Affinity Group Holding 10-Q 2007 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

Quarterly Report Under Section 13 or 15 (d) of

The Securities Exchange Act of 1934

For Quarter Ended:	Commission File Number
September 30, 2007	333-124109

AFFINITY GROUP HOLDING, INC.

(Exact name of registrant as specified in its charter)

Delaware	20-2428068
(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 REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:  NONE

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

10-7/8% Senior Notes Due 2012

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

YES   x            NO   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer   o                    Accelerated filer   o                    Non-accelerated filer   x

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

YES   o            NO   x

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

	Outstanding as of
Class	November 14, 2007
Common Stock,    $.01 par value	100

DOCUMENTS INCORPORATED BY REFERENCE:  None

AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES

INDEX

Part I.  Financial Information
	Item 1: Financial Statements
		Consolidated Balance Sheets as of September 30, 2007 (unaudited) and December 31, 2006
		Unaudited Consolidated Statements of Operations for the three months ended September 30, 2007 and 2006
		Unaudited Consolidated Statements of Operations for the nine months ended September 30, 2007 and 2006
		Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 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

AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30, 2007 and December 31, 2006

(In thousands except shares and par value)

	9/30/2007			12/31/2006
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	5,643		$	15,238
Accounts receivable, less allowance for doubtful accounts of $1,360 in 2007 and $1,193 in 2006	24,160			27,199
Inventories	70,213			52,703
Prepaid expenses and other assets	19,389			13,006
Deferred tax assets	3,316			3,203
Total current assets	122,721			111,349
PROPERTY AND EQUIPMENT, net	42,026			34,765
INVESTMENT IN AFFILIATE	81,005			81,005
NOTE FROM AFFILIATE	4,660			4,688
INTANGIBLE ASSETS, net	28,116			32,957
GOODWILL	144,429			144,429
OTHER ASSETS	1,391			1,704
Total assets	$	424,348		$	410,897
LIABILITIES AND STOCKHOLDER’S DEFICIT
CURRENT LIABILITIES:
Accounts payable	$	23,045		$	32,577
Accrued interest	1,983			5,936
Accrued income taxes	1,163			1,736
Accrued liabilities	38,092			35,687
Deferred revenues and gains	73,771			62,906
Current portion of long-term debt	4,366			7,271
Total current liabilities	142,420			146,113
DEFERRED REVENUES AND GAINS	38,706			37,183
LONG-TERM DEBT, net of current portion	390,870			381,510
DEFERRED TAX LIABILITY	5,359			15,724
OTHER LONG-TERM LIABILITIES	17,883			3,386
	595,238			583,916
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER’S DEFICIT:
Common stock, $.01 par value, 3,000 shares authorized, 100 shares issued and outstanding	1			1
Additional paid-in capital	5,861			—
Accumulated deficit	(176,752		)	(173,020		)
Total stockholder’s deficit	(170,890		)	(173,019		)
Total liabilities and stockholder’s deficit	$	424,348		$	410,897

See notes to consolidated financial statements.

1

AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands)

(Unaudited)

	THREE MONTHS ENDED
	9/30/2007			9/30/2006
REVENUES:
Membership services	$	39,375		$	34,128
Publications	14,864			14,289
Retail	92,189			81,623
	146,428			130,040
COSTS APPLICABLE TO REVENUES:
Membership services	26,244			22,293
Publications	10,867			9,982
Retail	55,812			49,030
	92,923			81,305
GROSS PROFIT	53,505			48,735
OPERATING EXPENSES:
Selling, general and administrative	38,623			36,000
Depreciation and amortization	4,820			4,845
	43,443			40,845
INCOME FROM OPERATIONS	10,062			7,890
NON-OPERATING ITEMS:
Interest income	161			205
Interest expense	(9,248		)	(8,967		)
Debt extinguishment expense	—			(142		)
Other non-operating items, net	(51		)	24
	(9,138		)	(8,880		)
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAX	924			(990		)
INCOME TAX (EXPENSE) BENEFIT	(4,764		)	2,292
NET (LOSS) INCOME	$	(3,840	)	$	1,302

See notes to consolidated financial statements.

2

AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands)

(Unaudited)

	NINE MONTHS ENDED
	9/30/2007			9/30/2006
REVENUES:
Membership services	$	111,528		$	104,588
Publications	57,082			53,976
Retail	259,489			227,349
	428,099			385,913
COSTS APPLICABLE TO REVENUES:
Membership services	72,205			68,416
Publications	38,907			36,195
Retail	157,721			136,497
	268,833			241,108
GROSS PROFIT	159,266			144,805
OPERATING EXPENSES:
Selling, general and administrative	112,138			101,362
Depreciation and amortization	14,564			14,217
	126,702			115,579
INCOME FROM OPERATIONS	32,564			29,226
NON-OPERATING ITEMS:
Interest income	518			929
Interest expense	(27,750		)	(27,635		)
Debt extinguishment expense	(775		)	(835		)
Other non-operating items, net	42			77
	(27,965		)	(27,464		)
INCOME FROM OPERATIONS BEFORE INCOME TAXES	4,599			1,762
INCOME TAX EXPENSE	(4,581		)	(22,578		)
NET INCOME (LOSS)	$	18		$	(20,816	)

See notes to consolidated financial statements.

3

AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

	NINE MONTHS ENDED
	9/30/2007			9/30/2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	18		$	(20,816	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation	7,323			7,661
Amortization	7,241			6,556
Provision for losses on accounts receivable	904			515
Deferred compensation	440			920
Deferred tax expense	3,706			21,885
Loss (gain) on sale of property and equipment	73			(13		)
Loss on early extinguishment of debt	775			835
Non-cash interest on AGHI Notes	2,854			7,912
Accretion of original issue discount	272			194
Changes in operating assets and liabilities
Accounts receivable	2,135			5,100
Inventories	(17,510		)	(6,129		)
Prepaid expenses and other assets	(5,788		)	(5,423		)
Accounts payable	(9,532		)	8,093
Accrued and other liabilities	(2,248		)	(3,082		)
Deferred revenues and gains	11,582			10,040
Net cash provided by operating activities	2,245			34,248
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(14,570		)	(9,203		)
Net proceeds from sale of property and equipment	10			124
Additions to intangible assets	(14		)	—
Acquisitions, net of cash received	(304		)	(2,853		)
Repayment of loans receivable	28			25
Net cash used in investing activities	(14,850		)	(11,907		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid	(3,750		)	(3,287		)
Contribution from parent	5,861			—
Borrowings on long-term debt	53,100			—
Payment of debt issue costs	(291		)	(12		)
Principal payments of long-term debt	(51,910		)	(33,992		)
Net cash provided by (used in) financing activities	3,010			(37,291		)
NET CHANGE IN CASH AND CASH EQUIVALENTS	(9,595		)	(14,950		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	15,238			25,061
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	5,643		$	10,111

See notes to consolidated financial statements.

4

AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

(1) BASIS OF PRESENTATION

Principles of Consolidation – The consolidated financial statements included herein include the accounts of Affinity Group Holding, Inc. (“AGHI”), its wholly-owned subsidiary, Affinity Group, Inc. (“AGI”), and AGI’s subsidiaries (collectively the “Company”), presented in accordance with U.S. generally accepted accounting principles, and pursuant to the rules and regulations of the Securities and Exchange Commission.  The parent company of AGHI is AGI Holding Corp. (“AGHC”), a privately-owned corporation.

In the second quarter of 2006, AGHC received approval from the Internal Revenue Service to change its tax status from a Subchapter C corporation to a Subchapter S corporation (“S corporation”) to be effective as of January 1, 2006.  The election for change in tax status to an S corporation included AGHC and all its subsidiaries with the exception of Camping World, Inc. and its wholly-owned subsidiaries, which remain Subchapter C corporations.  Pursuant to SFAS 109, “Accounting for Income taxes”, a change in tax status resulting from an S corporation election requires that all deferred tax accounts be revalued upon formal approval of the S corporation status.  Accordingly, all deferred tax accounts of AGHC and its subsidiaries, excluding Camping World, Inc. and its wholly-owned subsidiaries, were revalued to account for the tax effect for the change to the S corporation status in the second quarter of 2006.

These interim consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes in the Company’s 10-K report for the year ended December 31, 2006 as filed with the Securities and Exchange Commission.  In the opinion of management of the Company, these consolidated financial statements contain all adjustments of a normal recurring nature necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented.

(2) RECENT ACCOUNTING PRONOUNCEMENTS

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

5

(2) RECENT ACCOUNTING PRONOUNCEMENTS (continued)

During the third quarter of 2007 and for the nine months ended September 30, 2007, the Company recorded an additional $0.2 million and $0.6 million, respectively, of accrued interest and penalties related to the unrecognized tax benefits.  The Company’s policy is to classify interest and penalties as income tax expense in the financial statements.

The Company and its subsidiaries file income tax returns in the U.S. and various states.  With few exceptions, the Company is no longer subject to U.S. federal, state, and local income tax examinations by tax authorities for years before 2002.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements.  This standard provides guidance for using fair value to measure assets and liabilities.  The standard also responds to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings.  The standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, but does not expand the use of fair value in any new circumstances.  SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  There are numerous previously issued statements 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 financial statements.

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

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

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

6

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

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

	Membership Services		Publications		Retail			Consolidated
THREE MONTHS ENDED SEPTEMBER 30, 2007
Revenues from external customers	$	39,375	$	14,864	$	92,189		$	146,428
Loss on sale of property and equipment	—		—		(78		)	(78		)
Interest income	2,528		—		10			2,538
Interest expense	—		52		3,943			3,995
Depreciation and amortization	859		1,304		1,955			4,118
Segment operating profit	11,998		1,335		142			13,475
THREE MONTHS ENDED SEPTEMBER 30, 2006
Revenues from external customers	$	34,128	$	14,289	$	81,623		$	130,040
Interest income	1,746		—		1			1,747
Interest expense	—		77		3,140			3,217
Depreciation and amortization	915		1,111		2,102			4,128
Segment operating profit (loss)	10,511		2,105		(367		)	12,249		)

	Membership Services		Publications		Retail			Consolidated
NINE MONTHS ENDED SEPTEMBER 30, 2007
Revenues from external customers	$	111,528	$	57,082	$	259,489		$	428,099
Gain (loss) on sale of property and equipment	—		5		(78		)	(73		)
Interest income	7,081		—		77			7,158
Interest expense	—		198		11,353			11,551
Depreciation and amortization	2,656		3,853		5,770			12,279
Segment profit (loss)	35,942		10,125		(1,842		)	44,225
NINE MONTHS ENDED SEPTEMBER 30, 2006
Revenues from external customers	$	104,588	$	53,976	$	227,349		$	385,913
Gain on sale of property and equipment	—		5		8			13
Interest income	4,685		—		7			4,692
Interest expense	—		258		10,119			10,377
Depreciation and amortization	2,714		3,190		6,108			12,012
Segment profit (loss)	32,198		11,289		(4,174		)	39,313

7

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

The following is a reconciliation of income from operations to the Company’s consolidated financial statements for the nine months ended September 30, (in thousands):

	THREE MONTHS ENDED						NINE MONTHS ENDED
	9/30/2007			9/30/2006			9/30/2007			9/30/2006
Income From Operations Before Income Taxes
Total profit for reportable segments	$	13,475		$	12,249		$	44,225		$	39,313
Unallocated G & A expense	(4,219		)	(5,088		)	(13,727		)	(13,490		)
Unallocated depreciation and amortization expense	(702		)	(717		)	(2,285		)	(2,205		)
Unallocated interest income, net of intercompany
elimination	(2,377		)	(1,542		)	(6,640		)	(3,763		)
Unallocated interest expense, net of intercompany
elimination	(5,253		)	(5,750		)	(16,199		)	(17,258		)
Unallocated debt restructure expense	—			(142		)	(775		)	(835		)
Income (loss) from operations before income taxes	$	924		$	(990	)	$	4,599		$	1,762

The following is a reconciliation of assets of reportable segments to the Company’s consolidated financial statements as of September 30, 2007 and December 31, 2006 (in thousands):

	9/30/2007			12/31/2006
Membership services segment	$	182,676		$	184,928
Publications segment	87,695			87,122
Retail segment	250,317			225,680
Total assets for reportable segments	520,688			497,730
Capitalized finance costs not allocated to segments	7,999			10,836
Corporate unallocated assets	3,496			6,596
Elimination of intersegment receivable	(107,835		)	(104,265		)
Total assets	$	424,348		$	410,897

(4) STATEMENTS OF CASH FLOWS

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

	2007			2006
Cash paid (received) during the period for:
Interest	$	28,577		$	24,240
Income taxes	(194		)	205

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

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

8

(5) GOODWILL AND INTANGIBLE ASSETS

The Company reviews goodwill and indefinite-lived intangible assets for impairment at least annually and more often when impairment indicators are present.  The Company performs its annual impairment test during the fourth quarter.  There were no changes in the Company’s goodwill by business segment for the nine months ended September 30, 2007 and 2006 and no indicators of impairment.

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

Finite-lived intangible assets, related accumulated amortization and weighted average useful life consisted of the following at September 30, 2007 (in thousands, except as noted):

	Weighted
	Average Useful			Accumulated
	Life (in years)	Gross		Amortization			Net
Membership and customer lists	6	$	31,466	$	(15,474	)	$	15,992
Resort and golf course participation agreements	23	13,427		(13,166		)	261
Non-compete and deferred consulting agreements	15	18,830		(13,580		)	5,250
Deferred financing costs	7	13,956		(7,343		)	6,613
		$	77,679	$	(49,563	)	$	28,116

(6) DEBT

Senior Subordinated Notes

In February 2004, AGI issued $200.0 million of 9% Senior Subordinated Notes (“Senior Subordinated Notes”) due 2012 pursuant to the AGI Indenture.  On June 8, 2006, AGI amended its Amended and Restated Credit Agreement (“Senior Credit Facility”) to permit AGI to purchase up to $30.0 million of the Senior Subordinated Notes from time to time as and when AGI determines.  AGI purchased and retired $24.8 million, $4.9 million, and $0.2 million of the Senior Subordinated Notes in June, July and August of 2006, respectively.  On February 27, 2007, AGI amended its Senior Credit Facility to permit AGI to repurchase up to an additional $50.0 million of the Senior Subordinated Notes from time to time, as and when AGI determines, through the issuance of additional term loans of up to $50.0 million under the Senior Credit Facility.  On March 8, 2007, AGI purchased $17.7 million of the Senior Subordinated Notes.  As of September 30, 2007, $152.4 million of the Senior Subordinated Notes remain outstanding.  Interest is payable on the remaining Senior Subordinated Notes twice a year on February 15 and August 15.  AGI’s present and future restricted subsidiaries will guarantee the Senior Subordinated Notes with unconditional guarantees of payment that

9

(6) DEBT (continued)

will rank junior in right of payment to their existing and future senior debt, but will rank equal in right of payment to their existing and future senior subordinated debt.

AGHI Notes

On March 24, 2005 in a private placement, AGHI issued $88.2 million principal amount of its 10-7/8% senior notes due 2012 (the “AGHI Notes”) at a $3.2 million original issue discount.  The Company completed a registered exchange of these AGHI Notes under the Securities Act of 1933 in June 2005.  The AGHI Notes are unsecured obligations of AGHI and its subsidiaries have not guaranteed payment of principal or interest on the AGHI Notes.  Interest on the AGHI Notes is payable semi-annually on February 15 and August 15 commencing August 15, 2005 and the entire $88.2 million principal amount of the AGHI Notes are due in full on February 15, 2012.  For interest payments on and prior to February 15, 2008, AGHI may elect to pay interest on the AGHI Notes in cash or by the issuance of additional notes of the same tenor as the AGHI Notes, except the maturity date of the additional notes is March 15, 2010.  On August 15, 2005, February 15, 2006, August 15, 2006, February 15, 2007 the Company issued additional notes in the amount of $3.8 million, $5.0 million, $5.3 million, and $5.6 million, respectively.  AGHI paid the interest on the notes due August 15, 2007 from the proceeds of a $5.9 million contribution made by AGHI’s parent, AGHC.

(7) RECENT EVENTS

On April 16, 2007, the Company entered into a stock purchase agreement with FreedomRoads Holding Company, LLC (“FreedomRoads”), an entity under common ownership with the Company’s ultimate parent corporation, pursuant to which the Company will, subject to satisfaction of certain conditions, sell all of the outstanding stock of its wholly-owned subsidiary Camping World, Inc. (“Camping World”) to FreedomRoads for $175.8 million subject to certain adjustments (the “Purchase Price”).  The transaction is expected to close upon satisfaction of certain conditions stipulated under the Stock Purchase Agreement dated April 16, 2007, including FreedomRoads raising the necessary funds in the capital markets.  The closing date has not been set because the current uncertainty in the capital markets has prevented FreedomRoads from achieving a desirable capital structure to effect the acquisition.  No assurance can be provided that the appropriate financing will be obtained.  The Purchase Price (including the portion paid by the assumption and discharge on the closing date by FreedomRoads of the intercompany indebtedness owed by Camping World to the Company) is to 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 cash proceeds from the sale of Camping World to repay indebtedness outstanding under the Company’s term notes issued under the senior secured floating rate note purchase agreement dated June 24, 2003, as amended, and its revolving credit line under the credit agreement dated June 24, 2003, as amended, with senior lenders (collectively the “Senior Secured Credit Facility”).  As of September 30, 2007, an aggregate of $129.0 million was outstanding under the term loans and $7.8 million was outstanding (including $7.3 million in letters of credit) under the revolving credit facility of the Senior Secured Credit Facility.

10

(7) RECENT EVENTS (continued)

On October 15, 2007, the Company entered in to an interest rate swap effective October 31, 2007 with a notional amount of $100.0 million.  The interest rate swap carries a fixed interest rate of 5.135% and matures on October 31, 2012.  The Company entered into the interest rate swap to limit the effect of increases on our floating rate debt.

11

ITEM 2:

AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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

	THREE MONTHS ENDED
	9/30/2007		9/30/2006		Inc/(Dec)
REVENUES:
Membership services	26.9	%	26.2	%	15.4	%
Publications	10.2	%	11.0	%	4.0	%
Retail	62.9	%	62.8	%	12.9	%
	100.0	%	100.0	%	12.6	%
COSTS APPLICABLE TO REVENUES:
Membership services	17.9	%	17.1	%	17.7	%
Publications	7.4	%	7.7	%	8.9	%
Retail	38.2	%	37.7	%	13.8	%
	63.5	%	62.5	%	14.3	%
GROSS PROFIT	36.5	%	37.5	%	9.8	%
OPERATING EXPENSES:
Selling, general and administrative	26.4	%	27.7	%	7.3	%
Depreciation and amortization	3.2	%	3.7	%	(0.5	)%
	29.6	%	31.4	%	6.4	%
INCOME FROM OPERATIONS	6.9	%	6.1	%	27.5	%
NON-OPERATING ITEMS:
Interest income	0.1	%	0.2	%	(21.5	)%
Interest expense	(6.3	)%	(7.0	)%	3.1	%
Debt extinguishment expense	—		(0.1	)%	(100.0	)%
Other non-operating items, net	—		—		(312.5	)%
	(6.2	)%	(6.9	)%	2.9	%
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES	0.6	%	(0.8	)%	193.3	%
INCOME TAX (EXPENSE) BENEFIT	(3.2	)%	1.8	%	(307.9	)%
NET (LOSS) INCOME	(2.6	)%	1.0	%	(394.9	)%

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AFFINITY GROUP HOLDING, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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

	NINE MONTHS ENDED
	9/30/2007		9/30/2006		Inc/(Dec)
REVENUES:
Membership services	26.1	%	27.1	%	6.6	%
Publications	13.3	%	14.0	%	5.8	%
Retail	60.6	%	58.9	%	14.1	%
	100.0	%	100.0	%	10.9	%
COSTS APPLICABLE TO REVENUES:
Membership services	16.9	%	17.7	%	5.5	%
Publications	9.1	%	9.4	%	7.5	%
Retail	36.8	%	35.4	%	15.5	%
	62.8	%	62.5	%	11.5	%
GROSS PROFIT	37.2	%	37.5	%	10.0	%
OPERATING EXPENSES:
Selling, general and administrative	26.2	%	26.2	%	10.6	%
Depreciation and amortization	3.4	%	3.7	%	2.4	%
	29.6	%	29.9	%	9.6	%
INCOME FROM OPERATIONS	7.6	%	7.6	%	11.4	%
NON-OPERATING ITEMS:
Interest income	0.1	%	0.2	%	(44.2	)%
Interest expense	(6.4	)%	(7.1	)%	0.4	%
Debt extinguishment expense	(0.2	)%	(0.2	)%	(7.2	)%
Other non-operating items, net	—		—		(45.5	)%
	(6.5	)%	(7.1	)%	1.8	%
INCOME FROM OPERATIONS BEFORE INCOME TAXES	1.1	%	0.5	%	161.0	%
INCOME TAX EXPENSE	(1.1	)%	(5.9	)%	(79.7	)%
NET INCOME (LOSS)	—		(5.4	)%	100.1	%

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RESULTS OF OPERATIONS

Three Months Ended September 30, 2007

Compared With Three Months Ended September 30, 2006

Revenues

Revenues of $146.4 million for the third quarter of 2007 increased by $16.4 million, or 12.6%, from the comparable period in 2006.

Membership services revenues of $39.4 million for the third quarter of 2007 increased by $5.2 million, or 15.4%, from the comparable period in 2006.  This revenue increase was largely attributable to member events revenue of $1.9 million due to timing of the Good Sam Club annual rally, which occurred in the third quarter of 2007 versus the second quarter of 2006, a $1.2 million increase in extended vehicle warranty program revenue due to the continued growth of contracts in force, including warranty sales through the growing network of Good Sam dealers, a $1.0 million revenue increase due to increased enrollment in Camping World President’s Club, Camp Club USA and the Good Sam Club, partially offset by enrollment decreases in the Coast Club and the Golf Card Club, a $0.5 million revenue increase in emergency road service programs due to increased enrollment, a $0.4 million increase in marketing fee revenue from health and life insurance products and a $0.2 million increase from dealer program marketing revenue.

Publication revenues of $14.9 million for the third quarter of 2007 increased $0.6 million, or 4.0%, from the comparable period in 2006 primarily attributable to $0.8 million of revenue associated with the acquisition of the publishing assets of American Guide Services, Inc. in August 2006, and $0.3 million of revenue relating to an additional Camping Life issue during the quarter.  These increases were partially offset by a $0.3 million decrease in revenue associated with the elimination of Cruising Rider magazine and $0.2 million reduction in advertising revenue for Motorhome Magazine.

Retail revenues of approximately $92.2 million increased $10.6 million, or 12.9%, from the comparable period in 2006.  Store merchandise sales increased approximately $8.3 million over the third quarter of 2006 due to a $11.6 million revenue increase from the net addition of 32 new stores over the past twenty-one months, partially offset by a same store sales decrease of $3.3 million, or 6.1%, compared to a 4.8% decrease in same store sales for the third quarter of 2006.  Same store sale calculations for a given period include only those stores that were open both at the end of that period and at the beginning of the preceding fiscal year.  Supplies and other sales increased $2.1 million, including $0.8 million recorded during the period relating to the recognition of estimated gift card breakage.  Prior to third quarter of 2007 the Company had not recorded any unredeemed gift card sales into revenue.  In the third quarter the Company changed the state of jurisdiction where gift cards will be administered and commenced accounting for estimated breakage of gift cards under the “redemption rate method.”  In addition, product extended warranty sales increased $0.3 million and mail order sales decreased $0.1 million.

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Costs Applicable to Revenues

Costs applicable to revenues totaled $92.9 million for the third quarter of 2007, an increase of $11.6 million, or 14.3%, from the comparable period in 2006.

Membership services costs and expenses of $26.2 million increased $4.0 million, or 17.7%, from the comparable period in 2006.  This increase consisted of a $1.9 million increase in member events costs primarily due to timing of the Good Sam Club annual rally, which occurred in the third quarter of 2007 versus the second quarter of 2006, $1.2 million of incremental costs associated with increased extended vehicle warranty program revenue and emergency roads service revenue, including incremental marketing and overhead costs associated with the growing network of Good Sam dealers, a $0.5 million increase in other marketing costs, a $0.2 million increase in program costs associated with increased marketing fee revenue from health and life insurance products and a $0.2 million increase in dealer marketing program costs.

Publication costs and expenses of approximately $10.9 million for the third quarter of 2007 increased $0.9 million, or 8.9%, from the comparable period in 2006.  This increase was attributable to $0.7 million of additional costs from the recently acquired American Guide Services group, a $0.2 million increase in Motorhome Magazine marketing costs, a $0.2 million increase in event-related expenses and $0.1 million of additional costs related to an additional issue of Camping Life magazine.  These increases were partially offset by reduced costs of $0.3 million related to discontinuing Cruising Rider magazine.

Retail costs applicable to revenues increased approximately $6.7 million, or 13.8%, to $55.8 million primarily as a result of 32 new stores opened over the past twenty-one months.  The retail gross profit margin of 39.5% for the third quarter of 2007 decreased from 39.9% for the comparable period in 2006 primarily due to a shift in product mix to slightly lower margin products, and margin compression caused by a combination of competitive pricing and higher unit costs.

Operating Expenses

Selling, general and administrative expenses of approximately $38.6 million for the third quarter of 2007 increased $2.6 million compared to the third quarter of 2006.  This increase was due to an increase in retail selling and general and administrative expenses of approximately $3.3 million consisting of increases in selling, real property and labor expenses primarily due to new store openings, partially offset by $0.6 million of reduced deferred executive compensation and a $0.1 million reduction in miscellaneous general and administrative expenses.

Depreciation and amortization expense of $4.8 million remained unchanged from the prior year.

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Income from Operations

Income from operations for the third quarter of 2007 totaling $10.1 million increased $2.2 million compared to the third quarter of 2006.  This increase was primarily due to increased gross profit for retail and membership services operations of $3.8 million and $1.3 million, respectively, partially offset by increased operating expenses of $2.6 million and reduced gross profit for the publications operations of $0.3 million.

Non-Operating Items

Non-operating items of approximately $9.1 million for the third quarter of 2007 increased $0.3 million compared to the third quarter of 2006.  This increase was primarily due to a $0.3 million increase in interest expense resulting from higher term loan balances.

Income before Income Taxes

Income before income taxes for the third quarter of 2007 was $0.9 million, or $1.9 million higher than the third quarter of 2006.  This increase was attributable to the $2.2 million increase in income from operations mentioned above partially offset by a $0.3 million increase in interest expense.

Income Tax (Expense) Benefit

The Company recorded a $4.8 million income tax expense for the third quarter of 2007, compared to a $2.3 million income tax benefit for the third quarter of 2006.  The expense increase was primarily due to the Company’s increase in its valuation allowance of $4.2 million for the third quarter of 2007 as it was determined that the Company would have insufficient taxable income in the current, carryback, or carryforward periods under the tax laws to realize the future tax benefit of its deferred tax assets. The change was also due to AGHC’s S corporation change of tax status election effective for the second quarter of 2006, which included AGI and all its subsidiaries, with the exception of Camping World, Inc. and its wholly-owned subsidiaries which will remain Subchapter C corporations.  As a result, all deferred tax assets and liabilities were revalued with the exception of those related to Camping World, Inc. and its wholly-owned subsidiaries and other potential built-in gains.

Net (Loss) Income

Net loss in the third quarter of 2007 was approximately $3.8 million compared to net income of $1.3 million for the same period in 2006 mainly due to the reasons discussed above.

Segment Profit (Loss)

Segment profit of $13.5 million for the third quarter of 2007 (before unallocated depreciation and amortization, general and administrative, interest, and income tax expense) increased $1.2 million, or 10.0%, from the comparable period in 2006.

Membership services segment profit of approximately $12.0 million for the third quarter of 2007 increased $1.5 million, or 14.1%, from the comparable period in 2006.  This increase

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was largely attributable to a $1.0 million increase in profit from emergency road service products, a $0.3 million increase in profit from health and life insurance products, and a $0.2 million increase in profit from the extended vehicle warranty programs.

Publication segment profit of $1.3 million for the third quarter of 2007 decreased $0.8 million, or 36.6%, from the comparable period in 2006.  This decrease was largely attributed to $0.5 million of additional general and administrative expenses related to the consumer shows acquired over the last 21 months and a $0.3 million decrease in profit for Motorhome Magazine.

Retail segment profit increased $0.5 million, or 138.7% from the third quarter of 2006 to a profit of $0.2 million in 2007.  This increase in segment profit resulted primarily from a $4.6 million increase in gross profit margin, partially offset by a $3.3 million increase in selling, general and administrative expenses primarily related to the increase in new stores, and an $0.8 million increase in interest expense.

Nine Months Ended September 30, 2007

Compared With Nine Months Ended September 30, 2006

Revenues

Revenues of $428.1 million for the first nine months of 2007 increased by $42.2 million, or 10.9%, from the comparable period in 2006.

Membership services revenues of $111.5 million for the first nine months of 2007 increased by $6.9 million, or 6.6%, from the comparable period in 2006.  This revenue increase was largely attributable to a $3.1 million increase in extended vehicle warranty program revenue due to the continued growth of contracts in force, including warranty sales through the growing network of Good Sam dealers, a $2.1 million revenue increase in membership services primarily due to increased enrollment in the Camping World President’s Club and the Camp Club USA, partially offset by reduced enrollment in the Golf Card Club and Coast to Coast Club, a $1.1 million revenue increase in emergency road service programs due to increased enrollment, a $0.6 million increase in marketing fee revenue from health and life insurance products, and a $0.6 million increase in dealer program marketing revenue.  These increases were partially offset by a $0.6 million revenue reduction due to the elimination of the RV Today television program.

Publication revenues of $57.1 million for the first nine months of 2007 increased $3.1 million, or 5.8%, from the comparable period in 2006 primarily attributable to $2.4 million of revenue associated with the acquisition of the publishing assets of American Guide Services, Inc. in August 2006 and $2.1 million of revenue associated with consumer shows acquired in the last twenty-one months.  These increases were partially offset by a $0.5 million decrease in campground atlas revenue, which is scheduled for its bi-annual update and reprint in 2008, a $0.4 million decrease in advertising revenue for Motorhome Magazine, a $0.3 million revenue decrease for the motorcycle magazine group due to the elimination of the Cruising Rider title partially offset by an advertising revenue increase for Rider Magazine, and a $0.2 million revenue decrease due to seven fewer issues of Snow Week magazine in 2007.

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Retail revenues of $259.5 million increased approximately $32.2 million, or 14.1%, from the comparable period in 2006.  Store merchandise sales for the first nine months of 2007 increased approximately $25.6 million over the comparable period in 2006 due to a $32.1 million revenue increase from a net addition of 32 new stores over the past twenty-one months, partially offset by a same store sales decrease of $6.6 million, or 4.2%, compared to a 5.0% decrease in same store sales for the first nine months of 2006.  Same store sale calculations for a given period include only those stores that were open both at the end of that period and at the beginning of the preceding fiscal year.  Supplies and other sales increased $4.3 million, including $0.8 million recorded during the period relating to the recognition of estimated gift card breakage.  In addition, installation and service work increased $1.1 million, product extended warranty sales increased $1.1 million and mail order sales increased $0.1 million.

Costs Applicable to Revenues

Costs applicable to revenues totaled $268.8 million for the first nine months of 2007, an increase of $27.7 million, or 11.5%, from the comparable period in 2006.

Membership services costs and expenses of $72.2 million increased $3.8 million, or 5.5%, from the comparable period in 2006.  This increase was attributable to $2.4 million of additional costs associated with increased extended vehicle warranty program revenue, including incremental marketing and overhead costs associated with the growing network of Good Sam authorized dealers, $0.5 million of additional dealer program marketing costs, $0.4 million of additional miscellaneous overhead costs, $0.3 million of additional program costs associated with increased marketing fee revenue from health and life insurance products, and $0.3 million of net additional membership services costs associated with increased membership in the Camping World President’s Club and Camp Club USA, partially offset by reduced membership in the Coast Club and the Golf Card Club.  This decrease was partially offset by $0.6 million of reduced costs resulting from the elimination of the RV Today television program.

Publication costs and expenses of $38.9 million for the first nine months of 2007 increased $2.7 million, or 7.5%, from the comparable period in 2006.  This increase was attributable to $2.4 million of incremental costs from the recently acquired Affinity Guest Services Group, and $1.6 million of costs associated with the recently acquired consumer shows, partially offset by a $0.6 million reduction in costs related to the elimination of the Cruising Rider title, reduced campground atlas costs of $0.4 million resulting from reduced sales, and reduced costs of $0.3 million associated with fewer issues of Snow Week magazine.

Retail costs applicable to revenues increased approximately $21.2 million, or 15.5%, to $157.7 million primarily as a result of 32 new stores opened over the past twenty-one months.  The retail gross profit margin of 39.2% for the first nine months of 2007 decreased from 40.0% for the comparable period in 2006 primarily due to a shift in product mix to slightly lower margin products and margin compression caused by a combination of competitive pricing and higher unit costs.

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Operating Expenses

Selling, general and administrative expenses of approximately $112.1 million for the first nine months of 2007 increased $10.8 million compared to the first nine months of 2006.  This increase was largely attributable to an increase in retail selling and general and administrative expenses of approximately $9.9 million consisting of increases in selling, labor and real property expenses primarily due to new store openings and other marketing programs, $0.9 million of arbitration expenses in connection with our asserted claim to a right of first refusal in connection with the sale of General Motors Acceptance Corporation, the insurance provider for the RV vehicle insurance offered by our Membership Services segment, which claim was rejected by the arbitration panel, and $0.8 million of costs associated with the recently acquired consumer shows.  These increases were partially offset by a $0.5 million reduction in deferred executive compensation and a $0.3 million reduction in other general and administrative expenses.

Depreciation and amortization expense of $14.6 million increased approximately $0.3 million over the prior year primarily due to increased amortization of intangible assets associated with the recent acquisitions.

Income from Operations

Income from operations for the first nine months of 2007 totaling $32.6 million increased $3.3 million compared to the first nine months of 2006.  This increase was primarily due to increased gross profit for retail, membership services and publications operations of $10.9 million, $3.1 million and $0.4 million, respectively, partially offset by increased operating expenses of $11.1 million.

Non-Operating Items

Non-operating items of approximately $28.0 million for the first nine months of 2007 increased approximately $0.5 million compared to the same period in 2006.  This increase was primarily due to a $0.4 million decrease in interest income and a $0.1 million increase in interest expense in 2007.

Income before Income Taxes

Income before income taxes for the first nine months of 2007 was $4.6 million, or $2.8 million higher than the first nine months of 2006.  This increase was attributable to the $3.3 million increase in income from operations for the current period partially offset by $0.5 million of increased non-operating items.

Income Tax Expense

The Company recorded approximately $4.6 million of income tax expense for the first nine months of 2007, compared to a $22.6 million income tax expense for the first nine months of 2006.  This expense decrease was primarily due to AGHC’s S corporation change of tax status election effective for the second quarter of 2006, which included AGI and all its subsidiaries, with the exception of Camping World, Inc. and its wholly-owned subsidiaries

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which will remain Subchapter C corporations.  As a result, all deferred tax assets and liabilities were revalued with the exception of those related to Camping World, Inc. and its wholly-owned subsidiaries and other potential built-in gains.  Further, the company increased its valuation allowance by $4.2 million for the third quarter of 2007 as it was determined that the Company would have insufficient taxable income in the current, carryback, or carryforward periods under the tax laws to realize the future tax benefit of its deferred tax assets.

Net Income (Loss)

Net income for the first nine months of 2007 was $0.0 million compared to a net loss of $20.8 million for the same period in 2006 mainly due to the reasons discussed above.

Segment Profit (Loss)

Segment profit of $44.2 million for the first nine months of 2007 (before unallocated depreciation and amortization, general and administrative, interest, and income tax expense) increased $4.9 million, or 12.5%, from the comparable period in 2006.

Membership services segment profit of approximately $35.9 million for the first nine months of 2007 increased $3.7 million, or 11.6%, from the comparable period in 2006.  This increase was largely attributable to a $2.7 million increase in profit from emergency road service products, a $0.5 million increase in profit from the extended vehicle warranty programs, a $0.4 million increase in profit from health and life insurance products, and a $0.4 million increase in profit from Camp Club USA, partially offset by a $0.3 million loss for the Coast Club and Golf Card Club.

Publication segment profit of $10.1 million for the first nine months of 2007 decreased approximately $1.2 million, or 10.3%, from the comparable period in 2006.  This decrease was largely attributed to a $0.6 million decrease in profit for Motorhome Magazine due to their reduced advertising revenue and increased marketing costs, and a $0.6 increase in amortization of intangible assets associated with the consumer shows acquired over the last twenty-one months.

Retail segment loss decreased $2.3 million, or 55.9% from the first nine months of 2006 to a loss of approximately $1.8 million in the first nine months of 2007.  This decrease in segment loss resulted primarily from a $13.1 million increase in gross profit margin, and a $0.3 million decrease in depreciation expenses, partially offset by a $9.9 million increase in selling, general and administrative expenses primarily related to the increase in new stores and a $1.2 million increase in interest expense.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically operated with a working capital deficit.  The working capital deficit as of September 30, 2007 and December 31, 2006 was $19.7 million and $34.8 million, respectively.  The primary reason for the working capital deficit is the deferred revenue and gains reported under current liabilities in the amount of $73.8 million and $62.9 million as of September 30, 2007 and December 31, 2006, respectively.  Deferred revenue is primarily comprised of cash collected for club memberships in advance, which is amortized over the life

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of the membership.  The Company uses net proceeds from this deferred membership revenue to lower its long-term borrowings.  Management believes that funds generated by operations together with available borrowings under the Company’s revolving credit line will be sufficient to meet all of the Company’s debt service requirements, capital requirements and working capital needs over the next twelve months.  Further, management believes that the change in the tax status to a Subchapter S corporation in 2006 for the Company and all its subsidiaries, with the exception of Camping World, Inc. and its wholly-owned subsidiaries, has not limited the Company’s ability to issue debt through the capital markets but may limit the ability of the Company to raise funds in the equity market.

Contractual Obligations and Commercial Commitments

The following table reflects our contractual obligations and commercial commitments at September 30, 2007.  This table includes principal and future interest due under our debt agreements based on interest rates as of September 30, 2007 and assumes debt obligations will be held to maturity.

	Payments Due by Period
(in thousands)	Total		Balance of 2007		2008 and 2009		2010 and 2011		Thereafter
Long-term debt and future interest	$	535,722	$	8,440	$	199,486	$	74,159	$	253,637
Operating lease obligations	183,737		4,521		33,618		30,538		115,060
Deferred compensation	4,430		853		3,137		294		146
Standby letters of credit	7,254		6,254		1,000		—		—
Grand total	$	731,143	$	20,068	$	237,241	$	104,991	$	368,843

On June 24, 2003, AGI entered into an Amended and Restated Credit Agreement and a Senior Secured Floating Rate Note Purchase Agreement (as amended, the “AGI Senior Credit Facility”).  The AGI Senior Credit Facility provides for a revolving credit facility of $35.0 million and term loans in the aggregate of $140.0 million.  As of September 30, 2007, $129.0 million was outstanding under the term loans and $0.5 million was outstanding under the revolving credit facility.  Reborrowings under the term loans are not permitted.  The interest on borrowings under the AGI Senior Credit Facility is at variable rates based on the ratio of total cash flow to outstanding indebtedness (as defined).  Interest rates float with prime and the London Interbank Offered Rates, or LIBOR, plus an applicable margin ranging from 1.50% to 2.50% over the stated rates.  As of September 30, 2007, the average interest rates on the term loans and the revolving credit facility were 7.63% and 10.00%, respectively, and permitted borrowings under the undrawn revolving facility were $27.2 million.  AGI also pays a commitment fee of 0.5% per annum on the unused amount of the revolving credit facility.  The aggregate quarterly scheduled payments on the term loans are $0.4 million.  Both the revolving credit facility and the term loans mature on June 24, 2009.  The funds available under the AGI Senior Credit Facility may be utilized for borrowings or letters of credit; however, a maximum of $12.5 million may be allocated to such letters of credit.  As of September 30, 2007, AGI had letters of credit in the aggregate amount of $7.3 million outstanding.  The AGI Senior Credit Facility is secured by virtually all of the AGI’s assets and a pledge of AGI’s stock and the stock of the AGI’s subsidiaries.

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

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

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

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

On October 15, 2007, the Company entered in to an interest rate swap effective October 31, 2007 with a notional amount of $100.0 million.  The interest rate swap carries a fixed interest rate of 5.135% and matures on October 31, 2012.  The Company entered into the interest rate to limit the effect of increases on our floating rate debt.

The AGI Indenture, pursuant to which the AGI Senior Subordinated Notes were issued, and the AGI Senior Credit Facility contain certain restrictive covenants relating to, but not limited to, mergers, changes in the nature of the business, acquisitions, additional indebtedness, sale of assets, investments, and the payment of dividends subject to certain limitations and minimum operating covenants.  AGI was in compliance with all debt covenants at September 30, 2007.

On March 24, 2005 in a private placement, AGHI issued $88.2 million principal amount of its 10-7/8% senior notes due 2012 (the “AGHI Notes”) at a $3.2 million original issue discount.  The Company completed a registered exchange of these AGHI Notes under the Securities Act of 1933 in June 2005.  The AGHI Notes are unsecured obligations of the Company and its

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subsidiaries have not guaranteed payment of principal or interest on the AGHI Notes.  Interest on the AGHI Notes is payable semi-annually on February 15 and August 15 commencing August 15, 2005 and the entire $88.2 million principal amount of the AGHI Notes are due in full on February 15, 2012.  For interest payments on and prior to February 15, 2008, AGHI may elect to pay interest on the AGHI Notes in cash or by the 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 on the AGHI Notes and AGHI made the interest payments due on August 15, 2005, February 15, 2006, August 15, 2006, and February 15, 2007 through the issuance of additional notes.  The company paid the interest on the notes due August 15, 2007 from proceeds of a $5.9 million contribution made by AGHI’s parent, AGHC.  If the source of the cash payment of the AGHI Notes is dividends from AGI, its wholly-owned subsidiary, there are certain restrictions on the payment of dividends under the AGI Senior Credit Facility and the AGI Indenture.

The AGHI Indenture contains certain restrictive covenants relating to, but not limited to, mergers, changes in the nature of the business, acquisitions, additional indebtedness, sale of assets, investments, and the payment of dividends subject to certain limitations and minimum operating covenants.  AGHI was in compliance with all debt covenants at September 30, 2007.

The Company contributed the net proceeds from the issuance of the AGHI Notes, approximately $81.0 million, to AGI and in turn, AGI made an equity contribution to its wholly-owned subsidiary, Camping World.  Camping World then made an equity capital contribution in the same amount to its wholly-owned subsidiary, CWI, Inc. (“CWI”).  CWI created a new wholly-owned subsidiary named CWFR Capital Corp., a Delaware corporation (“CWFR”) which is an “unrestricted subsidiary” under the AGHI Notes, and the AGI Indenture.  Since CWFR is an unrestricted subsidiary, its operations are not restricted by either the AGI Indenture or the AGHI Notes.  CWI made an equity capital contribution to CWFR in an equal amount to the capital contribution that it received from Camping World.  CWFR used the proceeds from the equity capital contribution to acquire a preferred membership interest in FreedomRoads, a Minnesota limited liability company owned 90% by The Stephen Adams Living Trust, which also indirectly owns 97.4% of the outstanding capital stock of AGHC and indirectly AGHI.

In February 2006, AGI Productions, Inc., a subsidiary of Ehlert Publishing, Inc., acquired the consumer shows and related assets of H & S Productions, LLC for $2.5 million.  As part of the purchase, the Company issued $0.4 million of debt and assumed $1.0 million of liabilities.  In August 2006, TL Enterprises, Inc. acquired the 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 of liabilities.  In September 2006, AGI Productions, Inc. acquired the consumer shows and related assets of Apple Rock Advertising and Promotions, Inc. for $1.5 million.  As part of the purchase, the Company issued $0.5 million of debt and assumed $0.4 million of liabilities.

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

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for $1.9 million.  As part of the purchase, the Company issued $1.5 million of debt and assumed $0.6 million of liabilities.

For the nine months ended September 30, 2007, the Company incurred $0.4 million of deferred executive compensation expense under the phantom stock agreements and made payments of $2.5 million under the terms of the vested phantom stock agreements.  The earned incentives under these agreements are scheduled to be paid at various times over the next five years.  Phantom stock payments of $0.9 million are scheduled to be made for the remainder of 2007.

Capital expenditures for the first nine months of 2007 totaling $14.6 million increased $5.4 million from the first nine months of 2006 primarily due to the addition of fifteen new retail stores.  Additional capital expenditures of $3.6 million are anticipated for the balance of 2007 primarily for two new retail stores, relocation of one retail store, existing retail store upgrades, information technology, inventory system replacement, and computer hardware and software upgrades and enhancements.

CRITICAL ACCOUNTING POLICIES

General

The discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  On an on-going basis, the Company evaluates its 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 historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements.

Revenue Recognition

Merchandise revenue is recognized when products are sold in the retail stores, shipped for mail and internet orders, or when services are provided to customers.  Publication advertising and newsstand sales, net of estimated provision for returns, are recorded at time of delivery.  Subscription sales of publications are deferred and recognized over the lives of the subscriptions.  Revenues from the emergency road service program (“ERS”) are deferred and recognized over the life of the membership.  ERS claim expenses are recognized when incurred.  Advances on third party credit card fee revenues are deferred and recognized based

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primarily on a percentage of credit card receivables held by third parties.  Membership revenue is generated from annual, multi-year and lifetime memberships.  The revenue and expenses associated with these memberships are deferred and amortized over the membership period.  For lifetime memberships, an 18-year period is used, which is the actuarially determined estimated fulfillment period.  Promotional expenses, consisting primarily of direct mail advertising, are deferred and expensed over the period of expected future benefit.  Renewal expenses are expensed at the time related materials are mailed.  Recognized revenues and profit are subject to revisions as the membership progresses to completion.  Revisions to membership period estimates would change the amount of income and expense amortized in future accounting periods.

Accounts Receivable

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

Inventory

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

Long-Lived Assets

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

Long-lived assets, such as property, plant and equipment and purchased intangible assets with finite lives are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”  The Company assesses the fair value of the assets based on the future cash flow the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flow expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset.  When an impairment is identified, the Company reduces the carrying amount of the asset to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, comparable market values.  The Company determined there were no indicators of impairment of long-lived assets as of December 31, 2006 or September 30, 2007.

The Company has evaluated the remaining useful lives of its finite-lived purchased intangible assets to determine if any adjustments to the useful lives were necessary or if any of these

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assets had indefinite lives and were therefore not subject to amortization.  The Company determined that no adjustments to the useful lives of its finite-lived purchased intangible assets were necessary.  The finite-lived purchased intangible assets consist of membership customer lists, resort and golf course agreements, non-compete and deferred consulting agreements and deferred financing costs which have weighted average useful lives of approximately 6 years, 23 years, 15 years and 7 years, respectively.

Indefinite-Lived Intangible Assets

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

Determining the fair value of a reporting unit and the fair value of individual assets and liabilities of a reporting unit is judgmental in nature and often involves the use of significant estimates and assumptions.  These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and also the extent of such charge.  The Company’s estimates of fair value utilized in goodwill and other indefinite-lived intangible asset tests may be based upon a number of factors, including assumptions about the projected future cash flows, discount rate, growth rate, determination of market comparables, technological change, economic conditions or changes to the Company’s business operations.  Such changes may result in impairment charges recorded in future periods.

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

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

Income Taxes

Significant judgment is required in determining the Company’s tax provision and in evaluating its tax positions.  The Company establishes accruals for certain tax contingencies when, despite the belief that the Company’s tax return positions are fully supported, the Company believes that certain positions may be challenged and that the Company’s positions may not be fully sustained.  The tax contingency accruals are adjusted in light of changing facts and circumstances, such as the progress of tax audits, case law and emerging legislation.  The Company’s tax provision includes the impact of tax contingency accruals and changes to the accruals, including related interest and penalties, as considered appropriate by management.

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ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks relating to fluctuations in interest rates.  Our objective of financial risk management is to minimize the negative impact of interest rate fluctuations on our earnings and cash flows.  Interest rate risk is managed through the use of a combination of fixed and variable interest 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 analysis reflects our view of changes which are reasonably possible over a one-year period.  These forward-looking disclosures are selective in nature and only address the potential impacts from financial instruments.  They do not include other potential effects which could impact our business as a result of these interest rate fluctuations.

Interest Rate Sensitivity Analysis

At September 30, 2007, we had debt totaling $395.2 million, comprised of $29.5 million of variable rate debt and $365.7 million of fixed rate debt.  Holding other variables constant (such as debt levels), the earnings and cash flow impact of a one-percentage point increase/ decrease in interest rates would have an unfavorable/ favorable impact of approximately $0.3 million.

Credit Risk

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

ITEM 4: CONTROLS AND PROCEDURES

Within 90 days prior to the filing of this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Regulation 13a-14 under the Securities Exchange Act of 1934.  Based upon that evaluation, the President and Chief Executive Officer along with the Senior Vice President and Chief Financial Officer concluded that the disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the periodic SEC filings.  There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date the Company carried out its evaluation.

PART II:  OTHER INFORMATION

Items 1 through 5 have been omitted since no events occurred with respect to these items.

Item 6.Exhibits and Reports on Form 8-K

(a)Exhibits.

Exhibit 10.28 –	Agreement with Brickell Financial Services Motor Club, Inc. dated September 28, 2007.*
Exhibit 31.1 –	Certification of Chief Executive Officer (Section 302 Certification).
Exhibit 31.2 –	Certification of Chief Financial Officer (Section 302 Certification).
Exhibit 32.1 –	Certification of Chief Executive Officer (Section 906 Certification).
Exhibit 32.2 –	Certification of Chief Financial Officer (Section 906 Certification).

(b)           Reports on Form 8-K.

          None.

* Deleted information has been omitted pursuant to a confidentiality request submitted to the commission.

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SIGNATURES:

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AFFINITY GROUP HOLDING, INC.
	/s/ Thomas F. Wolfe
Date: November 14, 2007	Thomas F. Wolfe
	Senior Vice President and
	Chief Financial Officer

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