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Affinity Group Holding Inc. and the operations of its wholly-owned subsidiary Affinity Group Inc. (AGI) are reporting a net loss for the third quarter, ended Sept. 30, largely due to a continued downturn in the recreational vehicle industry that impacted most of the company’s operating units.
While the company reported that third-quarter sales decreased by 8.9% to $133.3 million from $146.4 million, the net loss for the quarter was $129.5 million compared to a net loss of $3.8 million for the same period in 2007. A key contributing factor, AGI executives pointed out during today’s (Nov. 17) conference call, was the fact that the company incurred impairment charges totaling $128.6 million, including an $81 million charge that “wrote down to zero the carrying value of the preferred interest held by an indirect subsidiary of Camping World in FreedomRoads.”
For the nine months, AGI reported a net loss of $130 million versus net income of $18,000 in the year-ago period while revenue decreased 5.2% to $406.1 million from $428.1 million for the same nine-month stanza in 2007.
Highlights from AGI’s latest financial report:
• Sales for the company’s Media Group, which includes more than 40 RV, marine, motorcycle, snowmobile and ATV titles including RVBusiness, fell 5.0% for the first nine months of 2008, versus the comparable period a year ago, which was primarily the result of reduced advertising revenue. However, this setback, according to AGI CEO Mike Schneider, was partially offset by the expansion of the company’s AGI Events consumer shows division.
“This ad revenue reduction was experienced in our RV-related publications, outdoor powersports related publications and our annual RV directories,” Schneider stated in the Monday morning conference call. “In our consumer shows division, the nine RV and boat shows purchased from MAC Events LLC in January 2008, and the three RV and boat shows purchased from Mid America Expositions, Inc. in February 2008 have produced incremental operating profit of $0.7 million for year-to-date September.”
• AGI’s extended vehicle warranty sales have continued to grow, with policies increasing 2.8% for the first nine months of 2008 versus the comparable period in 2007.
• Membership services revenue of $114.7 million increased $3.2 million, or 2.9%, from a year ago. AGI noted that the decrease in this area was in part due to the changing of the Good Sam Club annual rally from the third to the second quarter.
• Club memberships dipped 4.1% from a year ago, mostly attributable to a 5.0% decline in the Good Sam Club file size “resulting from managements’ decision to scale back direct mail acquisition marketing and target only top-tier modeled names.” Camping World’s President’s Club memberships were down marginally by 1.5% due to a reduction in new store openings and the closing of two stores this year.
• As for Camping World retail stores, same store sales for the first nine months of 2008 were down 15% from the first nine months of 2007. This year, the national retailer opened six new stores and closed stores in Brunswick, Ohio, and Manassas, Va. The company stated in its conference call that it had slowed store growth while its “focus continues on gross margin improvement and expense control.” In addition, the company recently announced that it will consolidate some stores to further improve its cost and expense structure “to better position the company for sustainable returns in today’s marketplace.”
• Affinity’s loyalty credit card program, launched last fall through Barclays Bank, continues to grow rapidly and year-to-date has signed on nearly 19,000 new accounts, with approval rates at 68% and activation rates at 75%.
With regard to the Camping World write-down, AGI CFO Tom Wolfe told conference call attendees: “The results of a third party valuation report by a nationally recognized firm in anticipation of the potential sale of Camping World indicated that the estimated fair value of the Camping World reporting unit was less than book value. This excess carrying value over the estimated fair value of Camping World was primarily due to the decline in the recreational vehicle and camping retail markets leading to lower expected future cash flows for the business and lower market comparables. Therefore, the company recorded a $47.6 million non-cash goodwill impairment charge to its retail segment in the third quarter.”
“In addition,” he added, “the company recorded an impairment charge of $81.0 million this quarter which wrote down to zero the carrying value of the preferred interest held by an indirect subsidiary of Camping World in FreedomRoads Holding Company LLC, an affiliate holding company whose subsidiaries sell and service new and used recreational vehicles. This impairment charge was recorded as a result of the declining performance of FreedomRoads and the recreational vehicle industry driven by overall weakening of the economy, a significant decline in consumer confidence, in addition to limited credit availability to consumers interested in purchasing recreational vehicles.”