*

Incomefrom operations for the first quarter of 2007 totaling $9.2 million decreased$0.8 million compared to the first quarter of 2006.  This decrease was primarily due to increasedoperating expenses of $4.6 million partially offset by increased gross profitfor retail, membership services and publications operations of $2.8 million,$0.6 million and $0.4 million, respectively.

*Non-Operating Items*

Non-operating items ofapproximately $6.7 million for the first quarter of 2007 increased $0.5 millioncompared to the same period in 2006. This increase was primarily due to an $0.8 million increase in debtextinguishment expense related to the purchase and retirement of $17.7 millionof the Company’s Senior Subordinated Notes in the first

19

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quarter of 2007 and a$0.1 million decrease in interest income. These increases were partially offset by a $0.4 million decrease ininterest expense in 2007, primarily due to a reduction in outstanding debtresulting from the purchase and retirement of Senior Subordinated Notespartially offset by the issuance of the additional term loans that bear a lowerinterest rate.

*Income before Income Taxes*

Income before income taxes for the firstquarter of 2007 was $2.5 million, or $1.3 million lower than the first quarterof 2006.  This decrease was attributableto the $0.8 million decrease in income from operations for the current periodand $0.5 million of additional non-operating items.

*Income Tax Benefit (Expense)*

The Company recorded a $0.1 millionincome tax benefit for the first quarter of 2007, compared to a $1.5 millionincome tax expense for the first quarter of 2006.  This decrease was primarily due to theCompany’s change to S corporation tax status election which was approved by theIRS in the second quarter of 2006.

# *Net Income*

Net income in the first quarter of 2007was $2.6 million compared to $2.3 million for the same period in 2006 mainlydue to the reasons discussed above.

*Segment Profit (Loss)*

Segment profit of $13.8million for the first quarter of 2007 (before unallocated depreciation andamortization, general and administrative, interest, and income tax expense)increased $1.2 million, or 9.6%, from the comparable period in 2006.

Membership servicessegment profit of approximately $11.1 million for the first quarter of 2007increased $0.7 million, or 6.5%, from the comparable period in 2006.  This increase was largely attributable to an$0.8 million increase in profit from emergency road service products, partiallyoffset by a $0.1 million decrease in profit from the extended vehicle warrantyprograms.

Publication segmentprofit of $6.4 million for the first quarter of 2007 decreased approximately$0.1 million, or 0.8%, from the comparable period in 2006.  This decrease was largely attributed to adecrease in profit related to reduced campground atlas sales, partially offsetby an increase in profit related to the consumer shows acquired over the last15 months.

Retail segment lossdecreased $0.6 million, or 13.4% from the first quarter in 2006 to a $3.7million loss in the first quarter of 2007. This increase insegment profit resulted primarily from a $3.5 million increase in gross profitmargin, partially offset by a $2.9million increase in selling, general and administrative expenses primarilyrelated to the increase in new stores.

20

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**LIQUIDITY AND CAPITAL RESOURCES**

TheCompany has historically operated with a working capital deficit.  The working capital deficit as of March 31,2007 and December 31, 2006 was $23.7 million and $35.0 million,respectively.  The primary reason for theworking capital deficit is the deferred revenue and gains reported undercurrent liabilities in the amount of $61.9 million and $62.9 million as ofMarch 31, 2007 and December 31, 2006, respectively.  Deferred revenue is primarily comprised ofcash collected for club memberships in advance, which is amortized over thelife of the membership.  The Company usesnet proceeds from this deferred membership revenue to lower its long-termborrowings.  Management believes thatfunds generated by operations together with available borrowings under theCompany’s revolving credit line will be sufficient to meet all of the Company’sdebt service requirements, capital requirements and working capital needs overthe next twelve months.  Further,management believes that the change in the tax status to a Subchapter Scorporation in 2006 for the Company and all its subsidiaries, with theexception of Camping World, Inc. and its wholly-owned subsidiaries, has notlimited the Company’s ability to issue debt through the capital markets but maylimit the ability of the Company to raise funds in the equity market.

*Contractual Obligations andCommercial Commitments*

Thefollowing table reflects our contractual obligations and commercial commitmentsat March 31, 2007.  This table includesprincipal and future interest due under our debt agreements based on interestrates as of March 31, 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       |       | $                                         | 386,045    |   | $ | 17,940 |   | $ | 180,141 |   | $ | 28,707 |   | $ | 159,257 |   |
| Operating lease  obligations              |       | 164,337                                   |       | 12,101 |   | 28,787 |   | 25,972 |   | 97,477 |   |
| Deferred  compensation                    |       | 4,280                                     |       | 1,022 |   | 3,138 |   | 80 |   | 40 |   |
| Standby and  commercial letters of credit |       | 7,254                                     |       | 6,754 |   | 500 |   | — |   | — |   |
| Grand total                               |       | $                                         | 561,916    |   | $ | 37,817 |   | $ | 212,566 |   | $ | 54,759 |   | $ | 256,774 |   |

 

On June 24, 2003, theCompany entered into an Amended and Restated Credit Agreement and a SeniorSecured Floating Rate Note Purchase Agreement (as amended, the Senior CreditFacility).  The Senior Credit Facilityprovides for a revolving credit facility of $35.0 million and term loans in theaggregate of $140.0 million.  As of March31 2007, $129.8 million was outstanding under the term loans and $4.0 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 March 31, 2007, the average interest rates on the term loans andthe revolving credit facility were 7.82% and

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8.07%, respectively, andpermitted borrowings under the undrawn revolving facility were $23.7million.  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 $412,500.  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 March 31,2007, 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.

In February 2004, theCompany 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, AGIamended its Senior Credit Facility to revise the definition of ConsolidatedFixed Charges Ratio and Permitted Tax Distributions.  This amendment allows the Company todistribute taxes to its ultimate parent based on its stand-alone tax obligationrather than the tax obligation of its parent, AGHI, until such time that AGHIpays interest on its 10 7/8% Senior Notes in cash instead of by the issuance ofadditional notes.  Further, the Companyamended the Senior Credit Facility’s covenant restrictions with affiliates topermit a joint venture arrangement between Camping World and FreedomRoads, anaffiliate of the Company.

On February 27, 2007, theCompany amended its Senior Credit Facility to extend the maturity of therevolving credit facility from June 24, 2008 to June 24, 2009, increase theconsolidated senior leverage ratio from 1.90 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, theCompany 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 March 31, 2007, $152.4million of Senior Subordinated Notes remain outstanding.

The AGI Indenture pursuantto which the AGI Senior Subordinated Notes were issued and the Senior CreditFacility contain certain restrictive covenants relating to, but not limited to,mergers, changes in the nature of the business, acquisitions, additionalindebtedness, sale of assets, investments, and the payment of dividends subjectto certain limitations and minimum operating covenants.  The Company was in compliance with all debtcovenants at March 31, 2007.

In March 2005, AGHI, theCompany’s parent, issued $88.2 million principal amount of the 10-7/8% seniornotes due February 15, 2012 (the “AGHI Notes”). Interest on the AGHI notes is payable semi-annually on February 15 andAugust 15.  For interest payments on andprior to February 15, 2008, AGHI may elect to pay interest on the AGHI Notes incash or by issuance of additional notes of the same tenor as the AGHI Notes,except the maturity date is March 15, 2010. AGI has not paid any dividends to AGHI to fund payment of interest onthe AGHI Notes and AGHI made the interest payments due on August 15, 2005,February 15, 2006, August 15, 2006 and February 15, 2007 through issuance ofadditional notes.  AGI expects to issueadditional notes of the same tenor as the AGHI Notes through February 15, 2008to pay interest on the AGHI Notes when and as such interest is due.

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In February 2006, AGIProductions, 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 of liabilities.  In August 2006, TL Enterprises, Inc. acquiredthe consumer park guides and related assets of American Guide Services, Inc for$1.0 million.  As part of the purchase,the Company issued $0.1 million of debt and assumed $0.3 million ofliabilities.  In September 2006, AGIProductions, Inc. acquired the consumer shows and related assets of Apple RockAdvertising and Promotions, Inc. for $1.2 million.  As part of the purchase, the Company issued$0.2 million of debt and assumed $0.4 million of liabilities.

In January 2007, AGIProductions, 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, AGIProductions, Inc. acquired consumer shows from Industrial Exposition Inc. for$1.9 million.  As part of the purchase,the Company assumed $1.5 million of debt and assumed $0.6 million ofliabilities.

For the three monthsended March 31, 2007, the Company incurred $0.1 million of deferred executivecompensation expense under the phantom stock agreements and made payments of$2.3 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 $1.0 million arescheduled to**be made for the remainder of 2007.

Capital expenditures forthe first three months of 2007 totaling $5.5 million increased $1.8 millionfrom the first three months of 2006 primarily due to the addition of eight newretail stores.  Additional capital expendituresof $9.3 million are anticipated for the balance of 2007 assuming the closingdate on the Camping World stock purchase agreement is June 30, 2007.  These capital expenditures are primarily forfour new Camping World stores in the second quarter, existing store upgrades,equipment, information technology, inventory system replacement, and computerhardware and software upgrades and enhancements.

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**CRITICAL ACCOUNTING POLICIES**

*General*

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

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

*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 are expensedat the time related materials are mailed. Recognized revenues and profit are subject to revisions as themembership progresses to completion. Revisions to membership period estimates would change the amount ofincome and expense amortized in future accounting periods.

*Accounts Receivable*

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

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

*Inventory*

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

*Long-Lived Assets*

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

Long-lived assets, suchas property, plant and equipment and purchased intangible assets with finitelives are evaluated for impairment whenever events or changes in circumstancesindicate the carrying value of an asset may not be recoverable in accordancewith SFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets.”  The Company assesses the fairvalue of the assets based on the future cash flow the assets are expected togenerate and recognize an impairment loss when estimated undiscounted futurecash flow expected to result from the use of the asset plus net proceedsexpected from disposition of the asset (if any) are less than the carryingvalue of the asset.  When an impairmentis identified, the Company reduces the carrying amount of the asset to itsestimated fair value based on a discounted cash flow approach or, whenavailable and appropriate, comparable market values.  The Company determined there were noindicators of impairment of long-lived assets as of December 31, 2006 or March31, 2007.

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

*Indefinite Lived IntangibleAssets*

The Company evaluatesindefinite lived intangible assets for impairment at least annually or whenevents indicate that an impairment exists in accordance with SFAS No. 142.

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The impairment test forgoodwill and other indefinite-lived intangible assets is calculated annuallyusing fair value measurement techniques.

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

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

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

*Income Taxes*

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

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

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

The following information discusses the sensitivity to our earnings.  The range of changes chosen for this analysisreflects our view of changes which are reasonably possible over

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a one-year period.  Theseforward-looking disclosures are selective in nature and only address thepotential impacts from financial instruments. They do not include other potential effects which could impact ourbusiness as a result of these interest rate fluctuations.

*Interest Rate Sensitivity Analysis*

At March 31, 2007, we had debt totaling $293.6 million, comprised of$133.8 million of variable rate debt and $159.8 million of fixed ratedebt.  Holding other variables constant(such as debt levels), the earnings and cash flow impact of a one-percentagepoint increase/ decrease in interest rates would have an unfavorable/ favorableimpact of approximately $1.3 million.

*Credit Risk*

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

**ITEM 4:CONTROLS AND PROCEDURES**

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

**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: May 9,  2007 | Thomas F. Wolfe            |
|               | Senior Vice  President and |
|               | Chief Financial  Officer   |

 

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