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 June 30, 1996					 0-22852 _______________________________________________________________ AFFINITY GROUP, INC. (Exact name of registrant as specified in its charter) Delaware							 		13-3377709 (State of incorporation or organization)		(I.R.S. Employer Identification No.) 64 Inverness Drive East						(303) 792-7284 Englewood, CO 80112						(Registrant's telephone number, including area code) (Address of principal executive offices) _________________________________________________________________ SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: 11 1/2% Senior Subordinated Notes Due 2003 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 __ 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								 August 1, 1996 - ----- -------------- Common Stock, $.001 par value					 2,000 DOCUMENTS INCORPORATED BY REFERENCE: None AFFINITY GROUP, INC. and SUBSIDIARIES INDEX 																						 			 Page Part I. Financial Information Item 1: Financial Statements Consolidated Balance Sheets 	1 As of June 30, 1996 and December 31, 1995 Consolidated Statements of Operations 	2 For the three months ended June 30, 1996 and 1995 Consolidated Statements of Operations 	3 For the six months ended June 30, 1996 and 1995 Consolidated Statements of Cash Flows 	4 For the six months ended June 30, 1996 and 1995 Notes to Consolidated Financial Statements 	5 Item 2: Management's Discussion and Analysis of 	6 Financial Condition and Results of Operations Part II. Other Information 	9 Signatures 	10 ITEM:1 AFFINITY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND DECEMBER 31, 1995 (In Thousands) (Unaudited) CURRENT ASSETS: 						 6/30/96 			12/31/95 ------- -------- 	Cash and cash equivalents		 	$ 5,633	 	$ 3,746 	Investments						 976 		 	 1,514 	Accounts receivable			 12,479 	 		 15,624 	Notes receivable from affiliate		 --	 3,113 	Inventories						 2,872 		 	 4,046 	Prepaid expenses and other assets		 7,933	 5,794 	Deferred tax asset-current portion		 2,259 			 1,907 ------- ------- 		Total current assets			 32,152 		 	 35,744 PROPERTY AND EQUIPMENT 				 	 10,754 		 	 10,876 LOANS RECEIVABLE					 	 7,562	 	 	 8,474 INTANGIBLE ASSETS					 	 119,666 		 	 122,579 DEFERRED TAX ASSET				 	 14,951	 16,503 RESTRICTED INVESTMENTS				 	 2,076 		 	 2,015 OTHER ASSETS				 		 4,619	 4,556 ------- ------- 						 $191,780	 $200,747 ======= ======= LIABILITIES AND STOCKHOLDER'S DEFICIT CURRENT LIABILITIES: 	Accounts payable 					$ 1,925 			$ 4,730 	Accrued interest					 2,993 			 3,058 	Accrued liabilities				 14,376 			 16,582 	Customer deposits				 	 12,095 			 10,974 	Current portion of long-term debt	 	 4,640 			 4,665 ------ ------ 		Total current liabilities		 36,029 			 40,009 DEFERRED REVENUES 					 	 74,503 			 71,133 LONG-TERM DEBT						 151,118 			 159,831 OTHER LONG-TERM LIABILITIES				 6,897 		 	 7,737 ------- ------- 								 268,547 			 278,710 COMMITMENTS AND CONTINGENCIES	 		 --	 	 -- STOCKHOLDER'S DEFICIT: 	Preferred stock, $.001 par value, 	 1,000 shares authorized, none 	 issued or outstanding 			 -- 	 	 -- 	Common stock $.001 par value, 	 2,000 shares authorized, 2,000 	 shares issued and outstanding 			 1	 			 1 	Additional paid-in capital, net	 	 12,021 			 12,021 	Accumulated deficit				 (88,789) 			 (89,985) ------ ------ 		Total stockholder's deficit		 (76,767) 		 (77,963) ------ ------ 		Total liabilities and 		 stockholder's deficit 			$191,780 		$200,747 ======= ======= See Notes to Consolidated Financial Statements. AFFINITY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands) (Unaudited) 									 	THREE MONTHS ENDED ------------------ 									 6/30/96	 	 6/30/95 ------- ------- REVENUES: 	Membership services 					$ 27,135 		$ 27,021 	Publications 						 7,777 		 7,586 ------ ------ 									 34,912 		 34,607 ------ ------ COSTS AND EXPENSES: 	Membership services 					 15,744 		 14,842 	Publications						 5,784	 	 5,546 	General and administrative				 4,893 		 5,529 	Depreciation and amortization				 2,086 		 2,372 ------ ------ 	 28,507	 	 28,289 ------ ------ INCOME FROM OPERATIONS	 					 6,405 		 6,318 NON-OPERATING EXPENSES: 	Interest expense, net	 				 (4,184)	 	 (3,888) 	Other non-operating, net					 (1) 	 	 (4) ----- ----- 									 (4,185) 		 (3,892) ----- ----- NET INCOME BEFORE INCOME TAXES			 2,220 		 2,426 INCOME TAX (PROVISION) 						 (1,121)	 (1,203) ----- ----- NET INCOME 								$ 1,099	 	$ 1,223 			 ===== ===== See Notes to Consolidated Financial Statements. AFFINITY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands) (Unaudited) 										SIX MONTHS ENDED ---------------- 									 6/30/96 		 6/30/95 ------- ------- REVENUES: 	Membership services	 	 		$ 51,914 		$ 52,095 	Publications						 15,971 		 15,753 ------ ------ 									 67,885	 	 67,848 ------ ------ COSTS AND EXPENSES: 	Membership services 					 30,563 		 29,345 	Publications						 13,332	 	 12,199 	General and administrative				 9,016	 	 10,099 	Depreciation and amortization				 4,214	 	 4,834 ------ ------ 	 	57,125 		 56,477 ------ ------ INCOME FROM OPERATIONS 	10,760 		 11,371 NON-OPERATING EXPENSES: 	Interest expense, net 					 (8,360)	 	 (8,062) 	Other non-operating, net					 (1) 		 72 ----- ----- 									 (8,361) 		 (7,990) ----- ----- NET INCOME BEFORE INCOME TAXES 			 2,399	 	 3,381 INCOME TAX (PROVISION) 						 (1,209)	 (1,700) ----- ----- NET INCOME 								$ 1,190 	$ 1,681 	 ===== ===== See Notes to Consolidated Financial Statements. AFFINITY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) 									 SIX MONTHS ENDED ---------------- 									6/30/96 		 6/30/95 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income		 					$ 1,190 		$ 1,681 Adjustments to reconcile net income to net cash provided by operating activities: 	Depreciation and amortization	 		 4,214 	 	 4,834 	Deferred tax expense				 1,209	 1,700 	Provision for losses on accounts receivable	 504	 340 	Deferred phantom stock compensation			 --	 1,261 	Gain on disposal of property and equipment	 1	 (72) 	Changes in assets and liabilities: 	 Accounts receivable					 2,641 		 141 	 Inventories						 1,174	 328 	 Prepaids and other assets				 (2,201) 		 (795) 	 Loans receivable					 912 			-- 	 Restricted investments				 (61) 			-- 	 Accounts payable					 (2,805) 		 (1,676) 	 Accrued and other liabilities			 (3,118) 		 (3,105) 	 Customer deposits					 1,121	 		-- 	 Deferred revenues					 3,370 	 1,927 ----- ----- 		 Net cash provided by operating activities 8,151 		 6,564 ----- ----- CASH FLOWS FROM INVESTING ACTIVITIES: 	Capital expenditures					 (848) 		 (1,491) 	Proceeds from sale of property and equipment	 2	 262 	Sale of investments					 538		 -- 	Changes in intangible assets				 (332)	 	 (184) 	Notes receivable from affiliate			 3,113	 	 -- 	Prepaid lease						 -- 		 (1,600) ----- ----- 		Net cash provided by (used in) investing activities 				 2,473 		 (3,013) ----- ----- CASH FLOWS FROM FINANCING ACTIVITIES: 	Dividends paid	 					 --	 	 (6,000) 	Borrowings on long-term debt				 18,650 		 72,619 	Principal payments of long-term debt	 	(27,387) 		(70,516) ------ ------ 	 Net cash used in financing activities		 (8,737) 		 (3,897) ----- ----- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	 1,887 		 (346) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD	 3,746 		 346 ----- ---- CASH AND CASH EQUIVALENTS AT END OF THE PERIOD	 	$ 5,633 		$ -- ===== ==== Supplemental disclosures of cash flow information: 	Cash paid during the period for: 	 Interest	 						$ 8,609 		$ 7,978 	 Income taxes						 343	 	 127 See Notes to Consolidated Financial Statements. AFFINITY GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (1) BASIS OF PRESENTATION The financial statements included herein include the results of Affinity Group, Inc. and subsidiaries (the Company) without audit, in accordance with generally accepted accounting principles, and pursuant to the rules and regulations of the Securities and Exchange Commission. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes in the Company's 10-K report for the year ended December 31, 1995 as filed with the Securities and Exchange Comission. In the opinion of Mangement 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. ITEM: 2 AFFINITY GROUP, 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 ------------------ 					 		6/30/96 	6/30/95 	Inc(Dec) ------- ------- ------- REVENUES: 	Membership services 			 77.72% 78.08% 0.42% 	Publications				 22.28% 	 21.92%	 2.52% ------ ------ ---- 						 	100.00% 	100.00%	 0.88% COSTS AND EXPENSES: 	Membership services 			 45.09% 	 42.89% 6.08% 	Publications				 16.56% 	 16.03%	 4.29% 	General and administrative		 14.02% 	 15.98%	 (11.50%) 	Depreciation and amortization		 5.98% 	 6.84%	 (12.06%) ----- ----- ----- 							 81.65% 	 81.74%	 0.77% ----- ----- ----- INCOME FROM OPERATIONS				 18.35% 	 18.26%	 1.38% NON-OPERATING EXPENSES: 	Interest expense, net 			(11.99%)	(11.24%)	 7.61% 	Other non-operating, net		 -- 	 (0.01%) (75.00%) ------ ------ ------ 						 	(11.99%)	(11.25%)	 7.53% ------ ------ ------ NET INCOME BEFORE INCOME TAXES 		 6.36%	 7.01% (8.49%) INCOME TAX (PROVISION) 				 (3.21%)	 (3.48%) (6.82%) ----- ----- ----- NET INCOME	 				 3.15% 	 3.53% (10.14%) ===== ===== ====== 						 SIX MONTHS ENDED ---------------- 						 	6/30/96 	6/30/95	 Inc(Dec) ------- ------- -------- REVENUES: 	Membership services 		 76.47% 76.78% 	 (0.35%) 	Publications			 	 23.53% 	 23.22%	 1.38% ----- ----- ---- 						 	100.00% 	100.00%	 0.05% COSTS AND EXPENSES: 	Membership services	 		 45.02% 	 43.25% 4.15% 	Publications				 19.64%	 17.98%	 9.29% 	General and administrative		 13.28% 	 14.89%	 (10.72%) 	Depreciation and amortization		 6.21% 	 7.12%	 (12.83%) ----- ----- ------ 							 84.15% 	 83.24%	 1.15% INCOME FROM OPERATIONS 				 15.85% 	 16.76%	 (5.37%) NON-OPERATING EXPENSES: 	Interest expense, net 			(12.32%)	(11.88%)	 3.70% 	Other non-operating, net		 -- 	 0.10% 101.39% 		 ------ ------ ------- 							(12.32%)	(11.78%) 4.64% ------ ------ ------- NET INCOME BEFORE INCOME TAXES 		 3.53% 	 4.98% (29.04%) INCOME TAX (PROVISION) 				 (1.78%)	 (2.51%) (28.88%) ----- ----- ------ NET INCOME 						 1.75% 	 2.47% (29.21%) ===== ===== ====== RESULTS OF OPERATIONS Three Months Ended June 30, 1996 Compared With Three Months Ended June 30, 1995 Revenues of $34.9 million for the second quarter of 1996 exceeded revenues for the second quarter of 1995 by approximately $300,000 or 0.9%. Affinity Thrift & Loan (ATL) and Affinity Insurance Group (AINS), operations acquired in the second half of 1995, contributed revenue of $250,000 in the second quarter of 1996. Membership services revenue for the second quarter of 1996 of $27.1 million increased by $114,000 from the comparable period in 1995. This $114,000 increase in membership services revenue is a result of $250,000 in additional revenue from ATL and AINS plus an increase of $833,000 in marketing and commission fee income from RV financing, and health and life insurance offset by a net decrease of $597,000 in club membership revenue and a net decrease of $372,000 in revenues from other member products and services. Publication revenue for the second quarter of 1996 of $7.8 million increased by approximately $200,000 from the comparable period in 1995. Increases of $485,000 in MotorHome and Woodall Publishing revenues were offset by decreases in Rider, Campground Directory, RV Shopper and other publication revenues. Costs and expenses of $28.5 million for the second quarter of 1996 increased by approximately $200,000 over the comparable period. Costs and expenses of ATL and AINS were $630,000 in the second quarter of 1996. Membership services expenses, excluding ATL and AINS expenses, increased $300,000 from $15.1 million in 1996 compared to $14.8 million in 1995. Increases in expenses associated with the development of an Internet Web site, introduction of new credit card and extended warranty program, as well as development of additional NAFE club benefits, were partially offset by reduced marketing and promotional expenses for other membership services and from discontinuance of a direct mail catalog in 1996. Publication expenses of $5.8 million for the second quarter of 1996 increased $238,000 compared to the second quarter of 1995. This increase is primarily due to increased print and paper costs for all publications. General and administrative costs and expenses for the second quarter of 1996 decreased $636,000 or 11.5% from $4.9 million, compared to $5.5 million in the second quarter of 1995. This decrease is attributed to no phantom stock expense being recorded in the second quarter of 1996 compared to $1,000,000 of such expense in the second quarter of 1995, offset by increased wages and other benefits in the second quarter of 1996. Depreciation and amortization expense of $2.1 million decreased $286,000 or 12.1% primarily due to customer list and other intangibles having been fully amortized in prior periods. Income from operations for the second quarter of 1996 increased $87,000 or 1.4% to $6.4 million compared to the second quarter of 1995. An increase of less than 1.0% in total revenues, coupled with increased member services expenses, largely associated with the new business operations, and no phantom stock expense, accounted for the small increase in income from operations in the second quarter of 1996 compared to the same period in 1995. Non-operating expenses were $4.2 million for the second quarter of 1996, compared to $3.9 million for the same period in 1995. This increase of approximately $300,000, or 7.5%, is largely due to increased interest expense on higher average borrowings partially offset by lower interest rates during the second quarter of 1996 compared to the same period in 1995. Net income before taxes in the second quarter of 1996 was $2.2 million compared to $2.4 million for the second quarter of 1995. The increases in income from operations identified above account for the decline. Net income for the second quarter of 1996 decreased $124,000 to $1.1 million, compared to $1.2 million for the same period in 1995. Such decrease was composed of a decrease of $419,000 in club membership services income, $47,000 in publications income, and $369,000 in net operating losses from ATL and AINS, partially offset by a $711,000 decrease in all other costs and expenses, primarily due to the reduction in phantom stock expense discussed above. Six Months Ended June 30, 1996 Compared With Six Months Ended June 30, 1995. Revenues of $67.9 million for the six months ended June 30, 1996 exceeded revenue for the same period in 1995 by $37,000. This slight increase resulted from a $218,000 increase in publication revenue offset by a $181,000 decrease in membership services revenue. The $181,000 decrease in membership services revenue resulted from $489,000 in additional revenue from the ATL and AINS operations acquired in the second half of 1995, an increase of $1,217,000 in marketing and commission fee income from RV financing, and health and life insurance which was more than offset by net decreases of $822,000 in club membership revenue and $1,065,000 in revenues from ERS, Samborees, credit cards and other member products and services. Publication revenue of $16.0 million for the first six months of 1996 increased by $218,000 or 1.4% over the comparable period in 1995, due to an increase of $788,000 in revenues from Trailer Life, Motorhome, Roads To Adventure (established in 1996), and Woodall Publishing which were largely offset by decreases in revenues from the other publications. Costs and expenses in the six months ended June 30, 1996 totaled $57.1 million, an increase of $648,000 or 1.1% over the comparable period in 1995. ATL and AINS costs and expenses were $1.2 million during the first six months of 1996. Excluding the expenses of ATL and AINS operations, costs and expenses in the first six months of 1996 decreased by $582,000. Membership services costs and expenses, excluding ATL and AINS expenses, were $29.3 million for first six months of 1996, approximately equal to such costs and expenses for the comparable period in 1995. Increased expenses associated with the development of an Internet Web site, introduction of new credit card and extended warranty programs, as well as development of additional NAFE club benefits, were offset by reduced marketing and promotional expenses for other membership services and from discontinuance of a direct mail catalog in 1996. Publication costs and expenses totaled $13.3 million in the first six months of 1996, an increase of $1.1 million or 9.3%, compared to the first six months of 1995. This increase is due to higher print and paper costs for all publications and $266,000 of increased expenses for the 1996 introduction of Roads to Adventure. General and administrative costs and expenses of $9.0 million decreased by $1.1 million or 10.7% in the 1996 period. This decrease was attributed to recording no phantom stock expenses in the first six months of 1996 compared to $1.5 million in such expenses in the comparable 1995 period, offset by increased wages and other benefits in the first six months of 1996. Depreciation and amortization costs of $4.2 million decreased $620,000 or 12.8% in 1996 due to certain customer lists and other intangibles having been fully amortized in prior periods. Income from operations of $10.8 million for the first six months ended June 30, 1995, decreased $611,000 or 5.4% compared to the same period in 1995. This decrease is a result of an increase of only 0.5% in revenues coupled with a 1.1% increase in cost and expenses as discussed above. Non-operating expenses of $8.4 million in the first six months of 1996 increased by $371,000 or 4.6% compared to the comparable period in 1995. Such increase resulted from an increase in interest expense largely due to higher average borrowings partially offset by lower interest rates during the first six months of 1996 compared to the same period in 1995. Net income before taxes was $2.4 million for the first six months of 1996, compared to $3.4 million for the first six months of 1995. The decrease in income from operations, combined with increased non-operating expenses, contributed to the $1.0 million or 29.1% decrease in net income before taxes in 1996 over the same period in 1995. For the six months ended June 30, 1996, the Company had recognized a $1.2 million income tax provision compared to $1.7 million in the comparable period in 1995. The effective income tax rate in both periods is 50% which reflects the amortization of non-deductible goodwill. Net income for the six months ended June 30, 1996 decreased $491,000 or 29% to $1.2 million compared to $1.7 million in the comparable period in 1995. Such decrease was composed of a decrease of $750,000 in club membership services income, an increase of $915,000 in publications costs and expenses, and net operating losses of $649,000 for ATL and AINS, offset, in part, by a decrease of $1,332,000 in all other costs and expenses, primarily due to the reduction in phantom stock expense discussed above, and by a $491,000 corresponding decrease in income taxes. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1996, the Company had an undrawn revolving credit facility of $10.9 million compared to $3.5 million at December 31, 1995. The decline in the outstanding revolver borrowings in the first half of 1996 is primarily attributable to receipt in the first quarter of 1996 of the annual VIP Insurance bonus for 1995 and the repayment of an affiliate note receivable, which in the aggregate, totaled $5.8 million. Cash, cash equivalents and investments totaling $6.6 million at June 30, 1996 are primarily restricted for use by the ATL and AINS subsidiaries and are subject to regulatory restrictions on dividends or other distributions to the Company and are unavailable to reduce the revolving credit facility. The operations of Affinity Thrift and Loan, although required to be consolidated with the Company, are recognized as an "unrestricted" or non-guarantying subsidiary as defined in the senior credit facility and the indenture under which the subordinated notes were issued. All assets, liabilities and operations of ATL are excluded from the calculation of covenants under the terms of the respective debt agreements. During the six months ended June 30, 1996, payments under the terms of several phantom stock agreements totaled $2.2 million. Additional phantom stock payments of $1.4 million are scheduled to be made over the next twelve months. Capital expenditures in the six months ended June 30, 1996 totaled $848,000, compared to capital expenditures of $1.5 million during the same period in 1995. It is anticipated the Company will incur an additional $1.5 to $2.5 million in capital expenditures during the remainder of calendar year 1996 to further develop its membership management database systems. Management believes that funds generated by operations together with available borrowings under its revolving credit facility will be sufficient to satisfy its operating cash needs, debt obligations and capital requirements. PART II: OTHER INFORMATION 	Items 1-5: Not Applicable 	Item 6: Exhibits and Reports on Form 8-K: None 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, INC. Date: August 14, 1996				Mark J. Boggess 								Senior Vice President 								Chief Financial Officer 16